Our colleague and college specialist Donna Cournoyer contributed the following update for college planning
The topic of the FAFSA (Free Application for Federal Student Aid) has made frequent appearances in our client letters, especially since the major changes from the FAFSA Simplification Act were rolled out last year in the 2024-2025 application.
Many would say the FAFSA rollout could not have gone worse.
Late opening, lack of accessibility, and late communication of data to schools made for a very unpleasant year for financial aid applicants, as well as financial aid administrators.
There is hope for some improvement this year, although the opening is again delayed with the Department of Education aiming for a December 1 launch for the 2025-2026 form, instead of the usual October 1.
For first-time applicants, this can add additional stress to the already onerous process of preparing and applying to college and applying for financial aid.
Below is a breakdown of the information needed on the financial aid forms, with a focus on asset reporting requirements.
The Application Forms
FAFSA: The Federal application used to determine eligibility for any Federal funds, including Pell Grants, Federal Work Study and Federal Student Loans.
- Required by every school for financial aid applicants
- More limited questions on assets for parents
CSS Profile: The application provided by the College Scholarship Service, which schools can require for their applicants with additional questions for eligibility review.
- Required for approximately 250 schools, mostly private, as a secondary form in addition to the FAFSA for determining eligibility for school grants and funds
- More questions on parent assets which can lower a student’s eligibility for college specific need-based funds
Positive changes to the simplified FAFSA include fewer questions and some changes for 529 college savings account reporting.
- Applicants’ sibling 529 accountslonger need to be reported
- Distributions from any 529 accountfor educational expenses no longer need to be reported as untaxed income
Parents often have a lot of uncertainty about how assets are reported and weighed on the FAFSA and CSS Profile applications. And rightly so, as there are significant inconsistencies on how the Federal government looks at parental assets compared with how colleges view those assets.
Colleges have their own funds and awarding policies and can award their funds as they wish to their applicants.
Asset Comparison and Requirements for the FAFSA and CSS Profile
Parent Assets are counted at 5.64%, and Student Assets are counted at 20% (and in some cases up to 25%) on the CSS Profile.
Home Equity
- FAFSA – Not required
- CSS Profile – Required and considered in eligibility calculation
Equity in Other Investment Real Estate
- Required on both FAFSA and CSS Profile and considered in eligibility calculation
Family Businesses
- Required for both FAFSA and CSS Profile and considered in eligibility calculation
Cash Values of Life Insurance Policies and Qualified Annuities
- Not required on FAFSA
- CSS Profile – Non-Qualified Annuities are countedas assets
529 College Savings Accounts
- Parent or Student Accounts required for both FAFSA and CSS Profile
- Accounts in other names, such as grandparents or relatives are NOT required on the FAFSA, the CSS Profile may ask for this information
- Withdrawals used to pay for college are not included on the forms
Parent Retirement Accounts
- Parents’ personal retirement accounts, such as 401(k), IRA, Roth IRA, pensions, Keough Plans, are NOT required on the FAFSA, but the CSS Profile will ask for these, and could consider them
Other Parent Investments
- Other investments which are non-retirement accounts, such as mutual funds, brokerage accounts and any other non-retirement accounts are required and considered on the FAFSA and CSS Profile
UGMA/UTMA Account
- Required on the FAFSA and CSS Profile, and are in the Student’s Asset section, if the student is the custodian
Interest and Capital Gains
- Will be considered, as they will show in income on your Federal Tax Return
Planning Ahead
If you are a few years or more away from your student applying to college, work with your accountant and financial advisor if you have expected one-time fluctuations in your income, such as the sale of a business.
Your financial advisor and accountant may also have suggestions on how to lower your adjusted gross income (within adherence to any tax laws) in the years leading up to the financial aid applications, which may help increase your eligibility for financial aid.
Final Thoughts
My general advice for completing these forms, especially the CSS Profile:
- Report Accurately
- Don’t Overestimate
- Don’t Overshare
Parents may have conflicted feelings and concerns on sharing their personal information.
Getting qualified guidance for planning for any upcoming income changes in the years prior to college applications, along with guidance on how to answer FAFSA and CSS questions, will go a long way in contributing to your confidence in receiving accurate awards and talking to school counselors about your personal financial situation.