Will Your Home Equity Hurt Financial Aid Chances?


Have you given any thought to how home equity might hurt your child’s chances for financial aid?

Luckily, at most state and private colleges and universities, the equity in your primary home is a non-issue.

That’s because most schools only require families to complete the FAFSA (Free Application for Federal Student Aid) when applying for financial aid, which doesn’t even ask about your home equity.

There are just over 200 schools, however, that are quite interested in the value of your house and how these institutions treat home equity varies dramatically.

The schools in this category (nearly all private) include the nation’s most prestigious institutions.  These colleges use an additional financial aid form called the CSS Profile.

Depending on how schools treat your home equity, your chances of getting financial aid could blow up while at other institutions your money timebombodds wouldn’t be jeopardized even if you are living in an exclusive zip code.

How Your House Can Impact Financial Aid

Many schools that assess home equity for financial aid purposes do so by linking it to the family’s income. For instance, a school might assess home equity at no more than two times the family’s income. Let’s look at an example of how this would work:

  • Family’s income: $60,000
  • Home equity: $400,000

Normally, the schools that use the PROFILE formula would assess the home equity (as well as other parental assets) at 5% for financial aid purposes.

  400,000 x 5% = $20,000

In this example, the home equity value would have boosted the expected family contribution (EFC) by $20,000 (a significant hit!) if the school didn’t link the home equity to income. Put another way, the home equity would have decreased a student’s chances for financial aid by $20,000.

By the way, if you don’t know what an EFC is, read this post:

Do You Know What Your EFC IS?

But now let’s look at what happens when the school ties the home equity assessment to no more than two times the family’s income of $60,000.

$60,000 x 2= $120,000

In this example, the school would only use $120,000 of home equity this family’s aid calculation.

120,000 x 5% = $6,000

So in this example, the parent’s EFC would rise $6,000 rather than $20,000.

How Individual Schools Treat Home Equity

If you hope to qualify for financial aid — and the more expensive the school the more likely you will – it’s important to know how individual schools treat home equity. To help you with this effort, I am sharing with you the following spreadsheet of the home-equity policies of more than 100 colleges:

Home Equity Spreadsheet

The spreadsheet comes courtesy of Paula Bishop, a friend of mine, who is a CPA in Bellevue, WA, and a financial aid expert. She contacted the schools about their home equity policies this summer, but keep in mind that schools can change how they assess home equity at any time so don’t just depend on this list.

Schools that Ignore Home Equity

As you’ll see from the list, some PROFILE schools don’t consider home equity at all, which is obviously the best scenario. Institutions in this smallest category include:

  • Bard College
  • California Institute of Technology
  • Cooper Union
  • DePauw University
  • George Washington University
  • Hamilton College
  • Harvard University
  • Massachusetts Institute of Technology
  • Princeton University
  • University of Chicago
  • University of Virginia
  • Ursinus College
  • Whitman College

Schools That Hit Home Equity Hard

On the other extreme, some schools use the full weight of parents’ home equity to help determine financial need, which can seriously hurt aid changes.  Here are some examples:

  • American University
  • Babson College
  • Bentley College
  • Boston College
  • Emory University
  • Holy Cross College
  • Lehigh University
  • Loyola University Maryland
  • Northeastern University
  • Sarah Lawrence College
  • Tulane University

Some schools that take this draconian approach will consider parent appeals, but how many families even know this is a possibility? In fact, parents typically won’t even know why their aid packages seems so paltry.

It’s highly unlikely that parents are going to trace a poor award back to their home equity. But now everyone reading this knows this is a possibility and can appeal.

Schools That Limit Home Equity Hit

Other institutions use a home-equity cap that’s tied to the family income so it’s less likely that someone who is house rich, but cash poor will be penalized. The home-equity caps below range from 1% to 4%, which is a huge span.

Here are a few schools in this category:

  • Amherst College (1.2x)
  • Barnard College (1.2x)
  • Bucknell Univesity (2x)
  • Cornell University (1.2x)
  • Dartmouth College (1.2x)
  • Emerson College (3x)
  • Haverford College (1.2x)
  • Kenyon College (4x)
  • Lewis and Clark College (2x)
  • Rice University (2x)
  • Tufts University (2x)
  • University of Rochester (3x)
  • Vanderbilt University (2.4x)
  • Wake Forest University (2x)
  • Washington University, St. Louis (2.2x)

More Advice…

You should email schools to ask how they treat home equity so you have a record of their responses later on if you end up appealing a financial aid award.

Keep in mind that not all schools will be forthcoming with how it treats home equity.

By the way, how schools treat home equity can also depend on how desirable an applicant is. If a university is excited about an applicant it can ignore home equity or be more lenient on how it is assessed.

One more thing….

If you use the EFC calculator on the College Board’s website (and I highly recommend you do!), you should know that the calculator for the institutional aid methodology uses 100% of your home equity against you.

