Author: Paul Martin

Building affordability with college merit aid

When a student isn’t eligible for need-based financial aid, merit scholarships awarded by a college can be a significant way to reduce costs and build affordability. Merit scholarships are awarded primarily through the admissions process as an incentive for students to enroll, with no criteria around need.

How to measure a college’s merit generosity

There are two ways to understand a college’s generosity with merit aid: 1) the number of students receiving merit scholarships and 2) the size of these awards.

The number of awards

Colleges vary widely in how many merit scholarships they give out, with colleges that offer no merit scholarships on one end and colleges that award every admit a merit discount.

The DATA: Colleges publish the percentage of students who do not qualify for need-based aid and still receive a merit scholarship. This can be found in the column % Receiving Merit Awards.

A student seeking merit aid can understand that the chances of receiving a scholarship from Boston College (3%) are highly unlikely, from Northeastern (41%) are possible, and from Fairfield (92%) are certainly guaranteed.

The size of the award

It’s critical to understand the amount of the scholarship that a college may offer to ensure that it’s enough to make the Net Price affordable.

THE DATA: Colleges publish the average merit scholarship received by non-need students. This can be found in the column Ave Merit Award. It’s also helpful to understand what percentage of the cost of attendance the average merit scholarship covers. This can be found in the column % Merit to COA.

While a student admitted to both DePauw and Denison would reliably receive a merit scholarship in the admissions process, there is a significant difference in the award amount. DePauw’s average scholarship of $37,448 covers nearly 50% of the cost of attendance, whereas Denison’s average scholarship of $19,426 covers just above 20%.

College Data from the 2024-25 Common Data Set

Use this online database to explore colleges’ generosity with merit-based aid.

Tips:

• FILTER: When using the Filter for Region or State column, choose the is any of option to select multiple Regions or States.
• INFO ICON: The info icon next to the column name provides a more detailed description of the data presented.
• DOWNLOAD: To download a copy, click on the 3 dots and select Export to CSV. It will save the file with any changes you’ve made. Note: I don’t recommend downloading to Excel, because it will convert the number fields, like percents and dollars, to text fields.

Not every college can meet your student’s need.

In fact, only 70 out of the 460+ colleges on the list below meet 100% of need or aid eligibility.

Why do colleges gap financial aid?

There are two key reasons why a college’s financial aid offer may not match or equal your student’s aid eligibility.

Most colleges don’t have enough resources.

Most colleges provide an award that is only a percentage of the student’s eligibility, resulting in a gap in the financial aid offer.

The DATA: Colleges publish the percentage of need or eligibility they meet on average, which can be found in the data below in the column % of Need Met.

If a student were eligible for $30,000 in need-based financial aid at both Babson and Emerson, the student would expect to receive nearly $30,000 from Babson (at 96%), but only about $15,000 from Emerson (at 56%).

Public universities only fund their resident students.

Public universities only award institutional need-based financial aid to their in-state, resident students. Out-of-state students admitted should expect to receive no institutional need-based aid, resulting in a huge aid gap.

THE DATA: You should assume 0 % of Need Met, except for federal aid options. The numbers reported for public universities below reflect the percentage of need met for their in-state, resident students

A student from Maryland admitted to U Mass Amherst would not have 88% of their need met. They would pay full Out-of-state Cost at nearly $60,000, except for any merit scholarships or federal aid.

College Data from the 2024-25 Common Data Set

Use this online database to explore colleges’ generosity with need-based financial aid.

Tips:

• FILTER: When using the Filter for Region or State column, choose the is any of option to select multiple Regions or States.
• INFO ICON: The info icon next to the column name provides a more detailed description of the data presented.
• DOWNLOAD: To download a copy, click on the 3 dots and select Export to CSV. It will save the file with any changes you’ve made. Note: I don’t recommend downloading to Excel, because it will convert the number fields, like percents and dollars, to text fields.

These resources are offered to support families with college-bound students in the Los Angeles area affected by the January 2025 wildfires. College financial aid offices want to understand changes in your financial circumstances as a result of this natural disaster to comprehensively evaluate your financial need and award need-based aid.

Through a financial aid appeal, you can submit new information about the financial impact of this event to supplement and amend the information submitted on the FAFSA or CSS Profile. Through a process known as Professional Judgment, the college financial aid office will include new factors like reduction in income, extraordinary expenses, and loss of assets in their evaluation or re-evaluation of your financial aid eligibility and award.

It’s important to advocate for these changes and engage in this process early. Start with these resources and work with your college counselor for support. Reach out to the financial aid offices; they are there to help.

Financial Aid Appeal Letter Template

Use this appeal letter as a template for requesting an adjustment to financial aid.  Edit language to best reflect your personal circumstances. The italicized sections are prompts for writing.

