FAFSA Asset and Home Equity Loan?

[calagold]

<p>We bought our house long time ago, so we’ve built up some equity. In 2006, we took out a low-interest $300,000 home equity loan to pay down the original $50,000 mortgage and parked the rest-$250,000 in the CD and savings accounts. When I called FAFSA helpline, I was told to include this amount as part of asset. Per one of UCLA Fin Aid counselors, the only way to reduce our asset is to pay down the loan. But the FAFSA Q88 instruction specifically spells out to exclude the family home from investment.(As a result of this inflated asset amount, our two UC bound daughters get ZERO Financial assistance!)
Does everyone in this forum have similar situation with FAFSA/home equity loan?
How did you proof that this is not an asset when audited?</p>

[swimcatsmom]

<p>It is an asset. If you borrow the money against the house and the cash is sitting in an account it is an asset. Just as if you sell the house and maybe have a delay in reinvesting the money into another house and the cash is sitting in the bank it is an asset. </p>

<p>Timing is everything with FAFSA. Other people have run into the same thing where they have borrowed money against the house to do some home improvements but have not yet done the improvements. Money already spent to put in the new bathroom or fix the roof or pay down the mortgage - not an asset. The money in the bank earmarked to pay for these items but not yet spent = asset.</p>

<p>There is a bit more info here</p>

<p>[FinAid</a> | Loans | Home Equity Loans and Lines of Credit](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>

<p>

An important difference is the impact of the loan on eligibility for need-based financial aid. A home equity loan will have a negative impact on financial aid, since any leftover proceeds from a home equity loan will be considered by the need analysis formula. This problem does not occur with a home equity line of credit, since you only draw down the line of credit when you need it to pay bills. Until you do so, the equity remains in the home, and net home equity is ignored by the Federal need analysis methodology.

</p>

<p>If you think you may otherwise qualify for aid next you may be better off repaying the loan.</p>

[twopir]

<p>So if the money is not an asset (meaning that it has actually been used, correct?), can it still affect the amount of financial aid a student receives?</p>

[swimcatsmom]

<p>As long as it has not been used to purchase a reportable asset (such as a 2nd home, stocks etc) then it should not affect the FAFSA EFC.</p>