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Does the federal financial aid formula count all parental assets?

The federal methodology for financial aid examines your family's income, assets, and household information to calculate your expected family contribution, or EFC. Your EFC represents the amount of money the government deems you can afford to put toward college costs each year before any financial aid is forthcoming.

The federal methodology counts some parental assets and excludes others in arriving at your EFC (these assets are referred to as assessable and non-assessable assets). The more assessable assets your family has, the higher your EFC. The following assets are excluded from the federal methodology:

  • Retirement accounts (e.g., 401(k)s, all IRAs)
  • Annuities
  • Cash value life insurance
  • Home equity in primary residence
  • Personal items (e.g., cars, furniture)
  • A family farm

Keep in mind that your assets for financial aid purposes are those you own at the time you sign the FAFSA.

Assessable assets are all other assets of the parent. These include items such as checking and savings accounts, money market accounts, certificates of deposit, stocks, bonds, mutual funds, U.S. savings bonds, certain 529 plans, trusts, limited partnerships, vacation homes, investment properties, and business assets.

When a family's total assessable assets are counted, the federal methodology grants parents an asset protection allowance that lets them exclude a certain portion of their assets from the final tally. The amount of the allowance varies, depending on the age of the older parent at the time the student applies for aid--the older the parent, the greater the allowance. For example, for the 2011/2012 school year, the asset protection allowance for a two-parent family where the older parent is 48 years old is $46,200; the figure jumps to $54,300 if the older parent is 54 years old.