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By Ingrid Case
August 13, 2021
A scale that has the lager measuring part in the shape of a house, and the smaller one in the silhouette of a university building.
Kiersten Essenpreis for Money

Most families with college-bound students can name some of the biggest ingredients in a typical college’s financial aid recipe – income, savings and stock investments. But did you know the value of your home can be part of the mix, too?

Dozens of colleges around the country weigh your home equity when figuring out, behind closed doors, what you’ll have to pay for your son or daughter to attend.

Homes are many families’ largest asset — even before the soaring housing market of late. (The average home value in the U.S. has increased 16% since last summer, and Zillow predicts home values will climb 12% higher by next summer.)

The college financial aid formulas essentially expect parents to tap some of that growing asset to pay for tuition. Even if you’re an older parent planning to use your home equity as part of your retirement strategy or a relatively middle-class family who lives in an area with a high cost of living, the results will be the same: having a lot of equity in your home will increase what many colleges expect your family to pay.

“More folks have no idea how much home equity plays in an award, says Paula Bishop, a college financial aid consultant in Kirkland, Washington.

A few colleges outline their home equity calculations clearly on their financial aid websites. In other cases, you may have to dig for the information online or even call a specific school to find out.

But if you do your research about home equity ahead of time, you may have a negotiating point in your favor. Here’s what to know.

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How FAFSA and the CSS Profile treat assets

Families that want college financial aid fill out the Free Application for Federal Student Aid (FAFSA), which the majority of colleges use to determine what a family can afford to pay for college. The FAFSA considers cash, bank accounts, all kinds of investments, 529 plans, pre-paid tuition plans, and Coverdell accounts, among other things, as potential money sources that a family can tap to pay for college. Student assets increase the expected family contribution (EFC) to college costs by 20%. Parent assets increase the EFC by up to 5.64%.

But there are a few important assets that the FAFSA ignores: assets inside retirement accounts, home equity value, and the value of any small businesses that the family owns and controls.

That’s not the case with the longer, more complicated CSS profile. With 241 questions to the FASFA’s 108, the CSS profile is a much more in-depth look at a family’s finances, and part of that look is how much equity you have in your home.

About 200 U.S. colleges — generally schools that are both selective and expensive — use the CSS profile in addition to the FAFSA. But unlike the FAFSA and its set percentages, there is no definitive amount of home equity that the CSS thinks your family should contribute toward college expenses.

Schools count home equity in different ways

Instead, every school that uses the CSS makes up its own number. Try searching for a college’s name and “home equity” to quickly see what that school discloses on its website about its policy. Or you can use this calculator from Edmit, a college advising company. Type in your income and home equity, then choose the school that interests you to see how big a bite of home equity that school would take.

“Different schools use different multiples of home equity,” Bishop says. Some consider 100% of home equity. Others cap the amount of home equity they consider at a multiple of between one and four times household income. Still others don’t consider home equity at all.

The University of Southern California is not considering home equity in its financial aid formula for the first time this year. It follows Stanford University, which made headlines two years ago when it announced it would no longer consider home equity, and Massachusetts Institute of Technology, which stopped considering home equity in 2016. Occidental College, a small liberal arts college in Los Angeles, also stopped weighing home equity for families earning less than $180,000 annually.

Often, two very similar schools, say Princeton and Yale, or Vassar and Skidmore, will count home equity very differently, which could make the difference between your family being able to afford a college or having the price keep you out.

You’ll have to report your home equity each year when you fill out updated financial aid forms. So if your home value is rising while you’re paying down your mortgage, the amount a college expects you to pay will increase. Last year, for example, the typical homeowner’s equity rose by about $30,000. If a school considers 100% of your home equity and expects you to pay 5% of that total toward college costs, your expected contribution would increase by $1,500.

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How to negotiate using your home value

If your student is equally happy to attend two (or more) schools that use the CSS, and those schools take differently sized bites of home equity in figuring your EFC, you have a negotiating position. You could (politely) contact the financial aid office of the school that considers a bigger percentage of home equity and ask if they might be willing to reduce that number, in light of your child’s admission to a school that doesn’t consider home equity at all, or that looks at a smaller percentage of home equity.

Let’s say that you have an annual household income of $100,000 and home equity of $150,000. Your student is deciding between Princeton and Yale. Princeton uses the CSS but doesn’t consider home equity in awarding financial aid. Yale considers 100% of home equity for a family in your financial position, then applies 5% of that number, or $7,500, to your expected contribution. Ask Yale if the school might consider just 50% of your home equity. That would lower your EFC by $3,750 a year.

Bishop recalls a client family whose child was accepted at both the University of Southern California, which has decided to stop assessing home equity beginning in 2021, and Brown University, which considered home equity equal to four times the family’s annual income in its initial financial aid offer.

After the family appealed, Brown lowered the home equity it considered to two times the family’s annual income. The result: $9,000 of additional need-based aid from Brown, which is where the student decided to enroll.

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