Asset Information

An asset is defined as property that has an exchange value. The purpose of collecting asset information is to determine whether your family's assets are substantial enough to support a contribution toward your cost of attendance (COA). Only the net asset value is counted in the need analysis. To determine the net value of any asset, you first determine the market value of the asset and reduce the value by the amount of debt against that asset. The result is the net value of the asset.

Ownership of an Asset

Ownership of an asset may be divided or contested in several situations:

• Part ownership of asset. If you (or your spouse) own an asset with others and therefore only own a portion or percentage of the asset, you (or your spouse) should report the net asset value that represents only your share of the asset owned. You would determine the current market value of the asset, reduce the value by any outstanding debt, and then multiply the net asset value by your ownership percentage. This result is then reported on the FAFSA.
• Contested ownership. An asset should not be reported if its ownership is being legally contested. For instance, if you and your spouse are separated and you may not sell or borrow against jointly owned property that is being contested, the FAFSA information you report would not list any value for the property or any debts against it. If ownership of the asset is resolved after the initial application is filed, you may not update this information. However, if ownership of the property is not being contested, you would report the property as an asset.
• Lien against asset. If there is a lien or imminent foreclosure against an asset, the asset would still be reported on the FAFSA until the party holding the lien or making the foreclosure completes legal action to take possession of the asset.

Principal place of residence/family farm. Your principal place of residence is not reported as an asset. Neither is your family farm if the farm is your principal place of residence and your family claimed on Schedule F of the tax return that it "materially participated in the farm's operation."

• Personal possessions. Do not report possessions such as a car, a stereo, clothes, or furniture. By the same token, personal debts such as credit card debt cannot be reported.

"Take-back" mortgages. In a "take-back" mortgage, the seller takes back a portion of the mortgage from the buyer and arranges for the buyer to repay that portion of the mortgage to the seller. For IRS purposes, the seller must report the interest portion of any payments received from the buyer on Schedule B of IRS Form 1040. If an amount is reported on this line of the tax return, the family should report the outstanding balance of the remaining mortgage on the FAFSA as an investment asset.

Trust funds and tuition prepayment plans. If trust funds are in your (or your spouse's) name, they should be reported as your (or your spouse's) asset on the application. In the case of divorce or separation, where the trust is owned jointly and ownership is not being contested, the property and the debt are equally divided between the owners for reporting purposes, unless the terms of the trust specify some other method of division.

How the trust must be reported varies according to whether you (or your spouse) receive or will receive the interest income, the trust principal, or both. If you (or your spouse) receive only interest from the trust, any interest received in the base year must be reported as income. Even if interest accumulates in the trust and is not paid out during the year, if you will receive the interest, you must report an asset value for the interest you will receive in the future. The trust officer can usually calculate the present value of the interest you will receive while the trust exists. This value represents the amount a third person would be willing to pay to receive the interest income you (or your spouse) will receive from the trust in the future.

The present value of the principal is the amount a third person would pay at present for the right to receive the principal when the trust ends (basically, the amount you would have to deposit now to receive the amount of the principal when the trust ends, including the accumulated interest). Again, the trust officer can calculate the present value.

As a general rule, you must report the present value of the trust as an asset, even if your (the beneficiary's) access to the trust is restricted. If the creator of a trust has voluntarily placed restrictions on the use of the trust, then you should report the trust in the same manner as if there were no restrictions. However, if a trust has been restricted by court order, you should not report it as an asset. An example of such a restricted trust is one set up by court order to pay for future surgery for the victim of a car accident.

Note that the value of a prepaid tuition plan is excluded from being reported as an asset. (The annual value of the tuition prepayment will be taken into account when the school packages your aid and will reduce your financial need.)

47. Net worth of investments. Investments include real estate such as rental property, land, and second or summer homes. Do not include your primary place of residence (that is, your home). Include the value of portions of multifamily dwellings that are not your principal residence. Investments also include trust funds, money market funds, mutual funds, certificates of deposit, stocks, stock options, bonds, other securities, Education IRAs in your name, college savings plans, installment and land sale contracts (including mortgages held), commodities, etc. Do not include the value of life insurance and retirement plans (pension funds, annuities, non-Education IRAs, Keogh plans, etc.)

The money in an Education IRA is an asset for the student beneficiary because an Education IRA is not a retirement account. It is essentially a savings account to be used for the student's educational expenses. Therefore, you must report the amount in your Educational IRA with your investments.

Investment Value - Investment Debt = Net Worth of Investments

48. Net worth of business and/or investment farm. Business or farm value includes the current market value of land, buildings, machinery, equipment, inventory, etc. Do not include your primary home.

Business/Farm Value - Business/Farm Debt = Net Worth of Business/Farm

51. Amount of veterans education benefits. Veterans education benefits information is not used in the EFC calculation; your school will use it when putting together your aid package. If you receive veterans' education benefits, you must report the amount of monthly benefits that you expect to receive during the school year (from July 1, 2003 through June 30, 2004). Such benefits include (but are not limited to)

• Montgomery GI Bill - Active Duty (MGIB)
• Reserve Officer Training Corps (ROTC) scholarship
• Veterans Educational Assistance Program (VEAP)
• Dependents Educational Assistance Program (DEA)