It sounds that all assets are hit with 5.6% to get to EFC. So we will have to pay for house regular 2.5% loan plus 5.6% in EFC. I guess it makes sense to pay out house in that case. We have to pay it in 3.5 years anyway and pretty much paying mostly principal at this point. We will have a bit more taxes though, but I would say insignificant amount.
With car loan it is not clear cut, since we do not pay interest on that 15k. 5.6% would make only $890 extra in EFC per year.
I am just afraid to end up with little liquidity in case we get nothing (most likely scenario). If we get no aid, we almost at a loss by paying car and house.