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What are effects of mortgage and debt on Financial Aid?

BoondocksBoondocks Posts: 307Registered User Member
My son is a junior in high school, and I also have kids in 7th and 9th grade.

I heard recently that college financial aid departments and/or the FAFSA don't take into account debt in calculating the Expected Family Contribution, but they do look at home equity. I'm not sure if this is accurate or not.

We have a low mortgage, owing only $97,000 on a home worth about $350,000. We have a home equity line of $40,000 which is currently paid off - we draw upon that as needed, but like to use it as a cushion, because my income varies enormously month-to-month and year-to-year.

We presently have $80,000 in credit card debt, presently all at about 3% to 4% interest (we use those discount offers on a calculated basis, and have never gotten trapped).

Will colleges consider this credit card debt when calculating financial aid, or am I better off refinancing our house, paying off the credit cards, and reducing our net home equity, to make us essentially look poorer to the colleges?

For a variety of reasons I don't have time to go into here, we are better off not refinancing unless it will help us with college financial aid.
Post edited by Boondocks on

Replies to: What are effects of mortgage and debt on Financial Aid?

  • mom2collegekidsmom2collegekids Posts: 57,746Registered User Senior Member
    Colleges don't consider debt unless it's from a huge medical expense. Debt is considered to be a lifestyle choice. So, try to pay it off. Mortgage is also pretty much a lifestyle choice.


    FAFSA doesn't look at home equity.

    doesn't look at mortgage.

    CSS Profile does include home equity


    Keep in mind that most schools don't have much free aid to give. So, much will depend on where your child gets accepted. Sometimes all of these financial gymnastics don't make a difference because the schools that a child gets accepted to doesn't give much aid no matter how poor you look.

    And, income counts more than assets.
  • Erin's DadErin's Dad Posts: 16,440Registered User Senior Member
    FAFSA does not consider your primary residence. Many private colleges use the CSS Profile which will consider the residence. Other schools use their own FA paperwork which may consider the residence.

    Credit Card debt is usually not considered at all unless it is due to high medical costs or something else for which the school might make an adjustment. Debt is generally considered a life style choice.
  • CopterguyCopterguy Posts: 294Registered User Junior Member
    Neither the CSS profile nor FAFSA ask about credit card debt; however, the CSS Profile has questions about home value, equity, and monthly mortgage payment. As others have noted, this gives universities the option of considering equity in making FA determinations.

    Also, they will ask you about the total amount in all checking and savings accounts at the time you are filling out the forms.

    I did receive one request from a university for an "expenses" form in which they ask about monthly expenses, including car payments and credit card debt. I asked a question about this form on a cc forum but did not receive many responses, which may mean this type of form is not very common.
  • rockvillemomrockvillemom Posts: 5,047Registered User Senior Member
    I think the answer to your question will vary depending on whether your son applies to FAFSA only schools or to private colleges that require the CSS Profile as well. I agree with above posters that FAFSA does not ask about credit card debt or mortgage debt. But, the CSS Profile does ask when you purchased your home, the purchase price, the current value, the mortgage debt, the monthly payment, etc. So - if he is applying to colleges that require the CSS Profile - you would be better off refinancing that credit card debt into a new mortgage loan - thus using up some of your home equity and increasing the size of your mortgage payment.

    However, most financial planners would caution that by doing so - you are changing unsecured debt into secured debt. If you get into financial trouble - not paying your credit card debt is one level of problem - not being able to pay your new larger mortgage payment is a whole new level of problem. So - I would proceed with caution.
  • BoondocksBoondocks Posts: 307Registered User Member
    Thanks, folks.
  • cptofthehousecptofthehouse Posts: 22,562Registered User Senior Member
    It all depends on what schools you and your kids have in mind. The schools that offer the most financial aid tend to ask for the most information and many of them will ask for the value of your house. This is not the case for those schools that are FAFSA only schools. FAFSA just qualifies you for federal money and unless your income is very low, getting PELL money is not there. It also qualifies your student for subsidized loans and work study if the number is less than the cost of the school. FAFSA does not ask for the value of your primary home.

    The PROFILE application which is usually required from school that tend to give generous financial aid asks for the value of the fillings in your teeth. In that case, it may be a good idea to have your home mortgaged and pay off your credit card bills, since you won't get an inch for what you owe there. That way, the value of your home would not be counted against you.

    But bear in mind that this is only for those colleges that take that stance. Until you know where your student is applying, it is difficult to make these decisions. Do keep in mind that college costs are only one part of how you handle your finances. You don't want to upset what you have just on the chance of getting a bit more financial aid.

    What schools do you think your son will be considering? We can give you more directed advice with that information.
  • entomomentomom Posts: 23,179Super Moderator Senior Member
    This year, I was asked in one of the supplemental Profile questions (for Amherst), about debt, including credit card debt.
  • BoondocksBoondocks Posts: 307Registered User Member
    We're not sure where my son will be applying as yet; schools could be Clarkson or University of Vermont or Union (which would be a reach). I have to be prepared for either FAFSA or CSS schools.

    My 9th grade daughter is a very strong student, and is likely to aiming at NESCAC-type schools.

    In any case, it sounds like it would be better to dump the credit card debt and trade it in for a new mortgage or a new second mortgage, even though the latter would be secured loans.
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