Is your home equity going to hurt your chances of receiving need-based financial aid?
The majority of families don’t need to worry about this because most schools don’t consider home equity. These institutions use the Free Application for Federal Student Aid. The FAFSA doesn’t even ask if the family owns a home. Some of these schools, however, will use an extra form that may ask about home equity.
The approximately 250 institutions (nearly all private) that use the CSS/Financial Aid PROFILE will definitely be interested in your home equity. Schools vary on how they treat home equity, but typically they use some type of cap that’s tied to the family’s income to limit the impact that home equity has on a financial aid award.
A New Jersey Dad and Home Equity
Schools haven’t been eager to divulge how home equity will impact a financial aid package, but net price calculators can help shine sunlight on the process. I came to this realization after a dad in New Jersey contacted me with an interesting story. He told me that he had generated really strange net prices when he used the net price calculators for about two dozen schools on the East Coast.
I was intrigued when Mike sent me the spread sheet with the net price for institutions that interest his bright daughter, who is a rising high school senior.
Before I share the figures, I should mention that Mike, 61, is a laid-off engineer. He only has $20,000 in taxable assets. (Retirement money is not counted in aid calculations.) Last year the family’s income dropped to just $17,000, which gave him an expected family contribution of $0. If you don’t know what a EFC is, here is an explanation:
The net prices at some of the private schools on the list were low cost, which didn’t surprise me since they all had great financial aid policies. Using each school’s net price calculator, here are the schools on his daughter’s list that would represent the lowest cost.
Lowest Cost Schools
- Dickinson College ($0)
- Franklin & Marshall College ($0)
- Lehigh University ($0)
- Rutgers University ($0)
- University of Pennsylvania ($70)
- Georgetown University ($198)
- Haverford College ($2,087)
- Colgate University ($2,026)
- Bucknell University ($2,500)
- Columbia University ($2,500)
- Princeton University ($2,620)
- Dartmouth College ($3,218)
- Yale University ($4,600)
- University of New Hampshire ($5,050)
- Skidmore College ($8,922)
Most Expensive Schools
- Boston College ($48,128)
- Loyola University Maryland ($40,530)
- Swarthmore College ($39,980)
- University of Rochester ($38,500)
- Northeastern University ($35,962)
- Lafayette College ($35,320)
- Villanova University ($39,000)
- Penn State University ($33,134)
- University of Michigan ($23,000)
Because Mike has an EFC of zero, he couldn’t figure out why some schools would expect his family to contribute so much money. I was puzzled by the high figures except for those from the state universities outside New Jersey which are typically not going to be generous to nonresidents.
Many of the schools on the dad’s list use the College Board’s net price calculator so I suggested to Mike that we go through his inputs together. It quickly because apparent to me what the problem was. It was the family’s home equity of $800,000.
Boston College clearly wasn’t going to give this family, which is house rich and cash poor, a break. Neither were plenty of other schools. I was least surprised by Boston College’s figures because the institution is considered aggressive in its attempts to limit factors that could boost a family’s financial aid.
I didn’t see anything else in Mike’s inputs that would have resulted in such wildly different results. Just to be sure, I asked him to eliminate the home equity from his calculations. When he did, the net prices declined for the expensive schools. Here are the screen shots that I took of the net price calculations from Boston College.
Boston College Net Price
Here is the Boston net price using the home equity:
Boston College Aid Without Home Equity
Here is the Boston College net price without the home equity:
Whether home equity will be a factor or not in your family’s chances for financial aid, always use net price calculators to get a personalized estimate of what your aid package will look like at every school on your child’s list. Doing this should help you eliminate the stingiest schools.
Lynn O’Shaughnessy is the author of second edition of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price, which was released in May.