By Mary Nickeson, Senior Vice President, Invite Education

February 23, 2021


One common misconception about paying for college is that parental assets and savings will greatly hurt your child’s chances of receiving financial aid.

Some parents hesitate to save for college, believing that colleges will expect most of their savings to go toward tuition, resulting in their child forgoing substantial financial aid dollars. However, if families routinely save using a 529 plan they are generally in a much better college savings position overall. 

While assets do matter to varying degrees depending upon numerous factors, parents’ stress about their savings and investments is usually worse than the actual impact of their assets on their financial aid determinations. This is more likely to be true for moderate to lower-income families. The following information from the U.S. Department of Education explains why assets may play a smaller role than you’d think.

What Matters Most in Calculating the Expected Family Contribution (EFC)

  • Parental assets are calculated at up to 5.64% through the Free Application for Federal Student Aid (FAFSA). That means of $10,000 in savings, approximately $564 (or less) would be counted toward the EFC, potentially reducing a financial aid package by $564 (or less).
  • Parental and student income are generally the primary determinants of financial aid.
  • Parental income is counted at a rate of 22% to 47% through the FAFSA.
  • Student income is counted at a rate of 50% after taking into consideration the student’s income protection allowance ($6,970 for 2021-2022).
  • Student assets are calculated at up to 20%
  • For families with dependent students where the parental adjusted gross income is under $50,000, assets are generally not counted at all.
  • The FAFSA also includes two simplified financial aid formulas, the Simplified Needs Test that excludes assets and the­ Automatic Zero EFC.
    • Each of these formulas combines a parent income threshold—less than $50,000 and $26,000 respectively, with a set of other eligibility criteria.
    • The Simplified Needs Test income threshold is expected to increase to $60,000 for 2023-2024.
  • For dependent students who do not qualify for a simplified EFC formula, there are generally key protections for certain parent-owned assets, including home equity and retirement funds, and an overall asset-protection allowance that shields some savings.

The Importance of Saving and Completing the FAFSA

Each fall, high school seniors and college students need to complete the FAFSA to be eligible for nearly all types of financial aid in the following school year. The FAFSA collects information on parental and student income and certain assets that the government uses to calculate the amount it expects you to pay annually for college—the Expected Family Contribution (EFC).  The basic formula for calculating your eligibility for financial aid is the Cost of Attendance at a college minus your EFC.

Keep in mind that some colleges are not able to meet the student’s full financial need, and loans may be offered by the college to meet your total need. Since parental assets do not play as large of a roll in the overall formula to determine your student’s need for financial aid, the more dollars you save now, the fewer you may need to borrow and pay back with interest in the future.


About the author:

Mary Nickeson is the Senior Vice President at Invite Education. Invite Education provides customized calculators and decision-support tools to help families, employees, and advisors make college-funding decisions with confidence.