Paying for College

Assets, Equity, & Financial Aid

Question: When you are applying for financial aid from an institution such as Yale what assets are looked at in the process in addition to income? Does a parent's 401k retirement plan and the asset value of a home fiqure in the ability-to-pay equation?

Colleges approach financial aid with different "methodologies," and you should feel free to ask officials at each school on your list to explain their process. Many institutions, like Yale, that require the CSS PROFILE will consider home equity when making aid decisions. However, most will put a "cap" on the amount of equity that figures into an aid calculation. That cap is typically the household income multiplied by three.

Colleges will also review all assets listed on your finaid forms, but--says one of our financial aid advisors--"assets typically affect the bottom line far less than most people believe." In other words, it's income that will make the greatest difference in the size of an aid package. If a family has large assets, they are generally reviewed in conjunction with other family financial information. For instance, if a student has older parents who are at or near retirement age and don't have a pension or retirement fund, then their assets will weigh less heavily on an aid decision than they might under different circumstances (e.g., younger mom and dad with a whopping 401k).

Speaking of 401k plans, our expert also said that the accumulated assets in your 401k won't be considered when aid decisions are calculated; however, once your child is in college, then the amount of income you defer each year will be counted as untaxed income, which will definitely affect aid awards.

Keep in mind that any extenuating circumstances that don't fit on those nasty little lines on the financial aid forms can be explained in a cover letter to financial aid officers. You can also make a phone or in-person appointment with the finaid folks at the colleges on your list if you have questions about how your aid application will be reviewed or even about how to report certain situations. Once an aid package has been determined, there is often wiggle room, if you feel that it doesn't meet your needs. When appealing aid packages, remember that--as with most things in life--you catch more flies with honey. Act appreciative, not entitled!