General Overview of Treatment of Assets
Students should expect to contribute all of their personal assets toward their educational expenses over the course of their three-year legal education. In general, a student’s contribution each year will include one-third of any assets reported on financial aid application forms, less an emergency reserve allowance (ERA). The ERA is a standardized amount automatically set aside from the calculations in order to protect a certain portion of the student’s assets in case of emergency. The ERA is adjusted upwards when the student has a spouse and/or dependents.
For example, a 1L student who reports $6,000 in cash/savings can expect the student contribution from assets to be assessed approximately as follows:
- 1L Year = 33% ($6,000) = $1,500
- 2L Year = 33% ($6,000) = $1,500
- 3L Year = 33% ($6,000) = $1,500
In this example, the assessment for each year comprises 1/3 of the total value of the assets ($2,000) less 1/3 of the approximate total ERA ($500).
Base Line for Setting Asset Calculation
The base line for this asset calculation is set by using the personal assets reported at the time of a student’s first application for financial aid. Should there be a significant increase in assets during the course of the three year legal education at HLS, the base asset amount would be changed to reflect the increased personal resources. Sources of these increases may include — but are not limited to — wedding gifts, in-law support, gambling winnings, bonuses, or inheritances (cash, stocks, real estate, CDs, etc.). Students are required to report any increase in assets totaling more than $3,000 to Student Financial Services (see below).We will, however, consider an appeal to adjust the value of your assets with documentation showing that they were liquidated and used to pay reported consumer debt or reported education-related debt in the student’s name only prior to matriculation. This appeal request can be made upon matriculation in September.
Adjustments to Asset Base Line
Student Financial Services encourages students to pay down consumer and education-related debt prior to entering law school and will consider appeals to adjust the base line asset values in response to such activity. In order to qualify for such an adjustment the student must submit a formal appeal and proper documentation showing the following:
- originally reported education and/or consumer debt levels: debt[s] must be in the student’s name and amounts must correspond with originally reported levels from the main online application on “MyHLS Financial Aid”, (i.e., statements from lenders, creditors, etc.);
- originally reported asset levels (i.e., statements from financial institutions);
- documentation showing a NET decrease in the debt levels prior to matriculation (i.e., updated statements from lenders, creditors, etc.) ; and
- documentation showing a corresponding decrease in asset levels prior to matriculation (i.e., updated statements from financial institutions).
This policy only applies to 1Ls who pay off the eligible prior to matriculation. Students who pay off debt AFTER the Fall Update process or during the 2L or 3L year are not eligible for this asset baseline adjustment.
Types of Assets Considered
To determine eligibility for financial assistance at Harvard Law School, we factor all asset types (liquid and non-liquid) into the calculation of our expected student contribution from assets. This includes, but is not limited to, the following asset types listed in order of general decreasing liquidity:
- cash (includes gifts, prizes, inheritances, etc.),
- checking and savings accounts,
- money market accounts,
- certificates of deposit,
- mutual funds,
- all types of real estate equity (primary home, investment property, vacation property, etc.),
- business or farm equity as found on Schedules C or F , or on the 1120, 1120S, or 1065 Form,
- trust funds and other non-liquid assets,*
- retirement accounts,**
- and may include any other asset type not specifically mentioned here.
*Non-Liquid Assets (including trusts)
Any student applying for need-based grant aid who either receives income from trust/estate OR is the future beneficiary of income or assets held within an IRREVOCABLE trust/estate must report the value of the trust/estate as part of their assets. Please note that for the purposes of determining your eligibility for aid, we do not consider age restrictions on trusts/estates.
We understand that students with non-liquid assets such as trusts/estates, home equity, business or farm equity, other real estate holdings, or retirement accounts may not necessarily want to use these funds to pay for the cost of their education and that, in some cases, they may not even have access to such funds presently. While we do assess a contribution from all asset types, we make no assumptions about the decisions you may make with respect to actually liquidating a particular asset and using it to meet your expected student contribution. This is a highly personal decision and is left for you to decide based on your particular needs and circumstances. Students always have the option of borrowing from any of the available educational loan programs to offset any contribution assessed from such assets. It is not unusual for a student to choose this option — in effect, borrowing against the value of a personal asset — rather than liquidate, say, a retirement account. Since this decision may also have LIPP implications, you should contact the LIPP Staff for further advice.