Q&A

These are the questions asked by families during our workshop, along with answers and guidance provided.

Pell Grant eligibility

The FAFSA determines whether the student qualifies for the Maximum Pell Grant based on a parent’s Adjusted Gross Income (AGI) in the base year, family size and state of residence. When a parent’s AGI is at or below the limit based on marital status and family size, the student qualifies for the Maximum Pell Grant. The Maximum Pell Grant is determined annually by Congress, and the amount for the 2025-26 Award Year is $7,395.

For the 2025-26 FAFSA and the 2026-27 FAFSA, in addition to receiving the Maximum Pell Grant, the student is also assigned a Student Aid Index (SAI) equal to $0. For both of these FAFSA cycles, neither student nor parent assets will be included in the calculation of the Student Aid Index. However, starting with the 2027-28 FAFSA, both the student’s and the parent’s assets will be included in calculating the Student Aid Index regardless of AGI. If the calculated Student Aid Index is more than twice the maximum Pell Grant amount for 2027-28, then the student will not be eligible for the Pell Grant. The maximum Pell Grant amount for 2026-27 equals $7,395, though the maximum Pell Grant for 2027-28 is not yet determined.

This table provides the parent income limits for a dependent student for the three FAFSA cycles: 2025-26 FAFSA, 2026-2027 FAFSA, and 2027-28 FAFSA.

The rules on what Parent Income is included when calculating your Student Aid Index – or ability to pay for college – differ from FAFSA and CSS Profile.

FAFSA : a more limited accounting of income

The FAFSA only takes income from certain lines of a parent’s personal tax return. The personal tax return for FAFSA purposes is the 1040 and includes Schedule 1, Schedule 3, and Schedule C. For a detailed look at which amounts are included, check out this resource from Federal Student Aid with screenshots from the 2023 tax return. Overall, this limits the total income included.

CSS Profile : a broader accounting of income

The CSS Profile uses this same income as a starting point but adds additional untaxed income. The CSS Profile requires parents to submit additional income documents beyond the 1040, including W-2s, 1099s, and all business tax returns. What is the untaxed income that the CSS Profile includes? They can vary depending on a parent’s sources of income and form of employment, e.g. working for an employer or self-employed. Here are the most common examples:

• Pre-tax contributions to an employer retirement account, like a 401k, 403b, or pension.
• Pre-tax contributions to an HSA.
• For business owners, certain business deductions are allowed by the IRS but not considered outgoing expenses exclusively for business purposes, like the home office deduction or business expense of a personal car.
• For property owners, depreciation of the property is allowed by the IRS to offset rental income but is not allowed by CSS Profile for financial aid eligibility.

In each of these cases, these amounts are added back to the taxable income to calculate the income used in the financial aid evaluation. The result can be that a larger amount of income is included for evaluating need-based financial aid through the CSS Profile versus the FAFSA.

Parent Income Included in the FAFSA and CSS Profile

This table summarizes the income included in each application.

The rules for which Parent Assets are counted in calculating your Student Aid Index – or ability to pay for college – differ from FAFSA and CSS Profile. While there are assets in common, there are exceptions. This chart summarizes which Parent Assets are counted and which are protected.

Impact of Parent Assets on the Student Aid Index

When an asset is counted, the reported amount contributes roughly 5% toward your Student Aid Index. Protected Assets have zero impact on your Student Aid Index. No counted asset is weighted more than another, like a 529 or College Savings Plan. College Savings Plans also contribute 5%.

Both the FAFSA and CSS Profile require business owners to report the net worth of their business. However, the reported net worth is not counted dollar-for-dollar as a parent asset available for college. Instead, both applications calculate an adjusted net worth for a business before including it as a parent asset. The same applies to farms.

How to calculate business net worth

By FAFSA’s guidance, the net worth of a business is calculated by taking tangible assets owned by the business and subtracting debt against those tangible assets. Examples of tangible assets would be:

• Property owned by the business
• Vehicle
• Equipment
• Value of sellable goods
• Cash in the business

More favorable treatment for business assets

This more favorable treatment means that when an asset is held by a business entity, it has a lesser impact on a student’s aid eligibility. A common example is a rental property. When the rental property is titled to a business instead of directly titled to a parent, the net worth can be reported as a business asset.

Calculation for business assets

Here is the adjusted net worth calculation for the 2025-26 FAFSA (CSS Profile also follows this calculation). You can enter the net worth of your business to understand what adjusted net worth would be used when calculating parent assets available for college. The financial aid applications will calculate a roughly 5% ability to pay from this adjusted net worth.

Parent assets reported on the FAFSA impact a student’s aid eligibility. The amount parents are expected to contribute from assets reported can be as high as 5.64% per year, with a rough average of 5%. Given this, the ability to exclude assets from the calculation of the Student Aid Index can be helpful to maximize eligibility.

