In financial aid policy, among the questions that cause the most angst are those related to home value and home equity. The reality is that the housing market has been in such a state of flux from town to town, block to block, and family to family in the past couple of years, it's difficult to establish a rule of thumb that applies to everyone. Families on the same block can have vastly different home values, vastly different abilities to tap into it, and vastly different reasons for wanting (or not) to do so. So, what are some of the key considerations for deciding how you should treat home equity as you review financial aid cases?

Do we expect a family to sell its house? For better or worse, access to home equity has long been used by families as a means to fund everything from retirement to a new house to a new sofa. If a family has home equity, recognizing, at a minimum, the potential to access some of it to help supplement income is important. This doesn't mean selling the house but it could mean that a family may be able to help pay some of its costs with its some of its equity rather than with (or in addition to) some of its income.

What if the family can't access its equity? SSS only uses the amount of home equity up to three times the family's income. If you don't want to use home equity in the assessment for a family, you can remove it from the calculations and recalculate the results. In the student's "Professional Judgment" section of your Comp*Assist Online account, simply select the setting "Remove Home Equity from Calculation" and change it to "Yes." Doing so will allow you to recalculate the SSS results without regard to the equity they report.

How can I trust the market value a family reports? A wise man once told me, "No one knows how much their house is worth until they sell it." Anybody can make a bad guess about their home's value or give you a tax-assessed value different, potentially, from market value. If you want an alternate estimate (or if the family simply doesn't provide one), there are some tools you can use to get other figures against which to compare what the familyreports. Try www.zillow.com and the home value estimator at the www.eloan.com website for some comparison points (but how can you trust them, too?).

What is the HIM that SSS provides? You can use the SSS-provided Housing Index Multiplier (HIM) as well to get another estimate of current home value. This projects current value based on year of purchase and purchase price. It applies an index of how much that home has appreciated since it was purchased based on national housing value trends. As such, it may be less reliable than something like the zillow or eloan tools, which base estimates on local and recently comparable sales, but it's more reliable than an arbitrary estimate based on nothing.

How much impact does the equity actually make on the family contribution? Depends on how much equity there is but, generally it does not weigh inordinately in the determination of ability to contribute. The SSS formula recognizes that assets, like home equity should be primarily protected for future use, such as retirement or emergencies, so significant protection allowances against home equity are given.

Here's a simple example of the relative impact home equity has on parent contribution:

• Two parents, both at age 44, earn $50,000 each and report zero income from their side business. They have two children and no net worth. Their parental contribution (PC) is about $9,040.
• You discover that they actually have $50,000 in home equity (and no other assets). Their PC goes up by $78. This is equivalent to 0.16 percent of the amount of equity. Further, this extra $78 represents only 0.86 percent of the new contribution. But if you discovered $50,000 in business write-offs to add back to income, their PC goes up by about $14,850.
• Of course, as home equity increases, it matters more, but the impact on the bottom line is still relatively cushioned by the protection allowances for assets. If our sample family has $100,000 of home equity (and no other assets), the initial PC would go up $1,085 (or 1.09 percent of the equity, but now about 10.7 percent of their new PC). This is where significant change in EFC begins to emerge for an individual family, but still represents a small fraction of the amount of equity to "convert."

In fact, this sample family needs about $44,500 in home equity before the "income-only" PC moves at all. Among PFS filers in the 2007-08 year, the median home equity reported was $45,000, meaning that half of all filers reported less home equity than the amount that seems to kick in as minimally impacting their contribution analysis.

While reviewing home equity for families is important, resist the urge to get it EXACTLY right every time. Home values are hard to pinpoint, even under the best economic conditions, and the changes in what you might find versus what the family reports may not yield much difference in the end for most families. The impact of a "found" $50,000 in equity can be much less than adjusting income or allowances by just an extra $1,000 for a typical family. When dealing with home equity issues, be sure to keep these considerations in mind for a balanced and sensible approach.