How to Manage Assets for Financial Aid

You (and the parent listed on your FAFSA, if needed) will be providing financial information for your 2023-2024 FAFSA^®. The FAFSA will ask questions regarding your income for the 2021 tax year. It will also ask about assets from calendar year 2022. The information input will be used to calculate your expected family contribution (EFC).

Student income and assets are assessed differently than parent income and assets. Here’s what you need to know.

Dependent students will need to provide financial information of their FAFSA parent(s). You will complete two FAFSA financial information sections—one for you (the student), and one for your FAFSA parent.
Independent students, if married, will need to provide their spouse’s financial information. This will be reported in the student’s financial section.
Single, independent students will need to only provide their own information.

What is the income limit for FAFSA

There is no income limit to complete the FAFSA. If your family makes a certain level of income, you may be correct to assume that you may not qualify for much, if any, need-based aid. But you don’t want to rule yourself out. Not all financial aid programs will have the same income criteria to qualify. And not all financial aid is need-based.

The FAFSA is also used to help you apply for certain types of non-need-based aid. For example, Direct Unsubsidized Stafford Loan funds are non-need-based loans. And some colleges may require you to complete the FAFSA to receive any type of aid, including merit aid.

Here’s the bottom line, unless you are planning on paying directly out of pocket, you should complete the FAFSA.

FAFSA Tax Year

You may be wondering which tax year the FAFSA uses. The 2023-2024 FAFSA will be asking for your 2021 tax information. You will have three options when it comes to identifying your tax filing status for tax year 2021:

Already completed
Will file
Not going to file

If you have indicated “Will file” or “Not going to file,” you will not be eligible to use the IRS Data Retrieval Tool to import your financial information into the FAFSA. But that’s okay, the FAFSA will provide you detailed instructions to help you complete the required financial information.

If you completed your tax filing, you may be eligible to use the IRS Data Retrieval Tool to import your financial information into the FAFSA. Using the IRS Data Retrieval Tool is optional, you can always choose to manually input your information.

Having to complete the income section manually is relatively easy if you have the necessary forms ready to go. All versions of the FAFSA will provide you with detailed instructions for the information being asked, even the paper application.

IRS Data Retrieval Tool

The IRS Data Retrieval Tool (IRS DRT) will import relevant information from your filed tax return from the IRS to your FAFSA. Using the IRS DRT does make it easier to complete the financial section of the FAFSA, but it doesn’t provide answers for all financial questions.

For security reasons, the information you import using the IRS DRT will be masked. If you believe there are any issues or concerns with the information reported, you will need to work with your Financial Aid Office. Bring copies of your tax returns so they can complete a review.

For the most part, if you filed an IRS 1040 with a social security number (not an ITIN), and have an FSA ID, you will be eligible to use the IRS DRT. Using the IRS DRT is optional for both you and your FAFSA parent.

You (student and/or parent) can’t use the IRS DRT if:

You did not file your taxes, or you are not planning to file taxes
You filed a foreign tax return, IRS 1040NR, or IRS 1040NR-EZ
You filed a tax return with a Puerto Rico, U.S. territory or Freely Associated State address
You filed your taxes with an ITIN (Individual Taxpayer Identification Number) because you don’t have a social security number
You are married and filed as Married Filing Separately
You are married and filed as Head of Household
For parents specifically, your marital status is “Unmarried and both legal parents living together”
If you filed electronically within the last three weeks, or through the mail within the last 11 weeks—the information may not be available to transfer yet—you can either manually input your information or wait until your information is ready to transfer
If you filed a 1040X amended tax return, you may need to work with your Financial Aid Office to determine your information is correct.

Schedule 1 – FAFSA

The 2023-2024 FAFSA will transfer appropriate information from filed Schedule 1 forms using IRS DRT. If you use the IRS DRT, you will not be prompted to answer the question if you filed a Schedule 1.

If you are not using the IRS DRT, and you filed a Schedule 1, you want to make sure you correctly indicate this on your FAFSA. Reporting a Schedule 1 form is extremely important for low-income families, it can help qualify eligible students for an automatic zero EFC (expected family contribution). Make sure to only include the information being asked.

New change, the 2023-2024 FAFSA removes virtual current as an exception.

FAFSA Untaxed Income

Along with taxed income, you will also be asked questions about certain types of untaxed income.

Here is what you need to report:

Child support received for all children. Do not include foster care or adoption payments.
Housing, food, and other living allowances paid to members of the military, clergy, and other (including cash payments and cash value of benefits). Does not include the value of on-base military housing or the value of a basic military allowance for housing.
Payments to tax-deferred pension and retirement savings plans
Veterans non-education benefits such as Disability, Death Pension, or Dependency & Indemnity Compensation (DIC), and/or VA Educational Work-Study allowances.
Other untaxed income not reported, such as workers’ compensation, disability benefits, etc.
For you, the student only (not included in the FAFSA parent’s section), money received or paid on your behalf (e.g., bills) not reported elsewhere on this form. This includes money that you received from a parent or other person whose financial information is not reported on this form and that is not part of a legal child support agreement.

