(MoneyWatch) - Will your home equity jeopardize your child's financial aid package?
This is a question that worries many homeowners. The good news is that the vast majority of colleges and universities do not care if you possess substantial home equity. In fact, most don't even inquire.
The schools that fall into this category use the Free Application for Federal Student Aid, which doesn't ask families if they own a house. (The does ask about other property.)
Home equity and private colleges
Home equity can be a concern for families whose teenagers apply to schools that use an additional financial aid application called the CSS/Financial Aid PROFILE. You need to disclose the value of your home equity on the PROFILE, but what's unclear is how any of the PROFILE schools use this information. The PROFILE doesn't give any indication about how home equity will be weighed when determining aid awards.
Using net price calculators can help clear up some of the confusion., you can use any school's net price calculator to obtain a personalized estimate of what a particular school will cost.
New Jersey case study
To illustrate how you can determine whether home equity might impact an award, I'm using a New Jersey family as an example.
Mike, who is a laid-off engineer, contacted me after using the net price calculator for about two dozen schools. He reached out to me because the net prices were wildly different. While prices will vary depending on the generosity of schools, some of the numbers seemed out of whack.
Before I share the figures, let me also mention that Mike's family income due to his extended lay off is just $17,000. That puts his expected family contribution at $0. This means, according to the federal financial aid formula, that his family can afford to pay nothing for his bright daughter's freshman year.
When Mike plugged his numbers into each institution's net price calculator, some schools provided a huge amount of financial aid. Here is what Mike's family would have to pay for the most generous schools on his list:
Dickinson College ($0)
Franklin & Marshall ($0)
Lehigh University ($0)
Rutgers University ($0)
University of Pennsylvania ($70)
Georgetown University ($198)
Haverford College ($2,087)
Colgate University ($2,026)
Bucknell University ($2,500)
Columbia University ($2,500)
Princeton University ($2,620)
Dartmouth College ($3,218)
Yale University ($4,600)
In contrast, at other private schools, Mike and his wife would face a huge yearly bill. Here are the priciest schools:
Boston College ($40,728)
Loyola University Maryland ($40,530)
Swarthmore College ($39,980)
University of Rochester ($38,500)
Northeastern University ($35,962)
Lafayette College ($35,320)
Villanova University ($39,000)
The reason for the financial aid disparity
Puzzled by the huge disparity in prices, I asked Mike to share the figures that he used. It didn't take me long to discover the explanation: It was the family's $800,000 in home equity. Some schools took it into consideration, while others minimized the impact or didn't consider it at all.
I double checked my observation by having Mike run the numbers again without including the home equity. The aid packages rose at all the schools that had offered the highest net prices.
It's astonishing to think that a school like Boston College, which says it meets 100% of a student's financial need, would charge so much for a family that is struggling. Actually, Boston College would cost even more - $48,128 - if you strip out the loans that the school would include in the package./p>
Bottom Line: If you're wondering how home equity will impact your potential financial aid award, play around with a school's net price calculator.