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  1. Hello – my oldest is in 11th grade so we’re just starting to do some serious research about all things financial aid. We own our home in Brooklyn, and my grandparents purchased a condo at the Jersey Shore in 1985 which has grown in value considerably over the years. The title is currently under my mother and my grandmothers name. My grandmother passed in 2004 and my mother is ready to pass the responsibility of the place to me and my brothers. If we revise the title and have all 3 of our names listed as co-owners of a property that is roughly $350K, will 1/3 of that count against me when I apply for aid since it’s a second home?

    1. Post

      Hi Dina,

      Yes, if you own property in your own name, you need to include your third of the equity on your financial aid forms. That money will be assessed at 20% for the FAFSA and 25% for the CSS Profile. If your mom held the property, it would be assessed at up to 5.64% for the FAFSA and 5% for the Profile.

      Run the number on each school’s net price calculator to see how it would impact need-based financial aid. If need-based aid is a possibility, it’s always better to have assets in a parent’s name.

      Lynn O’Shaughnessy

  2. Pingback: The Ultimate Guide to Completing the CSS Profile | Going Merry

  3. Hi, my husband and I sold our 1st house on 2017, and we we’re able earn $40,000 out of the sale. It is declared on our 2018 taxes. 2018, less than a month we were able to buy a new house using the money we made from our first home. The financial aid advisor at the school I’m applying added horn equity to our gross income. I was unable to get any Pell grant do to this. Can we exempt our home equity earnings from filing fafsa?. That was our primary residence and we used that money to move to our new home

    1. Post

      Hi Anna, Home equity for a primary house is irrelevant for financial aid purposes when filing out the FAFSA. Money sitting in the bank at the time the FAFSA is filed is counted for financial aid purposes. Parent assets are assessed at up to 5.64%.

      Perhaps your child applied to a school that uses the CSS Profile. Most of those private schools do use home equity. Filing only for aid at schools that use the FAFSA exclusively would solve this problem.

      For Profile schools, parents can appeal the use of home equity and how heavily it is assessed. It’s best to link home equity to income which can benefit people who are cash poor an house rich.

      Lynn O’Shaughnessy

      Lynn O’Shaughnessy

      1. Hi Lynn,

        My D got an ED admission from Northwestern.
        Last week we received a Financial award letter and it took away our joy of celerbration. Total cost $81K and our family contribution is $76K. Yes, you heard it right.

        This is out financial status.
        Living in NJ.
        Household income $160K
        Home purchased $810K with 450K down payment.
        Current value at Zillow $ 960K (not true, we purchased this house with poor conditions they require repairs and improvement.s But we never done any improvements, so the market value would be $ 830K I think)
        529 for my D and 10th grade son $40K
        Mutual fund $50K

        We ran NPC on 10/30/2019 and they gave us $48K family contribution ( I input current home value at $820K as I mentioned above)

        Now we are just shocked..
        Have you seen anyone experienced case like us?? I am bringing $ 8K /mon after tax from my work. $76K/ year?? $6K per month??? How on earth can anyone do this?Is this something that we can appeal and get it adjusted?

        1. Post

          Hi James,

          I think what is clear is that Northwestern is too expensive for your household. Even if the NPC was correct and the EFC was $48,000, how would you pay this? You would drain all the money you have saved for TWO children in a little over a year. Even if you could get the EFC down to $48,000, it would be financial suicide to do this.

          Your situation reminds me of a reader who shared his story of his daughter who got into Northwestern (full-pay) and the parents told the daughter she could not go, She took advantage of a tremendous scholarship that she got from U. of Pittsburgh. Here is the link to this family’s story: https://www.thecollegesolution.com/saying-no-to-a-dream-college-a-success-story/

          Clearly your daughter is extremely smart so she could get excellent scholarships at many schools, but not at the most elite research universities. If you think your daughter needs to go to Northwestern to snag a golden ticket, she already has it. High-income students will do well wherever they go. Here is a resource guide from my online course that discusses this in detail: https://www.thecollegesolution.com/wp-content/uploads/2019/10/Does-Where-You-Go-to-College-Matter_-.pdf

          I know if would be painful, but letting your child go to Northwestern would be financial suicide.

          If you persist, and I hope you do not!, you could ask the school why there was a discrepancy between the NPC and the award. You could also appeal the use of home equity or to reduce its influence.

          Lynn O’Shaughnessy

          Lynn O’Shaughnessy

          1. Hi Lynn,

            Thanks for your advice..and well noted. But the situation is that we signed the ED contract and we can’t be released from the contract.. and we have only 3 days for the regular applications..

            My question is that with our financial status, whereever we go we will be ending up paying high price tag anyway??

