If you or your child are applying to college in the next few years, you've probably considered several different ways to pay for it. One is to tap the equity you have in your home, either through a home equity loan or a home equity line of credit (HELOC). But will having a home equity loan affect your eligibility for financial aid? In some cases, the answer is yes. Here is what you need to know about how financial aid applications treat home equi♈ty and home equity loans.

How College Financial Aid Formulas Look at Home Equity🤪

There are two main tools that colleges use when they assess your need and eligibility for financial aid: the 澳洲幸运5官方开奖🔯结果体彩网:Free Application for Federal 🍌Student Aid (FAFSA) and the 澳洲幸运5官方开奖结果体彩网🦹:College Scholarship Service (CSS) Profil💫e. Each treats your hom🅘e equity differently. This is how they ﷽work:

• FAFSA: The FAFSA is used to calculate your Student Aid Index (SAI), an estimate of how much aid you might be eligible for based on your financial resources. It asks about your available assets, including cash, bank accounts, and investment accounts, as well as college savings plans like 澳洲幸运5官方开奖结果体彩网:529 plans, prepaid tuition plans, and 澳洲幸运5官方开𝄹奖结果体彩网:Coverdell Education Savings Accounts. The equity you have in your home doesn't figure into the equation as long as it stays there.
• CSS: The CSS Profile does include the equity you have in your home, along with the value of all your cash accounts. So your aid may be reduced somewhat regardless of whether you leave your equity untouched or take some of it out in the form of a loan and put the proceeds in the bank. However, it gets a little complicated because every school that uses the CSS Profile treats the information differently, with some capping home equity at a certain level and others not counting it at all. Stanford University, for example, ignores both home equity and retirement accounts in its calculations, although the CSS Profile provides that information.

Using a Home Equity Loan to Pay For College

Although the FAFSA and the CSS Profile treat home equity differently, they share one similarity: Both include cash as part of your assets. If you take out a home equity loan, you convert some of your home equity into a lump sum of cash. This means that if🎀 you obtain a home equity loan before you apply for financial aid, you'll have to c♓ount that cash unless you've already spent it.

If you want to use your home equity to💖 pay for college and get around this potential problem, you have several options:

• Consider applying for a home equity loan only after you've filled out the FAFSA form. That way, the cash you receive from the loan won't be counted among your assets for that year.
• A second option is to take out a home equity line of credit (HELOC) rather than a home equity loan. HELOCs allow you to borrow as much (or as little) as you need over a period of years, up to a preset credit line. So you could make a series of withdrawals as the college bills come due, without having a large amount of cash in your bank account at any given time counted against you for aid purposes.

Of course, neither of these approaches will be of much benefit if a college uses the CSS Profile and takes your home equity into account in its financial aid calculations.

The Bottom Line

The money you receive from a home equity loan is considered an asset when you fill out a FAFSA or CSS Profile form, unless you have already spent it. So it can reduce the amount of financial aid that you are eligible for. However, this can vary widely from one college to another, so a call to the financial aid office of any school you're seriously considering could be worth your time.