The FAFSA Formula: Which Parent Assets Count and Which Don’t

When completing the FAFSA for 2025–26 or 2026–27, parent assets play a much smaller role in determining need-based aid than income. Under the U.S. Department of Education’s FAFSA Simplification Act, about 5.64% of parent assets are counted toward the Student Aid Index (SAI), compared with up to 47% of parent income. Knowing what counts, and what’s excluded, helps families plan smarter and avoid costly filing mistakes.

• Reportable assets: Cash, checking/savings, CDs, stocks, mutual funds, crypto, 529 plans (parent-owned), and investment real estate must be disclosed at current value.
• Excluded assets: Your primary home, retirement accounts (401(k), IRA, pensions), life insurance, and personal property are not reported.
• Business and farm assets: Must be reported for 2024–25 and 2025–26; a proposed 2026–27 rule may restore the small-business/family-farm exclusion.
• Grandparent 529 plans: Distributions no longer count as untaxed income starting with the 2024–25 FAFSA, making them aid-friendly again.
• Smart timing: FAFSA values assets on the submission date, reduce reportable balances by paying bills or contributing to retirement accounts beforehand.

When completing the Free Application for Federal Student Aid (FAFSA), one of the most confusing steps for parents is figuring out which assets must be reported and how those assets influence financial aid eligibility. Under the latest Department of Education FAFSA rules, families must disclose certain parent-owned assets, such as cash, savings, checking accounts, and investments, while excluding others like retirement funds and the primary home.

This guide explains exactly how the FAFSA formula treats parent assets, based on official Department of Education data and current financial aid regulations for 2025-26 and 2026-27, so you can accurately complete the form and better understand how your savings impact your child’s Student Aid Index (SAI).

Understanding the Student Aid Index (SAI)

The FAFSA calculates your Student Aid Index (SAI), formerly known as the Expected Family Contribution (EFC), to determine how much financial aid your family can receive. The formula considers four key components:

Parent income is assessed on a sliding scale, reaching up to about 47% of available income after allowances. Parent assets have a smaller effect, with roughly 5.64% of reportable assets counted. That means every $1,000 in parent savings increases the SAI by about $56, so families still retain $944 of that amount toward college costs. Student income is assessed at about 50% after the income protection allowance, while student assets are counted at 20% of their value.

Overall, parent assets have a modest impact compared to income, and saving for college in a parent’s name remains one of the most financial-aid-efficient strategies.

Parent Assets That DO Count on the FAFSA

Understanding which parent assets count on the FAFSA is crucial when estimating your eligibility for federal student aid. The rules changed significantly under the FAFSA Simplification Act, so here’s an up-to-date breakdown based on official guidance from the U.S. Department of Education’s Federal Student Aid Handbook.

Cash and Bank Accounts

Parents must report the value of all liquid assets as of the day the FAFSA is submitted. This includes:

• Checking and savings accounts

• Certificates of deposit (CDs)

• Money market accounts

These balances represent your family’s immediate financial resources and are fully reportable on the FAFSA.

Investment Accounts

You must also disclose all non-retirement investment holdings, such as:

• Stocks, bonds, and mutual funds

• Brokerage accounts

• Tax-free municipal bonds

• Cryptocurrency and other taxable investments

• Trust funds (even if access to the principal is restricted)

Retirement accounts like 401(k)s, IRAs, and pensions do not count toward FAFSA assets.

College Savings Plans

Parent-owned education accounts are included in FAFSA calculations. Report the balance of:

• 529 college savings plans owned by a parent for the student applicant

• Coverdell Education Savings Accounts (ESAs)

• Custodial accounts (UGMA/UTMA) where the student is the owner but considered a dependent

Important: 529 plans owned by siblings or other relatives are not reported. Only include 529 plans where the applicant is the beneficiary and the account is parent-owned.

Real Estate (Excluding Primary Residence)

The primary home where your family lives is excluded, but you must report:

• Vacation homes and second properties

• Rental properties and investment real estate

• Land holdings

To determine net worth, subtract any debts or mortgages tied to each property from its current market value. If the property has negative equity, report it as zero.

