Will paying off mortgage hurt our FAFSA eligibility in 2 years?

This is actually a really smart question! The good news is that the FAFSA doesn't include home equity as part of your assets. Your primary residence isn't counted in the SAI calculation at all. So moving money from your savings (which gets assessed at around 5.64% for parent assets) into your home generally works in your favor for FAFSA purposes. One thing to consider though - make sure you leave yourself enough liquid savings for emergency expenses and your expected family contribution. Many families pay off debt but then don't have enough cash for the actual college bills.

we did this!!! paid off house right b4 fafsa. no regerts lol. made our efc/sai go way down. kept som $ in savings tho for emergncys

I did exactly what you're thinking about doing when my daughter was applying and IT BACKFIRED HORRIBLY!!! We got ZERO financial aid even after paying off our mortgage. These financial aid formulas are RIGGED against middle class families no matter what you do. The colleges just saw we had no debt and assumed we could pay full price! Don't fall for the trap!!!

idk about fafsa specifically but we paid off our house last year and our credit score actually went DOWN?? so weird. anyway good luck with college stuff!!

Financial aid advisor here. This is a common question with a straightforward answer: the FAFSA doesn't count your primary residence or any associated debt in the SAI formula. Paying off your mortgage generally improves your FAFSA position since you're converting assessable assets (savings) to non-assessable assets (home equity). However, there are two important caveats: 1. If you're applying to private colleges that use the CSS Profile (in addition to FAFSA), some of them DO count home equity in their institutional methodology. 2. If paying off the mortgage would require using nearly all your liquid savings, this could create cash flow problems when you actually need to pay the Expected Family Contribution. The ideal approach is to pay down debts with higher interest rates first, maintain a healthy emergency fund, and only then consider paying off low-interest mortgage debt.

My cousin's kid just went through this whole process and they were pulling their hair out trying to reach someone at Federal Student Aid to confirm this exact same question! They kept getting disconnected or waiting on hold for hours. Finally they used Claimyr (claimyr.com) to get through quickly to an actual human at FSA who confirmed that primary residence equity isn't counted on FAFSA. Saved them so much frustration! They have a video showing how it works here: https://youtu.be/TbC8dZQWYNQ

btw make sure ur looking at the new FAFSA rules, they changed everything in 2024!!

One more thing nobody's mentioned - if you have a lot of equity in your home, you can always take out a HELOC AFTER the FAFSA is submitted to access cash if needed. That way you get the FAFSA benefit of no countable assets but still have access to funds. Just a strategy to consider.

Thanks everyone for the helpful responses. We're going to go ahead with paying off the mortgage since it seems like it will either help our FAFSA position or at least not hurt it. We'll make sure to keep enough liquid savings for our expected family contribution once we get our SAI calculation. Really appreciate all the insights!

As someone who's been through this process with two kids now, I can confirm that paying off your mortgage is generally a smart move for FAFSA purposes. The key thing to remember is that the federal methodology only looks at your primary residence equity if you're using it as collateral for other investments - which most families aren't doing. One tip from our experience: run your numbers through the Federal Student Aid estimator both ways (with and without the mortgage payoff) to see the actual impact on your SAI. This will give you concrete numbers to work with rather than just guessing. Also consider the timing - if you're paying off the mortgage in 2025 but filing FAFSA in early 2026, make sure the transaction is completed before you file so it's reflected in your asset reporting. The $20k interest savings alone makes this a good financial decision, and the potential FAFSA benefit is just icing on the cake!

Just wanted to add another perspective as someone currently going through this with my daughter who's a high school junior. We consulted with a fee-only financial planner who specializes in college planning, and they confirmed what others have said here - paying off your primary residence before filing FAFSA is generally beneficial since it converts countable assets to non-countable ones. One thing that helped us decide was calculating our "asset protection allowance" - there's a certain amount of assets that parents can have without it affecting their SAI at all. For us, paying off the mortgage kept us right around that threshold. The other benefit we hadn't considered initially was the peace of mind factor. Knowing we won't have a mortgage payment during the college years gives us more flexibility with cash flow, especially if our income fluctuates or if we need to help with additional college expenses beyond what financial aid covers. Good luck with your decision - sounds like you're thinking through all the right factors!

Great discussion everyone! As someone who works in financial planning, I'd add one more consideration that might be helpful. While paying off your mortgage is generally smart for FAFSA purposes, also think about the opportunity cost of that money. If your mortgage interest rate is relatively low (say 3-4%) and you could potentially earn more by keeping some of those funds invested, you might want to find a middle ground - maybe pay down the mortgage partially rather than completely paying it off. Also, don't forget that mortgage interest is tax deductible (though the benefits have been reduced since tax reform), while the money sitting in your home equity isn't earning anything. The FAFSA benefit is real, but make sure to run the full financial analysis including taxes, potential investment returns, and your family's overall financial goals. Sometimes the "mathematically optimal" choice and the "sleep better at night" choice are different, and both have value!

Just wanted to share our experience since we went through this exact decision last year! We ended up paying off about 80% of our mortgage (kept a small balance to maintain the tax deduction) and it worked out really well for our FAFSA. Our SAI dropped significantly compared to what it would have been with all that money sitting in savings accounts. One thing I'd recommend is timing the payoff strategically - we did ours in December so it was reflected in our tax returns and asset reporting when we filed FAFSA in January. Also consider that if your state has need-based aid programs, they often follow similar asset assessment rules as the federal FAFSA, so you might see benefits there too. The peace of mind has been incredible too. Having such a low mortgage payment during our daughter's freshman year has made budgeting so much easier, especially with all the unexpected college expenses that pop up!

