Fall is hunting season across the U.S., a time when high-school seniors target their favorite colleges and their parents aim for financial aid.
One factor to consider when applying: the impact of your home’s equity on financial aid. But prepare yourself. It seemingly takes an advanced degree to calculate eligibility, since formulas vary widely from school to school.
“I wish it weren’t so complicated. I study this day and night,” says Paula Bishop, a college financial-aid adviser in Bellevue, Wash.
Almost all U.S. colleges and universities require financial-aid applicants to fill out the Free Application for Federal Student Aid (FAFSA), which doesn’t ask parents about home equity. However, several hundred other schools—many of them elite, private institutions—also require the College Scholarship Service Profile (or CSS Profile), an application created by the College Board for nonfederal financial aid. It asks applicants for the home’s purchase price, purchase year, current value and current debt and determines the home’s equity (value minus debt).
Here’s the catch: Schools that require the CSS profile handle the home-equity information differently. Boston College, for example, looks at 100% of home equity. Stanford University announced last year that it won’t consider home equity all. Cornell University will limit home equity to 1½-times the family’s adjusted gross income. So for a household with $800,000 in home equity making $200,000 a year, home equity is capped at $300,000 (200,000 x 1.5).