How Home Equity and Other Assets Affect Financial Aid
With college costs at an all-time high, it is no wonder that parents are looking for ways to increase their financial aid eligibility. There is a lot of advice flying around the rumor mill about ways to get more financial aid—some of it true, a lot of it false, and much based in kernels of truth. Among these questionable pieces of advice is the common refrain that you ought to pay off your house in order to get more financial aid.
Like many words of financial aid wisdom garnered from one’s cousin, neighbor, or even the internet, this advice is based in some reality. It is true that the federal financial aid formula excludes your home equity from its calculations. Therefore, if you had $100,000 burning a hole in your pocket, it would be better for federal financial aid purposes to have this money in your house than in an asset included in the aid formula, like a bank account. Unfortunately, this strategy of “hiding” money in your home is not the magic wand many hope it will be, and it often ends up backfiring on families for a few different reasons.