Asset protection allowance down sharply

As if paying for college wasn’t hard enough for families, the amount of assets you are allowed to have that are exempt from the federal financial aid formula plummeted by 29% from just a year ago and a stunning 60% from 10 years ago.

despair-513529_640First, a quick overview of the asset protection allowance:

The general concept is that most families should have some amount of liquid assets in case of emergency, yet the FAFSA formula looks at those assets to determine whether you qualify for financial aid. Because the government didn’t want to penalize folks in a financial aid sense for actually saving, it allows for a certain amount of assets to be exempt from the FAFSA formula.

Well that was the original intent anyway…

The asset protection allowance is so low, it no longer protects even a small amount of savings from the financial aid formula (and certainly not the 6 months’ salary recommended by many financial advisors).

According to federal data , in 2006-2007 the government’s financial aid formula allowed the 48-year-old parents (the median age of parents of college-age children) of a college-bound student to protect $47,700 of their assets before the balance got assessed.

Now leap forward 10 years to the 2016-2017 school year. The new formula now provides the same 48-year-old parents an asset protection allowance of only $18,700.


Based on how the financial aid formula works, that amounts to nearly a 60% reduction in potential financial aid from the federal government. Meanwhile, according to data from US News, college costs have roughly increased by 60% in that same period!


Even in the past year the allowance has really nose-dived. According to Edvisors, the allowance for a median age family was $30,300 a year ago, and only $18,700 this year. If trends continue, it may disappear altogether.

Click here to see the financial aid formulas for 2016-2017.