Students applying for educational aid through Free Application for Federal Student Aid (FAFSA) this year will notice a change affecting how much they’re eligible to receive. The FAFSA Asset Protection Allowance will drop to $0, which means parents will no longer have their assets protected when determining how much their children can receive in need-based aid.
Continue reading to learn more about the asset protection allowance, including what the drop means for parents financially.
What Was the Asset Protection Allowance for FAFSA?
The FAFSA Asset Protection Allowance was a financial feature that protected a family’s assets from being considered financial resources when determining the amount of aid students were eligible to receive. When students fill out the FAFSA application for the upcoming school year, they must report all financial information, including any parental assets.
The asset protection allowance was designed to exclude a portion of a family’s investments from the Expected Family Contribution—a measure of how much families contribute towards their child’s post-secondary education. This allowance meant they wouldn’t have to rely on reportable assets to cover post-secondary educational expenses.
Examples of reportable assets include:
- Real estate, including investment properties
- Stocks and bonds
- Brokerage accounts
- Trust funds
- Funds in checking and savings accounts
How Were Asset Protection Allowances Calculated?
The FAFSA asset protection allowance was based on the difference between the cost of attendance and the expected family contribution listed on a FAFSA application. This number would determine the maximum amount in federal loans, grants, and other financial aid students could receive for an academic year.
Before the discontinuation of the protection allowance, the amounts were generally higher for households with two parents instead of one parent, so a dependent applicant living with two parents would receive a higher protection allowance than one living with a single parent. Asset protection allowances also depended on whether a student filed as independent or dependent.
Why Did the FAFSA Asset Protection Allowance Drop to Zero?
During the 2009-2010 academic year, asset protection allowance for a single parent aged 48 amounted to $21,400. For married parents of the same age, the allowance amounted to $52,400 during the same academic year.
In the 2023-2024 academic year, asset protection allowances will amount to $0, regardless of a parent’s age or marital status. The phase-out of this allowance is related to a rise in Social Security retirement benefits—more than 71 million Americans will receive a 3.2% increase in Social Security benefits in 2024.
The allowance was designed to shield money equal to the cost of a retirement annuity. The allowance included a category for parents of retirement age, 65 and older. In 2009-2010, the allowance for that age category was $84,000. For all age categories, the allowance has steadily dropped since then.
But even with the rise in retirement benefits, income earnings have remained relatively stagnant, so more families must now rely on their assets to pay for college expenses.
Learn About Fame’s Post-Secondary Solutions
Financial aid eligibility requirements often change, emphasizing the importance of navigating these changes to support students needing aid. If you want to see our processing services in action, request a free consultation.
To find additional financial industry terms that pertain to higher education, check out our dictionary.