With price gains in most housing markets nationwide over the last few years, parents need to understand how aid formulas treat home equity. The good news: the FAFSA doesn’t consider home equity. The bad news: the CSS PROFILE requests information on home equity, and schools using the CSS PROFILE may calculate your home equity’s value for EFC purposes in one of three different ways:
- They may not include it at all
- They may include it but cap it at a multiple of your income. Typically this is between 1.2 (for schools using the Consensus methodology or CM) and 3x income. For example, if your home equity is $350,000 and your income is $100,000, a CM school would count your home equity as an asset worth $120,000.
- They may include the full value.
If you are a homeowner with considerable home equity, you’ll want to find out how the schools you are interested in calculate its value. Many schools will tell you if you ask.
And don’t forget, the CSS PROFILE treatment of assets is similar to the FAFSA: assets in excess of allowances are assessed at 5%. So even if the full $350,000 of home equity in the example above were counted, it would add a maximum of $350,000 x 0.05 = $17,500 to the family’s EFC.