Colleges & Home Equity

Before the housing bubble burst, plenty of parents worried that their home equity was going to scotch any chance of receiving college financial aid.

Even in this environment, it’s still going to be a concern for families who have owned a home for a long time.

Here’s what you need to know:

If your teenager applies to a state school, the value of your house won’t jeopardize your financial aid chances. You could live in an oceanfront home in Malibu, for instance, and it wouldn’t make one whit of difference to UCLA or any other public university.

Plenty of private schools, however, will care. They’ll insist on knowing how much home equity you’ve got which may kill your chances for financial aid regardless of whether you live in a modest ranch-style house or wake up each morning to the sound of seagulls.

Paula Bishop, a CPA and certified college planning specialist in Bellevue, WA, tells me that what these private schools do with your home equity number is all over the board and often cloaked in secrecy. “I am shocked by how much financial aid officers don’t tell you or don’t want you to know,” she says.

What’s frustrating is when colleges refuse to divulge how they treat home equity. In February, for instance, Bishop failed to pry from a financial aid counselor at the University of Southern California how the school calculates home equity, which is no small matter in a state with gold-plated real estate. Claremont McKenna College in the Los Angeles area also stonewalled the CPA. “I’ve called them twice and got the same wishy washy answer: ‘Sometimes we use it, sometimes we don’t.’ ”

Before applying to schools, ask them how they calculate home equity. And good luck getting straight answers.

Lynn O’Shaughnessy is the author of The College Solution.

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