          2. Post

            Hi James,

            You can definitely walk away from an ED acceptance. No school can force a child to attend its institution. That is absolutely not true that you would pay an exorbitant price at all schools. The vast majority of colleges give good scholarships to smart kids, but not the elite research universities, such as the Ivies, Stanford, MIT that can charge full price to high-income families because these families believe there is something special about these trophy schools. It’s actually a buyer’s market at most schools.

            There are plenty of master’s level universities and liberal arts colleges that would give this child a healthy scholarship, as well as state universities across the country. And she should apply to state schools at whatever state you are in. State schools routinely have honors colleges that can make the education for top students seem more like a private education.

            As a practical matter, many schools accept applications after Jan. 1 or Jan. 15 or whatever their stated deadline. Also a new rule, pushed on schools by the U.S. Justice Department during an investigation of college anti-competition practices, states that schools can continue to recruit students well past the May 1 deposit deadline. Many schools (not the elite ones) were doing this already.

            I know this is an emotional time for your family, but I would urge you not to get wrapped up in the emotion of this acceptance and ultimately commit financial suicide. Good luck.

            Lynn O’Shaughnessy

  4. Hi
    I need your guidance
    I have immigrated to NY last year in november and I waited till now to apply for financial aid and take sat .. But now after 10 months I applied to a Nassau community college and I am vetting acccepted but despite being a permanenet resident I am an out of state student for them and they are goinv to charge me double tuition. I was basically trying to get in there to save a year. What should i do ? Should i go,for double tuition? Or wait and apply for spring semester in colleges when i would be accepted as an in state student because I would be living here for a year then .?
    Your help is highly appreciated
    Thank You

    1. Post

      Hi Madeega,

      I would wait until spring so you wouldn’t have to pay double. I’m assuming there is no reason for the rush. Once you are a resident you can then also be a resident for SUNY and CUNY schools in the future.

      Good luck.

      Lynn O’Shaughnessy

  5. So if I choose to pay off the house versus keeping the extra cash in a bank account, my home equity increases and may be looked at. However, am I hurt on the other end either way because I now no longer have the added expense of a monthly mortgage payment? I assume aid applications look at monthly expenses????? I am a beginner in this area – son is in 8th grade but I want to be proactive!

  6. So if I choose to pay off the house versus keeping the extra cash in a bank account, my home equity increases and may be looked at. However, am I hurt on the other end either way because I now no longer have the added expense of a monthly mortgage payment? I assume aid applications look at monthly expenses????? I am a beginner in this area – son is in 8th grade but I want to be proactive!

  7. Lynn, I’m not sure how current this information. Is it still true that Santa Clara University doesn’t consider home equity? I’ve been unable to find this information anywhere. Thank you.

    1. Post

      Hi Kate,

      According to what I have, Santa Clara now uses home equity. You can double check that by running its net price calculator with home equity and then running it again without it. Like many Catholic universities in major metro areas, Santa Clara is a stingy school with financial aid.

      Lynn O’Shaughnessy

  8. Thank you for the article, very informative. I wished I had read it before my son started applying to schools. His three top choices all look at 100% of home equity. We are an average family with average income, average savings and average size home. There is no way we would every consider taking out a loan on our house. I will be writing an appeal to the schools and hope they reconsider. I guess the only way you can go to a private school is if you are wealthy enough to afford the tuition or very poor. Average families like us have to settle for public colleges.

    1. Thanks, Lynn. Their NPC doesn’t ask for home equity, so that made me hope they don’t count it. But maybe it’s just not up-to-date with their current practices.

      1. Post

        HI Kate,

        You can ask a school if it assesses home equity. It’s usually just the schools that use the CSS/Financial Aid PROFILE that do.

        Lynn O’Shaughnessy

    2. Laura W
      Any luck on the appeal? We are in the same boat. My child was accepted into Union College and I had no idea that some colleges use 100% of home equity.

  9. Tufts University does consider home equity, and it really hit us hard. We are middle income, 3 kids, over 50, and proud to have a modest home about 75% paid off. That equity is expected to be used for tuition. There is not way we would be able to pay the “expected family contribution” they came up with. We have no other assets, so it is either starve or take out a home equity loan. Beware!

  10. Tufts University counts your home equity! We are a middle income family, 3 kids, modest 3 bedroom ranch home, may husband and I are over 50. We have about 75% of our mortgage paid off, and no other assets such as vacation homes, boats, etc. Our heart sank when we got our expected family contribution – there is no way we can afford Tufts without taking out a home equity loan to cover the costs. It feels very unfair to me. Beware, Tufts will expect you to dip into your home equity!

  11. Lynn,
    I enjoyed the article on the impact your home equity and how college savings plans can impact the amount the kids will qualify for financial aid.
    Would you mind giving me your thoughts…..
    While the amount in College Savings Plans will have a minimal impact on the amount of financial aid – can the impact be avoided completely if my wife is listed as the owner of a 529 plan and I am listed as the beneficiary? My daughters are not on the accounts at all.