One additional consideration that hasn't been mentioned yet - if you're planning to pay off the mortgage in 2025 for FAFSA filing in 2026, make sure you understand which tax year's information you'll be reporting. The 2026-27 FAFSA will use your 2024 tax information due to "prior-prior year" reporting, so the mortgage payoff timing might not affect that first FAFSA filing if it happens in 2025. You'd see the benefit starting with the 2027-28 FAFSA (using 2025 tax info). Just want to make sure you're planning around the right timeline! The strategy is still sound, but the timing of when you'll see the FAFSA benefits might be different than expected.

This thread has been incredibly helpful! As someone new to the FAFSA process, I had no idea that home equity wasn't counted as an asset. The timing clarification about prior-prior year reporting is especially crucial - I would have made the same assumption about when the benefits would kick in. One question I haven't seen addressed: if you pay off your mortgage but then need to take out a HELOC later for college expenses, does that HELOC debt get factored into the FAFSA calculation at all? I'm wondering if there's any downside to the strategy of paying off the mortgage and then borrowing against the equity when needed. Also, for those who have been through this - how much did your actual financial aid packages differ from what the online calculators predicted? I'm trying to figure out how much weight to put on those estimates versus just making the best overall financial decision for our family.

This has been such a comprehensive discussion! I'm going through the same decision process with my twins who will be starting college in 2027. One thing I'd add from our financial advisor's perspective is to also consider the impact on your overall asset allocation. When you pay off your mortgage, you're essentially increasing your allocation to "real estate" and decreasing your liquid investments. For families with significant savings, this might actually improve your risk profile by reducing market exposure, but it's worth considering as part of your broader financial picture. We're leaning toward the partial payoff strategy that several people mentioned - enough to optimize our FAFSA position while maintaining some liquidity and investment growth potential. Also, has anyone looked into whether different states handle this differently for their own need-based aid programs? I know most follow federal methodology, but I'm curious if there are any state-specific quirks to be aware of.

As a financial aid officer at a state university, I wanted to jump in and emphasize a few key points from this excellent discussion. First, you're absolutely right that paying off your primary residence before filing FAFSA generally helps your aid eligibility since home equity isn't counted in the federal methodology. However, I want to stress the importance of the timing issue that StormChaser mentioned - the prior-prior year reporting means there's often a lag between when you make financial changes and when they affect your FAFSA. Make sure you're planning around the right academic years! One thing I haven't seen mentioned is that while the federal FAFSA doesn't count home equity, if your son ends up applying to any private schools, many use the CSS Profile which CAN consider home equity in their institutional aid calculations. Even if you're only looking at state schools now, it's worth keeping this in mind in case his college list expands. Also, remember that the FAFSA is just one piece of the puzzle - merit aid, which many state schools offer generously, isn't typically affected by your asset position at all. So even if the FAFSA impact is minimal, paying off the mortgage could still be the right financial decision for your family's overall situation.

Thanks so much for jumping in with the professional perspective! It's really valuable to hear from someone who works directly with financial aid applications. The timing clarification about prior-prior year reporting is crucial - I can see how families could easily plan around the wrong academic year and be disappointed when the benefits don't materialize when expected. Your point about CSS Profile is well taken too. Even though we're focused on state schools now, you never know how things might change as our son gets closer to application time. It's good to be aware that some private schools could potentially count home equity even if the federal methodology doesn't. The merit aid point is especially encouraging since that's not tied to financial need at all. We've been so focused on the need-based aid implications that we hadn't fully considered how paying off the mortgage might free up cash flow to potentially contribute more toward college costs, which could make us less dependent on need-based aid anyway. One quick follow-up question - in your experience, do you see families who pay off their mortgages before FAFSA filing tend to have better overall financial aid outcomes, or is the impact usually pretty minimal compared to other factors like income?

This thread has been incredibly informative! As someone just starting to think about college financing for my daughter who's currently a sophomore in high school, I had no idea about the prior-prior year reporting timeline or how home equity is treated differently than other assets. One thing I'm curious about - for families who are considering this strategy, is there a "sweet spot" in terms of how much mortgage debt to pay off? I've seen several people mention partial payoffs, but I'm wondering if there's a general rule of thumb about what percentage to target. Our mortgage balance is around $180k and we have about $220k in various savings accounts, so we could pay it off entirely but I'm wondering if paying off say $150k might give us most of the FAFSA benefit while keeping more liquidity. Also, I noticed someone mentioned that this strategy works well for "middle-income families" - what income range typically qualifies as middle-income for FAFSA purposes? I want to make sure we'd actually see meaningful benefits before making such a significant financial move.

This is such a well-timed question! I'm in a very similar situation - we have about $150k in savings and are considering paying off our $130k mortgage before our daughter starts college in 2026. Reading through all these responses has been incredibly helpful, especially the clarification about the prior-prior year reporting timeline. One thing that really stands out to me from this discussion is how the strategy seems to work best for families in that middle-income range where you're right on the edge of aid eligibility. The peace of mind factor that several people mentioned is huge too - the idea of not having a mortgage payment during the college years is really appealing from a cash flow perspective. I think I'm leaning toward the partial payoff approach that's been mentioned several times. Maybe paying off $100k of our mortgage to get most of the FAFSA benefit while keeping $50k liquid for emergencies and unexpected college costs. Has anyone who went the partial route found a good percentage to target, or is it really just a matter of running different scenarios through the aid estimators to see what works best for your specific situation?