Reporting Assets on the FAFSA
The reporting of assets on the Free Application for Federal Student Aid (FAFSA) can be confusing. This guide provides insights into which assets are reported and which are not, as well as some tips on how to report assets.
Report the Net Worth of Reportable Assets
When reporting an asset on the FAFSA, report the net worth of the asset. The net worth of an asset is the current market value minus any debt that is secured by the asset.
Note that debt must be secured by an asset in order to reduce the net worth. Unsecured debt does not reduce the net worth of an asset, even if it was used to buy the asset. The debt must be secured by the asset to reduce its net worth.
For example, if a mortgage on the family home was used to buy a vacation home, the mortgage does not reduce the net worth of the vacation home, since the mortgage was not secured by the vacation home. On the other hand, a margin loan on a brokerage account does reduce the net worth of the brokerage account.
Cash must be reported as an asset, even if the family intends to use it for a future expense. For example, if a family sells their home and intends to use the proceeds from the sale to buy a new home, but the funds are not yet in escrow, the money must be reported as an asset on the FAFSA. Similarly, the proceeds from a home equity loan must be reported as an asset if they remain unspent. Likewise, if the parents have money that they intend to use for retirement, but the money is not saved in a qualified retirement plan, it must be reported as an asset on the FAFSA, even if the parents are already retired.
Reportable assets include bank accounts (checking accounts, savings accounts and Certificates of Deposit), brokerage accounts, money market accounts, UGMAs and UTMAs. They also include investments, such as stocks, bonds, mutual funds, stock options, restricted stock units (RSUs), exchange-traded funds (ETFs), hedge funds, REITs, precious metals and commodities.
Trust funds and emergency funds must be reported as assets.
Reporting College Savings Plans
College savings plans, including 529 college savings plans, prepaid tuition plans and Coverdell education savings accounts, must be reported as assets on the FAFSA. The financial aid treatment of college savings plans depends on the account owner. It is best for the account to be owned by a dependent student or the dependent student’s custodial parent.
Reporting Real Estate
Rental properties usually are reported as investments, not businesses, on the FAFSA. To be reported as a business, the real estate must be owned by a formally recognized business and provide additional services, such as maid service. If the real estate is owned by the family and not deeded to the business, it is considered an investment, even if it is used by the business. A hotel is a business, while a time-share or a vacation home is an investment.
Report Assets as Property of Account Owner
Except for qualified education benefits, like 529 college savings plans, reportable assets are reported as property of the account owner. Custodial 529 plans have special treatment, where they are reported as an asset of the dependent student’s custodial parent instead of as a student asset.
Don’t confuse a Totten Trust (“In Trust For”) with an UGMA or UTMA custodial account (“As Trustee For”). A Totten Trust, which is payable on death, does not become an asset of the beneficiary until the account owner dies. An UGMA or UTMA account is an asset of the child. For example, if the titling of an account is “Parent In Trust For Child”, the account should be reported as a parent asset. If the titling of an account is “Parent As Trustee For Child”, the account should be reported as a child asset.
The family’s principal place of residence (the family home) is not reported as an asset on the FAFSA. (It can be reported as an asset on the CSS/Financial Aid PROFILE form, where the net worth will be capped at two to three times income.) Family farms also are not reported as an asset on the FAFSA, if they are the family’s principal place of residence. Investment farms and real estate, however, must be reported.
Small businesses that are owned and controlled by the family are not reported as assets on the FAFSA. The family must own more than 50 percent of the business. Family members are not limited to family members who are reported in household size. The business must also have less than 100 full-time or full-time equivalent employees.
Qualified retirement plans, such as 401(k), 403(b), 457, pension, annuities, traditional IRAs, Roth IRAs, Roth 401(k), SEP, SIMPLE and Keogh plans, are not reported on the FAFSA. Do not report them as investments. This is a very common error.
Personal possessions, such as cars, boats, computers, software, clothing, jewelry, furniture, television sets, stereo equipment and appliances, are not reported as assets on the FAFSA.