Paying For College 201: A Break for Family-Owned Businesses

College Admissions

This is a guest post by Todd Rhine.

By now, you have learned a significant amount about how you can properly position your assets to receive the maximum amount of financial aid legally possible.  You have hopefully avoided putting too much money in the student’s name and you have moved your investments to the types of tools that avoid inclusion in the FAFSA calculation.  But, is there anything else you can do to manage the amount of income and assets that are counted against you when applying for financial aid? Yes—try putting your family-owned business to work.

If you were completing your FAFSA prior to 2006 and owned a family business, you would have been upset to learn that its value was included as an asset that determined your ability to pay for college. Fortunately, section 8019(c) of the Higher Education Reconciliation Act of 2005 (HERA 2005) changed this rule so that the assets that generated the income would not be counted against you.  After all, aren’t these assets the same ones that generated the income that is included in the FAFSA?

Now before you get excited and decide to create a work-at-home internet business to accept all your income, please take some time to think this through and discuss its impact with your accountant, planner, or financial team.

There are also some key rules to follow to make certain your business’ value is not included on FAFSA. They are:

  • The business needs to be primarily owned (greater than 50%) by your family
  • The business must have fewer than 100 employees
  • The business needs to be controlled by the family completing the FAFSA
  • The family farm is excluded from FAFSA
  • If the business is real estate, the family must demonstrate that they are materially participating in the management and solicitation of the holdings. Simply being a real estate agent does not qualify for exemption of FAFSA.

So how can having a family-owned business help you spend less on college? The main benefit is your ability to control your income and asset ownership. By working with your CPA and/or Financial Planner, you can better control your salary and expenses. The net result is a lower amount of income and assets subject to inclusion on your FAFSA and a reduced Estimated Family Contribution (EFC). This means, you will have a greater opportunity to take advantage of the multiple Federal, State, and college-specific aid programs available.

If you think you can leverage a family-owned business to maximize your college financial planning, then don’t hesitate. But, you will want to give yourself a couple of years in order to maximize the benefit of this provision. 

Have questions? Please post them below.

Todd Rhine is the owner of Todd Rhine Planning ( He sports an impressive roll of financial certifications (including CWC, CFP®, RFC®, CLU, ChFC, IAR), and we asked him to write a series of articles related to financing college after seeing some of his results.