Will cash-out home refinance hurt my daughter's FAFSA eligibility?

Assets definitely count against u on fafsa!! we refinanced last yr and it KILLED our EFC (now its called SAI i think). wish someone had warned us!!

The impact may not be as bad as you think. Under the new FAFSA, assets are considered differently than in previous years. First, there's an asset protection allowance based on the age of the oldest parent. Second, only a portion of assets above that threshold (usually around 12%) are counted in your SAI calculation. But timing does matter. If you do the refinance and the cash is sitting in your bank account on the specific date you file the FAFSA, it will count as an asset. If you've already spent it on the home repairs before filing, then it won't be counted. Also, home equity (the value of your home minus mortgage debt) is NOT counted on the FAFSA at all, so the additional mortgage debt doesn't directly offset the cash in your aid calculations.

we did something similar and our financial aid counselor said if we could document that the money was specifically for home repairs (like having contractor quotes and everything) they might make an adjustment. worth asking about!

This is exactly why the financial aid system is rigged against the middle class. If you're trying to use YOUR OWN MONEY to fix YOUR OWN HOUSE, why should that count against your kid's ability to get aid for college? The system ASSUMES that money is available for education when it's NOT. Meanwhile wealthy families hide their assets in trusts and other vehicles that don't show up on FAFSA. The whole system needs to be scrapped!

Ive been dealing with fafsa for 3 years now (2 kids in college) and let me tell you its all about WHEN you file and WHEN the money hits your accounts. We did somethng similar and our aid was fine because we spent the $ before filing

To give you the specific technical answer: Cash from a refinance that remains in your bank account on the day you file FAFSA is reported as an asset. The FAFSA doesn't ask about the source of your assets - just what you have at that moment. For the 2025-2026 FAFSA, only about 12% of parental assets above the protection allowance are factored into your SAI (Student Aid Index). So even if you had to report the full $42,000 as an asset, it might only increase your SAI by about $5,000 or so, which might not dramatically change aid eligibility depending on your other financial factors. But if possible, either: 1. Do the refinance after filing the 2025-2026 FAFSA (which opens December 2024) 2. Complete your home repairs and spend the funds before filing Also know that if you have special circumstances, you can always request a professional judgment review from financial aid offices after receiving aid offers.

Has anyone here actually tried calling the Federal Student Aid helpline to ask about this? I tried like 8 times and never got through to anyone who could answer specific questions like this...

my neighbor works in financial aid at State University and she always says parents worry TOO MUCH about this stuff. she said most families over-estimate how much their assets actually affect aid eligibility compared to income

One additional point: remember that the CSS Profile (used by many private colleges) DOES count home equity, unlike the FAFSA. So if your daughter is applying to private schools that use the CSS Profile, the refinance might actually help in that case by reducing your home equity. Just something else to consider in your planning.

Just wanted to add from our experience - we went through something very similar last year. We ended up doing a smaller cash-out refinance ($25K) and made sure to spend it all on documented home improvements before filing FAFSA. Keep ALL your receipts and contractor invoices! Our financial aid officer at my son's college said having that paper trail was really helpful when we explained the situation during our aid review. Also, don't forget that you'll be filing FAFSA again each year your daughter is in college, so you might want to plan the timing of any major financial moves around those annual filing dates too.

As someone who just went through this exact scenario with my daughter who's now a sophomore, I can tell you timing is everything! We did our cash-out refi ($35K for a new roof and HVAC) in January 2023, spent it all by March, and filed FAFSA in April. Her aid package was actually better than expected. The key things that helped us: 1) We kept meticulous records of every expense, 2) We communicated proactively with the financial aid offices at her schools about the situation, and 3) We made sure every penny was spent on legitimate home improvements before filing. Most schools were very understanding when we explained it was for necessary repairs, not luxury upgrades. Don't let the fear of affecting aid stop you from doing necessary home maintenance - just be strategic about timing and documentation!