How 6 Different Assets Can Affect Your FAFSA and Financial Aid Eligibility

How much do your assets affect your financial aid eligibility? It depends on who owns them and what type of assets they are. The differences can be worth thousands of dollars in financial aid.

To qualify for aid you first need to file the Free Application for Federal Student Aid (FAFSA). The information you provide on the form is used to calculate your Student Aid Index (SAI), which determines your federal aid eligibility.

Even parents and students who have some savings often still qualify for aid, but knowing how different assets are counted can help you prepare and maximize your aid eligibility.

FAFSA and Assets: What does FAFSA Look at?

It’s important not to declare unnecessary assets on your FAFSA form, as this error could cost you dearly in financial aid. Knowing which assets are counted by FAFSA and which are not may also allow you to shelter your assets in order to maximize financial aid eligibility.

Some of the assets that need to be reported on the FAFSA include:

Equity in investment real estate (but not your primary residence)
Cash in savings/other bank accounts
UGMA/UTMA accounts
Stocks and bonds
Mutual fund assets
The value of 529 plans and Coverdell ESAs
Commodities

Note that cash gifts to students are no longer counted on the FAFSA, making it easier for grandparents or others to help pay for student expenses in college without affecting financial aid.

Assets that are not counted by FAFSA when determining your SAI include:

401(k) and Roth and traditional IRA accounts (though withdrawals from Roth IRA accounts will be counted as untaxed income)
Cash values of whole life insurance policies and qualified annuities
SIMPLE, KEOGH, and pension plans
Annuities

Do Parents’ Assets Affect Financial Aid?

Both parent and student-owned assets can have an impact on financial aid eligibility. However, generally speaking, parent assets have a more limited impact because parents are expected to contribute a smaller proportion of their wealth to pay for their child’s college education. The SAI assumes that parents should use up to 5.64% of their assets (those counted by the FAFSA) to help their child pay for college.

Note that, starting with the 2026–2027 school year, the formula has restored an exclusion of the following assets:

The net worth of a family-owned business with 100 or fewer full-time (or full-time equivalent) employees.
The net worth of a farms on which the family resides.
The net worth of a commercial fishing business and related expenses, owned and controlled by a family.

Those assets should no longer be included on the FAFSA form as of July 1, 2026.

How Much do Student Assets Affect FAFSA?

Student assets are weighted more heavily on the FAFSA than parent-owned assets.

Students are expected to contribute a higher proportion of their assets, up to 20%, to pay for their own college education. Therefore, student assets typically can have a greater impact on financial aid eligibility than their parents’ assets.

UGMA/UTMA accounts and any other cash or savings accounts or investments owned by the student would be considered a student asset.

6 Common Assets and How They Affect Financial Aid Eligibility

1. Retirement accounts

The good news: The value of your 401(k) and Roth and traditional IRA accounts are not counted at all when determining your SAI.
The bad news: Although you can take a penalty-free withdrawal from a Roth IRA to pay for college, the entire amount you withdraw will count as untaxed income on the FAFSA*.
When computing SAI, as much as 50 percent of income can be considered available funds to pay for college. Remember: higher SAI means less financial aid eligibility!

*Beginning in the 2017-18 school year, the FAFSA started using the prior-prior year’s income as ‘base year’ income

2. Equity in your home

Home equity is the difference between the market value of your home and the amount you owe on it.
This amount is NOT counted as an asset on the FAFSA, but it is included on the CSS Profile form, which typically caps it at 1.2 to 3 times income.
Home equity in investment real estate, such as a second home, does count on both the FAFSA and the CSS Profile.
When calculating the net worth of an asset, you can subtract only debts that are secured by the asset. So, if you used a home equity loan on your principal place of residence to buy a second home, the full value of the second home must be reported as an asset on the FAFSA. The home equity loan does not offset the market value of the second home, since the home equity loan is secured by the principal place of residence and not the second home.

3. UGMA/UTMA accounts

Custodial accounts are considered a student’s assets on the FAFSA.
20 percent of a student’s assets are counted on the FAFSA, 25 percent are counted on the CSS Profile.
Any interest, dividends or capital gains reported on the student’s income tax return is also counted as income on the FAFSA and assessed at 50 percent*.

*Since the 2017-18 school year, the FAFSA uses prior-prior year’s income as ‘base year’ income

4. Value of insurance policies and annuities

Cash values of whole life insurance policies and qualified annuities are not reported on the FAFSA.
However, non-qualified annuities are counted as assets on the CSS Profile, a form used by many schools to determine non-government aid eligibility.
Keep in mind that there are also a number of other important differences between the FAFSA and the CSS Profile.

5. Mutual fund assets

The value of a mutual fund will count as an asset on the FAFSA.
Distributions from a mutual fund to pay for college will count as income on the FAFSA*.
Dividends and capital gains that are reported on Form 1040 will also be counted as income on the FAFSA.