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FAFSA Asset Protection Allowance: Everything You Need to Know

The FAFSA asset protection allowance excludes a certain amount of assets from the calculation of a student’s Expected Family Contribution (EFC). The amount of the allowance varies based on factors such as parents’ age and student’s dependency status. Overall, however, the allowances are shrinking. Continue reading to learn all about FAFSA asset protection allowances!

Related: How to file the FAFSA as an independent student

What is the asset protection allowance?

When completing the Free Application for Federal Student Aid (FAFSA), students are asked to provide financial information. Oftentimes, assets are included in the required information. The asset protection allowance exists to ensure that a minimum amount of a student’s, or their parents’, assets are excluded from the Expected Family Contribution (EFC). It is intended to cover the difference between Social Security retirement benefits and income. The asset protection allowance, in theory, allows students or their parents to have assets which they won’t use to pay for education. Exclusion of certain assets from the EFC calculation can make students eligible for more federal financial aid, grants, and scholarships.

The FAFSA asset protection allowance is referred to as the Education Savings and Asset Protection Allowance in the Higher Education Act of 1965. The U.S. Department of Education sets allowances annually.

How is the allowance calculated?

As mentioned above, the asset protection allowance is based on the difference between Social Security retirement benefits and income. The income amount is based on that of “moderate income” families. The other factors depend on whether the student completing the FAFSA is dependent or independent.

For dependent students, the allowance amount is based on the number of parents in the household and the age of the oldest parent. In general, the allowance is higher for households with two parents than single parents. For independent students, the amount is based on the age of the student and whether they are married. The allowance is the same for single-parent households and unmarried independents and the same for two-parent households and married independent students. Older students/parents will have higher allowances.

See also: Am I a dependent or independent student?

This notice from the Federal Register contains charts of the variables and their corresponding asset protection allowance in 2019-2020.

Reporting assets

The FAFSA requires you to report the following assets:

  • Money in cash, checking, and savings accounts (including college savings)
  • Business or farms
  • Investment farms
  • Trust funds
  • Other investments such as real estate, stocks, bonds, etc.

See also: Which 529 plan assets are reported on the FAFSA?

How does it affect EFC?

The FAFSA subtracts the asset protection allowance from the value of the reported assets. This equals the applicant’s “discretionary net worth.”  The discretionary net worth is multiplied by an asset conversion rate to arrive at your “contribution from assets” number.. The remaining value of assets is used to calculate the EFC. 

The asset protection allowance is shrinking

All that being said, it’s important to mention that the values of asset protection allowances are declining rapidly. This is because Social Security retirement benefits have risen, while the incomes of “moderate income” families have remained the same.

The asset protection allowance peaked in 2009-2010. At that time, the allowance for single parents aged 65+ was $84,000. In contrast, the allowance for the same group was $9,500 in 2020-2021. The Federal Register shows that, in 2022-2023, the FAFSA asset protection allowance will be $0 for single parents of all ages. 

What you should do

The shrinking trajectory of the asset protection allowance can only be fixed by Congress. Students should be completely honest about their assets on the FAFSA. Eligible students may find relief from other FAFSA calculations such as the Simplified Needs Test and Auto-Zero EFC

See also: This year’s FAFSA deadline