Retirement assets (401K, 403B, IRA, Roth IRA, and any other type of retirement account) are treated somewhat differently from other assets. We ask that you report the total current value of any retirement assets regardless of their type. We do, however, protect 50% of the value of these assets in recognition of the fact that their liquidation may incur an additional tax burden and/or penalties for early withdrawal of these funds. More importantly, we strongly encourage our students to save for retirement and believe that this type of asset protection is in keeping with that philosophy.
Reporting Asset Increases
Where incoming students report their assets as part of their initial financial aid application, continuing students must report any asset increases on each subsequent year’s main online financial aid application (part of the MyHLS application). All students are required to report any $3,000+ increase in assets regardless of when in the academic year they occur. If the asset change occurs after a student has submitted their application for aid for a given year, disclosure of the asset increase is still required and should be done by submitting the details of the increase via the following web form.
Appeal/Change of Status Web Form
Students should NOT include any of the following as an increase in assets:
- financial aid left over from a previous year,
- reported summer income currently in a checking or savings account, or
- parent or grandparent payments directly to your termbill to cover tuition or insurance fees.
Please contact Student Financial Services if you have any questions about what should or should not be included in this reporting.
Asset Calculations and Market Fluctuations
The value of some assets can fluctuate due to current economic conditions and stock market trends. We do not adjust reported assets to reflect decreases in the value of any investments held in the stock market, because a short-term drop in the total value of such assets will be balanced by the long-term tendency of these assets to increase in value and produce a positive rate of return. In general, Harvard Law School takes the position that students who hold investments over the long term are in financially stronger positions than students who do not. We have concluded that adjusting our need analysis to reflect short-term market volatility is not an equitable policy. We will, however, consider an appeal to adjust the value of your assets with documentation that they were liquidated at a lower value and used to pay education-related expenses for Harvard Law School. Without exception, students requesting this consideration must submit documentation showing the liquidation of these assets and the corresponding payments to the HLS termbill. If you have any questions about the potential impact this might have on your calculation, please contact SFS before executing this liquidation. In some cases, depending on the type of asset liquidated, the net effect in terms of increased aid dollars may not be worth the cost of liquidation.
Using More Than the Expected Asset Contribution in One Academic Year
Many students report decreases in assets from year to year which exceed the 33% that we normally assess as part of the expected student contribution. In some cases, this is due to a decision made on the part of the student to utilize more than the expected 33% in a given year in order to delay the need to borrow additional unsubsidized loan funds, effectively saving on overall interest costs. While this is a perfectly acceptable decision, and a logical one from the perspective of reducing the total amount of loan interest paid, it does not influence the way we assess a student’s contribution from assets. We will still calculate a proportional asset contribution for each year in law school (33% of the original amount of assets reported on the first application for aid plus any subsequent reported asset increase). Students considering this approach are urged to read “LIPP Implications of Asset Use” below as part of their budgeting and long-term strategy.
LIPP Implications of Asset Use
If a student chooses to spend more than 33% of their assets in a given year, he or she should understand the implications that this decision might have for loan repayment assistance under the Low Income Protection Plan (LIPP). We will continue to assess a contribution from assets every year based on the original reported assets (see above). If you spend down your assets in your 1L or 2L year, you may need to borrow to replace the calculated asset contribution to meet living expenses for the subsequent year(s). Since borrowing to replace an expected student contribution is ordinarily ineligible for LIPP coverage, you should contact the LIPP Staff to discuss the LIPP implications of spending more than 33% of your assets in any one year. Depending on the amount of assets you actually have, this may or may not be a significant issue; however, it is important to communicate with the LIPP staff so they can advise you and ensure that your LIPP coverage accurately reflects the way you have used your assets to pay for your education.
Married Student Assets
Married students applying for need-based grant aid are asked to report the value of all assets whether held individually by student or spouse or jointly. We make NO distinction between assets held together and those that were obtained separately prior to the legal action of getting married; ALL asset types are considered, including trusts held solely by the spouse. For more information, see “Married Students and Students (Both Married and Single) with Dependent Children”.
For married students, a portion of the total joint assets is protected for the spouse and not considered in the assessment of the student’s financial need:
- Entering/Transfer Students: We will review your asset data and protect 25% of the sum of all your joint/collective assets in our determination of your student contribution from assets.
- Returning Students Getting Married: We will review your asset data and protect an amount equivalent to the percentage in place when you matriculated to HLS.