How do FAFSA assets work, and how can they impact financial aid?

I'm beginning to fill out my FAFSA, and I'm a bit confused about how assets are considered. What exactly counts as an asset? For example, are there specific types of savings accounts or properties that would affect my financial aid package? Also, how do these assets impact the expected family contribution? I want to make sure I understand this thoroughly so that we can accurately report everything. Any guidance or personal experiences would be great to hear!

Asset information on the FAFSA does play a role in determining your Student Aid Index (SAI), which in turn influences your financial aid eligibility. It's a complex process, involving several factors related to your income and assets, but I'll try to break it down for you.

First, let's define what counts as an asset. Assets include money in cash, savings, and checking accounts; businesses; investment farms; and other investments, such as real estate (other than the home in which you live), UGMA and UTMA accounts for which you are the owner, stocks, bonds, certificates of deposit, etc. Notably, the FAFSA doesn't consider some types of assets, including the home where you live, the value of life insurance, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.)

Here's how assets work in the FAFSA's calculation. The FAFSA process includes a certain amount of 'asset protection,' which means a portion of your assets are shielded from the need analysis formula. What's left over is your 'discretionary net worth.'

Next, the FAFSA applies a 'contribution rate' to your discretionary net worth. This results in the 'expected family contribution from assets,' which is part of your SAI. The contribution rate is up to 5.64% for students and their families.

For instance, if you have $10,000 in assets and you qualify for an asset protection of $3,000, this leaves a discretionary net worth of $7,000. The expected contribution from these assets can be calculated as 5.64% of $7000 = $395. This is added to your overall SAI. Remember, though, that the lower your SAI, the more financial aid you can potentially receive.

In terms of strategy, you should avoid artificially manipulating your assets solely for FAFSA purposes, as there are stricter rules surrounding this. It's also worth noting that aid packages will differ from school to school. To get a better sense of your expected costs, you may want to use the schools' Net Price Calculators. Keep in mind that this all gives a general idea - the exact figures could be different based on your specific situation.