Mortgage's Impact on Winning Financial Aid

Dear Dr. Don, Will paying off my mortgage hurt my daughter's chances of getting a grant or other college financial aid?

Thanks, -- Vicki Vicissitude

Dear Vicki, There are a lot of variables here, including where your daughter is going to college. Generally, paying off your mortgage should improve your daughter's financial aid chances and the amount of a potential package. The Free Application for Federal Student Aid, known as FAFSA, doesn't count all of your assets in establishing the expected family contribution and her eligibility for aid.

FAFSA doesn't consider the equity you have in your home, nor does it consider funds held in your retirement accounts. So, raiding your retirement accounts to pay down the mortgage doesn't make sense. But using savings or investments to pay down the mortgage can help improve her aid package. Don't forget to consider the tax impact of selling any investments to pay down the note.

There's a second aid application, however, called the College Scholarship Service Profile. The more in-depth CSS Profile is used by nearly 400 private universities and colleges. It does include your retirement accounts and the equity you have in your principal residence, among other items considered in determining a possible aid package.

If your daughter plans to attend a school that requires the more complicated CSS Profile to determine her aid package, it makes even less sense to raid your savings or any investments to pay off your mortgage.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.