These are the three scenarios where a parent is exempt from reporting parent assets.

1) Student is eligible for the Maximum Pell Grant

The FAFSA determines whether the student qualifies for the Maximum Pell Grant based on a parent’s Adjusted Gross Income (AGI) in the base year, family size and state of residence. When the parent’s AGI is at or below the threshold based on marital status and family size, the student qualifies for the Maximum Pell Grant. In this case, neither student nor parent assets will be included in the calculation of the Student Aid Index. The student is assigned a Student Aid Index (SAI) equal to $0

2) Parent’s income is less than $60,000

There are two parts to this qualification.

1. The parent’s combined AGI (Adjusted Gross Income) is less than $60,000.
2. The parent filing taxes must also meet additional criteria beyond the income threshold, filing what is considered a simplified return. In this case, the parent must not file Schedules A, B, D, E, F, or H or not file a Schedule C with net business income greater than $10,000 of either loss or gain.

3) Anyone in the student’s family qualified for a means-tested Federal benefit program

If any member of the student household qualified for a means-tested federal benefit at any time in the two years prior to receiving financial aid, the parent is exempt from reporting assets. For example, the years counted for the 2025-26 FAFSA would be 2023 and 2024.

The means-tested federal programs included are:

• Earned income tax credit (EITC)
• Federal housing assistance
• Free or reduced-price school lunch
• Medicaid
• Refundable credit for coverage under a qualified health plan (QHP)
• Supplemental Nutrition Assistance Program (SNAP)
• Supplemental Security Income (SSI)
• Temporary Assistance for Needy Families (TANF)
• Special Supplemental Nutrition Program for Women, Infants and Children (WIC)

Exceptions to these rules

These rules to exempt Parent Asset reporting do not apply if:

1. the parent lives outside of the US, even when they file US taxes.
2. the parent does not file US taxes unless they don’t file because their income is below the filing threshold.

In both cases above, the parent must still report parent assets.

Many CSS Profile colleges elect to count your home equity as a parent asset when calculating your ability to pay for college, a.k.a. your Student Aid Index. Though home equity can be a factor, there are big differences in just how much of a factor it will be at a specific college, depending on its institutional financial aid policies.

When counted, your ability to pay increases by 4 – 5% of the amount of home equity included as a parent asset. Let’s say home equity included were $100,000; that would increase your Student Aid Index – or ability to pay – by $5,000.

Three approaches to using Home Equity

1) No Home Equity

Even though information about your primary home is submitted on the CSS Profile, these colleges do not factor this information in when totaling parent assets available to pay for college. Home equity does not increase your ability to pay nor impact your student’s aid eligibility.

2) Full Home Equity

These colleges believe home equity is a key part of your overall net worth. They include 100% of your home equity when totaling parent assets available to pay for college.

3) Cap Home Equity

These colleges cap the amount of home equity they count as a parent asset relative to your income. They compare the capped amount of home equity based on your income to your full home equity and use the lesser amount. When the capped amount of home equity is less than your full home equity, they will substitute that amount when counting parent assets. Here are three examples of how this calculation works.

Example 1: Amherst College

Policy: Caps home equity at 120% of parent income.
Parent income = $150,000
Home Equity (Market Value – Outstanding Mortgage/Debts) = $300,000
Home Equity Cap as a multiple of parent income (Parent income x 120% cap) = $180,000

Instead of using $300,000 of home equity, Amherst Financial Aid will substitute $180,000 of home equity when totaling parent assets as part of the net worth available to pay for college.

Example 2: Swarthmore College

Policy: Caps home equity at 150% of parent income.
Parent income = $150,000
Home Equity (Market Value – Outstanding Mortgage/Debts) = $300,000
Home Equity Cap as a multiple of parent income (Parent income x 150% cap) = $225,000

Instead of using $300,000 of home equity, Swarthmore Financial Aid will substitute $225,000 of home equity when totaling parent assets as part of the net worth available to pay for college.

Example 3: Emory University

Policy: Caps home equity at 240% of parent income.
Parent income = $150,000
Home Equity (Market Value – Outstanding Mortgage/Debts) = $300,000
Home Equity Cap as a multiple of parent income (Parent income x 240% cap) = $360,000

In this case, because the capped amount of home equity exceeds the full home equity, Emory Financial Aid will use the $300,000 of home equity when totaling parent assets as part of the net worth available to pay for college.

Understanding each college’s policy on using home equity

You can use the information below to get an initial understanding of how CSS Profile colleges will count home equity as a parent asset. Depending on your home equity and a college’s policy, home equity may be a significant swing factor in the institutional financial aid offered by a CSS Profile college.