Untaxed income you don’t need to report:

Carefully read what is being asked of you, and don’t include unnecessary untaxed income.

Don’t include the following:

Foster care benefits
Student financial aid
Earned income credit
Child tax credit
Welfare payments/benefits
Untaxed Social Security benefits
Supplemental Security Income
Workforce Innovation and Opportunity Act educational benefits
On-base military housing or a military housing allowance
Combat pay
Benefits from a flexible spending arrangement
Foreign income exclusion
Credit for federal tax on special fuels
Non-elective pension plan and retirement plan contributions, for example, required employee contributions to public employee retirement systems (Iowa IPERS, Kansas KPERS, etc.)
- Note: Voluntary contributions made to your 401(k), 403(b), IRA, or federal employee TSP accounts will need to be reported as untaxed income on the FAFSA. Any employer contributions are not counted as untaxed income.

Excluded Income: The FAFSA will ask you to identify certain types of income that can be excluded from the FAFSA calculation. Some of these amounts are automatically included in your adjusted gross income.

Income earned from Federal Work-Study and need-based employment portions of fellowships and assistantships
Earnings from a Cooperative Education Program offered by a college
Child support paid because of a divorce, separation, or legal requirement

FAFSA Income Protection Allowance

FAFSA income protection allowance is something that can help you; especially when there is a lot of concern about how income can hurt you in financial aid formulas. Basically, income protection allowance is an amount of income that doesn’t get counted when figuring out your financial aid.

If you are an independent student without dependents other than a spouse that is:

Single, divorced, or widowed, your income protection allowance is $11,820.
Married with a spouse who is enrolled at least half time, your income protection allowance is $11,820.
Married with a spouse who is not enrolled at least half time, your income protection allowance is $18,960.

If you are an independent student with dependents other than a spouse, your income protection allowance will vary depending on how many people are in your household and how many of them are in college. For a family of four with one student in college, the income protection allowance will be $46,040.

If you are a dependent student, the student income protection allowance is $7,600 — meaning there is nothing counted toward your contribution if you have $7,600 or less in yearly taxable and untaxable income.

The parent income protection allowance will vary depending on how many people are in your household and how many of them are in college. For a family of four with one student in college, the income protection allowance will be $32,610.

Income above those income protection allowances is considered your “discretionary” income — and that’s what counts toward your contribution. A student contribution for discretionary income is calculated at a flat 50%. While a parent contribution from discretionary income is on a sliding scale, from 22-47%.

What does that all mean? Well, student income above the income protection allowance will be assessed at a higher percentage than parent income above their income protection allowance.

FAFSA Assets

One of the most popular FAFSA topics is the impact of reporting assets on your FAFSA. Not everyone will be required to answer questions about assets. You’ll get a pass if you are below the income threshold for the year and file certain types of tax forms. Certain states do require you to answer questions about assets to determine eligibility for state aid, even if you aren’t required to answer those questions for federal aid.

What are considered assets on the FAFSA?

Reportable assets (you are required to list these on your FAFSA):

Your cash on hand — this includes whatever you have in your checking and savings account(s) as of the date you file the FAFSA.
Other financial assets/investments, such as brokerage accounts, certificates of deposit (CDs), stocks, bonds, mutual funds, money market accounts, commodities, precious metals, the vested portions of stock options and restricted stock units, exchange-traded funds (ETF), hedge funds, trust funds, private equity, and other investments.
Real estate (other than the family’s principal place of residence), real estate investment trusts (REIT), loans held, installment contracts, trust funds, private equity, and other investments.
Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts, are reported as assets of the account owner (you, the student), not the custodian.
College savings plans (529 college savings plans, prepaid tuition plans, and Coverdell education savings accounts) are reported as an asset of the account owner, not the beneficiary.

Non-reportable assets (you are not required to list these on your FAFSA):

The net worth of your family’s principal place of residence (the family home).
The net worth of a family farm (if it is the family’s principal place of residence and you and/or your parents materially participate in the farming operation).
Any small businesses owned and controlled by your family (if it has less than 100 full-time or full-time equivalent employees).
Qualified retirement plans such as 401(k) plans, 403(b) plans, pension plans, annuities, traditional IRAs, Roth IRAs, Keogh, SEP and SIMPLE plans.
Life insurance policies, including cash value and whole life insurance policies.
Personal possessions, such as clothing, furniture, books, cars, boats, computer equipment and software, television and stereo equipment, music collections, jewelry, coin, stamp, art, and wine collections.

Note: Some of these assets do have to be reported on the CSS Profile^™, including the net worth of the family home, the family farm, and small businesses owned by the student or parents.