Business and Farm Assets (2024–2025 and 2025–2026)

The 2024–2025 FAFSA removed the long-standing small-business and family-farm exemption, requiring families to report:

• The net worth of all businesses, regardless of size or employees

• The net worth of family farms, including land, equipment, buildings, and livestock

• Investment farms

A proposal before Congress would restore this exemption beginning with the 2026–2027 FAFSA, but it has not yet been finalized or approved by the Department of Education. For now, all business and farm assets must be included.

Child Support Received

Starting with the 2024–2025 FAFSA, child support received is no longer treated as untaxed income. It is instead reported as a parent asset, which is generally more favorable for aid calculations. Parent assets are assessed at a much lower rate in the Student Aid Index (SAI) formula than income, reducing the potential impact on financial aid eligibility.

Key Takeaway

Parent assets play a smaller role than income in the federal aid formula, but knowing exactly what counts, and what doesn’t, can help families plan smarter. Always rely on official FAFSA instructions or your college’s financial aid office when completing the application.

Parent Assets That DO NOT Count on the FAFSA

These assets are excluded from the Free Application for Federal Student Aid (FAFSA) calculation and should notbe reported when determining your financial aid eligibility.

Primary Residence

The equity in your primary home is completely excluded from FAFSA reporting, regardless of its market value. You could own a million-dollar home with $500,000 in equity, and it would not affect your aid eligibility. However, some private colleges using the CSS Profile may consider home equity when awarding institutional aid. Only real estate other than your primary residence, such as rental properties, vacation homes, or land investments, must be reported as assets.

Retirement Accounts

All qualified retirement accounts are excluded from the FAFSA asset section, including 401(k) and 403(b) plans, traditional and Roth IRAs, SEP, SIMPLE, and Keogh plans, pension and profit-sharing plans, and qualified annuities held inside retirement accounts.

While balances in these accounts are not reported as assets, any contributions or withdrawals made during the tax year are factored into income on the FAFSA. For example, if you withdraw from a Roth IRA to pay for college, that withdrawal counts as untaxed income and may be assessed at up to 50%.

Life Insurance and Annuities

The following are not counted as assets on the FAFSA: the cash value of whole life insurance policies, term life insurance, variable universal life (VUL) policies, and qualified annuities inside retirement accounts. However, non-qualified annuities and the cash value of certain life insurance policies may be treated differently by colleges that use the CSS Profile for institutional aid, so it’s best to check each school’s financial aid policy.

Personal Property

Personal-use items are not reported on the FAFSA, including cars, boats, furniture, household goods, clothing, and personal belongings. Jewelry and collectibles are also excluded unless they are held primarily for investment purposes. These items are omitted because the FAFSA only considers financial and investment assets, not personal possessions.

Other People’s Assets

Certain family-owned education savings and custodial accounts are not considered parental assets, such as 529 plansowned by grandparents, aunts, uncles, or non-custodial parents, and UGMA/UTMA accounts where the parent is the custodian but not the owner.

Under the FAFSA Simplification Act effective for the 2024–2025 academic year, grandparent-owned 529 plans are no longer treated as untaxed student income when distributions are made, making them more favorable for college funding strategies.

Debts Not Reported

The FAFSA does not require you to report or subtract consumer debts unrelated to reported assets, such as credit card debt, student loans, personal loans, or medical bills. Only debts secured by reportable assets, for example, a mortgage on a rental property, can be deducted when calculating an asset’s net worth, as outlined in the Department of Education’s FAFSA asset rules.

Key Takeaway

The FAFSA excludes your primary residence, retirement savings, personal property, and family-owned assets not under your direct control to avoid penalizing responsible savers. Always verify whether your college also requires the CSS Profile, since it may include a broader range of assets such as home equity or non-qualified annuities in its need-based aid calculations.

