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How are small businesses treated in financial aid calculations?

December 10, 2018

As part of the application process, most students complete the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service (CSS) profile, developed by College Board, the creators of the SAT. Even if you don’t believe you qualify for or plan on accepting federal financial aid, many colleges request the FAFSA and CSS as part of the college admission process to determine awards for scholarships.

What is the difference between the FAFSA and CSS

The FAFSA and CSS profile are usually completed for the college admissions process and ask about financial history and ability to pay for college. The FAFSA is used to evaluate students for federal grants, work-study programs, and loans. In some cases, colleges use the financial information in the FAFSA to award institutional scholarships, grants, and state or university funded loans.

The fee-based CSS profile provides private universities and colleges with more detailed information about a student’s financial situation and is used to determine qualification for institutional grants, scholarships, and aids. Though the CSS is not free, students may qualify for fee waivers if they qualify for an SAT fee waiver or meet other criteria related to income and family status. Unlike the FAFSA, the CSS asks questions about the specific academic program and institution where you plan to apply. More than 300 colleges and universities use CSS to evaluate institutional aid.

How does a small business affect FAFSA and CSS?

FAFSA and the CSS handle small businesses differently. In general, the FAFSA does not factor the value of your small business into the EFC (Estimated Family Contribution), which is the amount your family is expected to contribute to your college education. Your eligibility for aid will not depend on the value of your small business. A small business is defined as a family-controlled business with fewer than 100 employees.

However, the CSS profile typically asks for more information regarding finances. Unlike the FAFSA, information about your small business is evaluated as part of the CSS profile. The CSS also considers additional factors that will affect your ability to pay for college including tuition for primary and secondary school.

It’s important to note that rental properties are not considered a small business. The application has a designated place to report rental income.

It’s important to remember that the FAFSA and CSS are two distinct applications, and the award packages may vary considerably. Though the CSS requests additional information, it’s not designed to hurt your eligibility for aid, but rather to provide a complete picture on need and ability to pay for college.

What if my parents owned property related to the small business?

If you own property related to the business, it’s generally considered an asset on the FAFSA, although you don’t have to report the company. If the property is used in business operations, it can be designated a business asset and therefore omitted from FAFSA calculations. However, if it’s a rental or other property not related to the business’ operation, it is generally considered an investment asset. It’s beneficial to list properties as business assets, but unless the title or deed of the property is in the business name, it’s more likely to be an investment property.

Determining how to report business and personal assets is a tricky, but essential part of the financial aid process. The College Board CSS FAQ and FAFSA FAQ are great resources  to reference when completing the FAFSA and CSS.