    Thank you,
    Bob McDonald

  12. According to MIT’s website, home equity will no longer be considered in financial aid calculations: https://due.mit.edu/initiatives/financial-aid

    MIT’s Commitment to Access and Affordability through Financial Aid
    In 2016-2017, the financial aid budget will increase 10.4% to $114.2 million
    Home equity will no longer be considered a factor in the calculation of financial aid starting in the 2016-2017 year

  13. I think your newsletter is amazing. How do I consider hiring you for some facet of this process. We have a college counselor and have been using a company to file our FAFSA’s but they’re not very good in complicated scenarios. We have 2 freshmen in college, 1 entering this year, and 3 more to go. Our next one is a Sophomore. We just visited Stanford, and he’d like to stay in California, close to the ocean. UC Santa Barbara is his safety school. Stanford would be amazing, but I’m not sure how much it would cost us.

    1. Hi Katherine,

      I am so glad you like my newsletter! I do not have private consulting clients, but I do offer an online class – The College Cost Lab – that shares many ways to cut the cost of college. In my next class, I am also offering a detailed guide on how to create a great college list. People in my class also get to ask me questions during the entire eight weeks of the self-paced course.

      My next class will start up in June. I hope you decide to enroll. Here is the link to learn more: https://www.thecollegesolution.com/college-cost-lab-sales-page

      Lynn O’Shaughnessy

  14. I have 2 rental house question for CSS profile. Does “real estate equity exclude mortgage” means house fair market value minus mortgage? And can I use county’s access net market value for property tax as house fair market value?

    Thank you!

  15. Hi,
    I was wondering whether it matters for financial aid calculations, what part of your mortgage is paid of.
    Thank you.

    1. Hi Maria,

      What counts is your home equity. You subtract what you owe (mortgage, second mortgage, home equity line balance)from the value of your home and that’s your home equity.

      Lynn O’Shaughnessy

  16. I’m interested to see if anyone knows what source a private college uses when assessing the market value of a property. Our yearly county property tax assessment lists both the assessed value and the market value of our home. I was flabbergasted when I plugged our address into the zillow.com website and saw that our home’s value was listed at nearly $1million more than the market value listed on our county tax assessment. How is this possible and how could one explain this to an admissions officer?

    1. Hi Lisa,

      I’d suggest using the market value or the assessed value of your house. Don’t use Zillow if the value is higher. There is no one right source to get this figure. You could also ask schools what they would like.

      Lynn O.

      1. They use Zillow . Boston College do not care about the income being low or any other circumstances. They do 6 percent of every property based on Zillow

  17. Although I know it is brutal, I think it really is only fair if they take home equity into consideration. Some families do not own their home, and they should receive more financial aid than a student whose family does own a home, all other things being equal. I would assume an appeal might help someone in a situation where they live in an area with a housing slump, and even if a family would chose to sell or refinance their home to help pay for college, they might not be able to. Let’s face it- many of us own homes, cars, have a 401K, etc. Many great schools offer merit money. Public universities are always an option as well.

  18. This home equity issue strikes a chord with me. We purchased a modest home for $250,000 over 17 years ago. It is currently worth between $600,000-$700,00. We cannot afford to carry more debt and if we sell the house, we would most likely have to leave our school district because there is nowhere to trade down from what we currently have. I have a student heading to college in 3 years and two younger children. I have done estimates for my EFC. There is a question about tuition for younger students in the house. Is there any allowance for the fact that my home equity permits my children to stay in school? Would I be better off selling the house and putting them in private school? I feel like I am painted into a corner.

  19. Hello Lynn,

    This exact topic has been on my mind since I will be completing the CSS profile in October for a handful of colleges and universities and I am very anxious about the effect our home equity will have on my daughter’s financial aid package.

    What is the fair and acceptable way to calculating home equity? Is the home value listed on the property tax bill an option for determining equity?

    Thank you for your input.

  20. So they’ll force you to take on a equity loan or a second mortgage if you happen to live in a rich zip code (regardless of whether you actually are)? That’s brutal…!

      1. A few years ago my daughter was accepted at Boston College. They hit us hard with home equity but thanks to all the advice I’ve read here and with the help of Paula Bishop I did appeal. I could not have afforded the payments on a home equity loan and couldn’t move because I still had another daughter in high school. Boston College doubled my financial aid award after explaining all of this to them so it is worth fighting for. In the end my daughter decided on McGill in Canada because it was much more affordable and we have been thrilled with the decision but wanted to share my experience.

  21. Probably a faster way to find out how a university takes home equity into account when calculating expected family contribution is to just run Net Price Calculator at collegeboard.com twice. Once with your current Home Equity and once without any. Subtract the two numbers.