How Parent Assets Are Assessed

Understanding the assessment rate helps put asset reporting in perspective:

Under the FAFSA and new Student Aid Index (SAI) formula, the Asset Protection Allowance has been eliminated, meaning nearly all reportable parent assets are subject to assessment. While the formal conversion rate is 12%, the real impact on aid eligibility typically equals about 5–6% of total parent assets, making income a much larger factor than savings in determining need-based aid.

Who Qualifies for Asset Exclusion?

Some families are exempt from reporting assets on the FAFSA. You qualify for the asset exclusion if:

• You qualify for an automatic maximum Pell Grant under current Student Aid Index (SAI) rules.

• You or your parent received a federal means-tested benefit within the past two years, such as SNAP, Medicaid, SSI, TANF, or free/reduced-price school lunch.

• Your parent’s adjusted gross income (AGI) is under $60,000 and they did not file Schedule A, B, D, E, F, or H. They must also have no Schedule C, or if filed, it shows net business income of $10,000 or less.

• Your parent is not required to file a U.S. federal tax return, typically due to income below the IRS filing threshold.

If you meet any of these conditions, you can skip all FAFSA asset questions, regardless of savings or investments. However, income must still be reported to calculate eligibility for need-based aid such as Pell Grants and federal student loans.

Strategic Timing and Planning

Assets are evaluated on the exact date you submit your FAFSA form, not when you start or finish it. This creates a brief window for strategic planning to reduce reportable balances before filing. Paying upcoming mortgage, rent, tuition, or credit-card bills can lower available cash, while making your annual IRA or 401(k) contributions helps since retirement accounts are excluded from FAFSA assets.

Families can also buy necessary college-related items, such as a laptop or car, contribute to 529 college savings plans for all children, or pay large upcoming expenses before filing.

These timing decisions can make a measurable difference. Paying $4,000 in bills before submission could boost your aid eligibility by about $225, while a $6,500 IRA contribution may increase it by roughly $367. Such adjustments help ensure the FAFSA reflects your most accurate financial position without altering your long-term finances.

However, avoid moves that can backfire. Don’t transfer assets to your student’s name, since those are assessed at 20% instead of 5.64%. Don’t withdraw from retirement accounts to cover bills, as that money counts as income, and avoid using life insurance as a hiding place for cash.

Most importantly, don’t spend down assets solely to qualify for aid if it leaves you financially exposed. These strategies comply with Federal Student Aid rules for the 2024–25 FAFSA and can help you maximize eligibility responsibly.

Key Takeaways for Parents

• Assets matter less than you think: Parent assets are assessed at only 5.64%, meaning $10,000 in savings adds just $564 to your SAI.
• Income is the bigger factor: Parent income is assessed at up to 47%, making it nearly 10 times more impactful than assets.
• Don’t be afraid to save: The modest asset assessment rate means you still benefit significantly from saving for college.
• Protect your retirement: Retirement accounts are completely excluded, so maximize contributions before filing.
• Timing matters: File the FAFSA after paying bills and making retirement contributions, and before RSUs vest or bonuses hit your account.
• Business owners note: For 2024-2025 and 2025-2026, you must report business and farm assets. The exemption returns in 2026-2027.
• Grandparent 529s are now safe: Starting with the 2024-2025 FAFSA, grandparent-owned 529 plans don’t affect financial aid eligibility.

Bottom Line

Understanding which parent assets count, and how much they actually impact your financial aid eligibility, can make the FAFSA far less intimidating. Under current Department of Education FAFSA rules, income remains the primary driver of your Student Aid Index (SAI), while parent assets contribute only modestly, roughly 5.64% of their value. This means saving for college in a parent’s name remains one of the most efficient, aid-friendly strategies.

Don’t let fear of reducing aid keep you from building financial security. Prioritize paying necessary expenses and maximizing retirement contributions before filing, since these accounts are excluded from FAFSA calculations. By understanding the rules, timing your application wisely, and keeping assets structured strategically, you can protect both your savings and your child’s eligibility for need-based aid.