Cash-out refi: Does it count as income on Fafsa?

Paying for College
1

I can’t seem to find the answer to this question.

Our accountant says cash out from a mortgage refi is not taxable income. BUT does it count as income for financial aid determination? I know that it would be counted as an asset if the cash is in the bank. But what about if the cash-out from the refi has already been spent by Fafsa filing date (therefore, not in bank to be counted as an asset) – is it still income? This cash would be taken in 2016.

I know that for academic year 2017-2018 the Fafsa will use 2015 income. So is my query a moot point?

Anything else I should be aware of regarding the effect of cash-out refi on financial aid?

Thank you to the experts here!

2

It is not income. It is not income in 2015, it is not income in 2016. It is not income. It is an asset that was real estate that has not been converted to cash. If you spend it, it is no longer an asset at all.

3

Don’t you owe that money as part of the new mortgage? If it’s a loan and you are obligated to pay it back I don’t think it should be counted as income.

That’s my unprofessional opinion though.

Like for example, your old mortgage balance is $30k and your home equity increased and you refinance and take out a new mortgage for $40k. You pay off old mortgage with that money and get $10k cash.

You now owe $40k.

But if that $10k is in the bank by the time FA forms are filed in October, it will be included in asset balance.

That might or might not impact financial aid you can receive.

4

It’s not income. But if it’s in the bank it’s a reportable asset. If it’s already spent, no asset to report.

5

Thank you everyone! It won’t be in the bank. It will be spent by the time we file Fafsa.

6

@Erin’s Dad is correct … it’s not income. It’s an asset, but it’s not reportable if it’s no longer in the bank when you file the FAFSA.

7

Thank you.