Home Equity: Will It Hurt My Student’s Chances for Financial Aid?

“What impact does home equity have on my student’s chances of receiving financial aid?”

That’s a question most families don’t think about until they’re filing financial aid forms for the first time.

Many of the families we meet tell us they’ve always assumed you should pay off your mortgage as quickly as possible.

But will your home equity affect the way colleges calculate your EFC (Estimated Family Contribution)? If so, how? Do different colleges treat home equity differently?

The short answer is that yes, different colleges treat your home equity differently.

At some schools, your chances of getting financial aid could plummet if you have a lot of equity in your house. But at other schools, your EFC–and your chances of receiving financial aid–won’t be affected at all. (Not sure what your EFC is? Click here to talk to one of our college advisors!)

The good news is, at colleges that require only the FAFSA, the equity in your home is a non-issue because the FAFSA does not ask about home equity.

However, schools that use the CSS/PROFILE, which include many of the most prestigious colleges in the country, may be very interested in the value of your house.

Even so, you will still see a difference in how these colleges treat home equity when assessing your financial situation.

Many colleges that look at home equity for financial aid purposes will link it to your family’s income. For example, a school might assess home equity at no more than two times the family’s income.

Let’s say your income is $100,000, and your home equity is $350,000.

Normally, schools that use the PROFILE assess home equity (along with other parental assets) at 5% for financial purposes.

  • $400,000 x 5% = $20,000

  • This means, your home equity would increase your EFC by $20,000, significantly diminishing your student’s chances for receiving financial aid.

If home equity is assessed at no more than two times the family’s income, however, we’ll see different numbers.

  • $200,000 x 5% = $10,000

  • Now, the parent’s EFC would increase by $10,000 rather than $20,000.

As you can see, applying to the right colleges for both your student’s academic goals and your family’s financial situation is of paramount importance when planning for your family’s college expenses. Wouldn’t it be helpful to know how colleges will look at your family’s financial picture?

To get started, email cps@enspherecps.com or click here to schedule a free consultation with a member of our team.