How to calculate net worth for FAFSA

Net worth, for FAFSA purposes, is the total of your reportable assets. The FAFSA will determine the net worth for you and your parents separately.

FAFSA Asset protection allowance

Parent assets have an asset protection allowance which is based on the age of the oldest parent living in the student’s household. Parent net worth is assessed at 12% for reportable assets above the asset protection allowance.

Dependent student assets are assessed at a flat 20% rate, so $10,000 in the student’s name will reduce eligibility for need-based financial aid by $2,000.

Independent student assets have an asset protection allowance which is based on marital status and age of the student. The net worth of an independent student without dependents other than a spouse is assessed at 20% over the asset protection allowance. The net worth of an independent student with dependents other than a spouse is assessed at 7% over the asset protection allowance.

Does FAFSA look at savings account?

Yes, the FAFSA does factor in your savings account. The FAFSA will ask you to report all cash on hand. This means you will need to report the balance (on the day you are completing your FAFSA) of all your bank accounts, including your saving account.

Do FAFSA investments include retirement accounts

Yes, and no.

The yes part. The FAFSA will ask you to report untaxed income (for the respective tax year), which includes voluntary contributions to your retirement accounts. This includes the amounts you voluntarily contributed to your retirement accounts, like a 401(k), 403(b), IRA, or TSP plan. It doesn’t include any mandatory contributions, or contributions made by your employer.

The no part. Your retirement account balance is not reported as an asset on the FAFSA.

Do I Need to Report Parent Financial Information?

If you are a dependent undergraduate student: Yes, you will need to report parent financial information for your FAFSA parent(s).
If you are an independent undergraduate student: No, you are not required to report parent financial information.
If you are a graduate student: No, you are not required to report parent financial information.

MORE>>>Who is My Parent When I Fill Out the FAFSA?

FAFSA Guardian Income

If you are asking about reporting financial or income information of a legal guardian, or other guardian (like a grandparent, aunt, foster parent, sibling, etc.), they are not considered your FAFSA parent and you would not report their financial information.

If you are in a legal guardianship, you want to make sure you answered your dependency status questions accurately. If you did answer the questions correctly, and the FAFSA has classified you as a dependent student, you will need to provide parental information. You will then need to determine who your FAFSA parent is and determine if they are willing to help you complete your FAFSA. If they are not willing to provide you with information, or there are other reasons you are not able to contact them, you will be able to note that in your FAFSA. Your application will be flagged and you will need to provide additional information to your financial aid office.

MORE>>>Legal Guardian, and Other Guardian Situations

FAFSA and 529 Plans

When it comes to college savings plans, including 529 plans, this can get tricky. In most cases, you will report your 529 plan in some way at some point.

529 Plan Impact on FAFSA

The owner and beneficiary of a 529 plan play big factors into the way they are reported.

Impact of 529 plans in parent’s name

A 529 plan owned by your FAFSA parent (a parent providing FAFSA information on your FAFSA) will be reported on the FAFSA as a parent asset.

A 529 plan owned by a parent who is not providing information on the FAFSA, will not be reported on the FAFSA. However, any money you receive from this 529 plan will be reported as untaxed income received as “Money received or paid on your behalf” on your FAFSA next year.

Impact of 529 plan in student’s name

If you are a dependent student, you will report this asset as a parent asset on your FAFSA.

If you are an independent student, you will report this as a student asset on the FAFSA.

Impact of 529 plans in the grandparent’s name

A 529 plan owned by a grandparent (or any other family member who did not provide information on your FAFSA), will not be reported on the FAFSA. However, any money you receive from this 529 plan will be reported as student untaxed income received as “Money received or paid on your behalf” on your FAFSA next year.

Will my 529 plan hurt financial aid eligibility?

If the 529 plan is owned by a grandparent, or other family member who is not reporting information on the FAFSA, and the student waits to receive a qualified distribution in their last year of higher education (or at least takes a year off), the 529 plan will not impact the student’s financial aid eligibility.

That was a very specific scenario. In most cases, you can likely expect a 529 plan to impact financial aid eligibility, but this is only one piece of the calculation. You want to consult with a certified financial planner, or legal adviser before making any changes to your 529 plan to increase your financial aid eligibility.

Reducing the Impact of Assets and Income on Your FAFSA

An important thing to keep in mind. Families with enough assets to affect the student’s eligibility of need-based aid, will likely have enough income to affect the student’s eligibility for need-based aid before assets are even considered.

There is a lot of advice out there, from spending down your savings, to shifting assets. Some of these fixes can create other issues. The short-term solution to pay for college can have long-term consequences. If you want to see if there’s an option that makes sense for you and your family, it’s best to discuss your situation with a certified financial planner or legal advisor.

If you want to run some numbers, you can always use the Federal Student Aid Estimator offered by the U.S. Department of Education. You can input different scenarios and see the impact on your estimated expected family contribution.