At what point does the Fed Gov't expect the parents of a college child to contribute based upon equity?

I doesn't. Certain assets are required to be reported on the FAFSA, but equity in the primary home is specifically excluded.

The ONLY equity that should be reported on the FAFSA is for net worth of INVESTMENT property (like a 2nd home. Businesses and non-family farm value are only reported if the have 100+ employees.

In terms of federal student aid (i.e. FAFSA), the value of the home the family lives in is not reported or considered, so your equity doesn't matter. At no point are you required to take out a mortgage against your equity. When you submit the FAFSA, the information on it is used to calculate an EFC --Expected Family Contribution. This is NOT the amount that you are expected to pay to the school. Rather, it is the amount that you would have to contribute toward the student's Cost of Attendance before he/she would be eligible for need-based aid. The COA includes what the school charges (such as tuition, fees, room and board), but also other costs that student's typically face that aren't charged by the school, such as books, transportation, personal expenses, and living expenses if the student lives off campus. So, even though the EFC will be the same no matter which school you choose, the amount that you will need to pay the school will vary with how much that school costs. There is no requirement or expectation that you will take out a mortgage because the EFC only determines what level of aid you qualify for, not what you have to pay. However, if the amount of aid you qualify for doesn't cover the entire bill, then you will need to consider how you will pay that gap, and that could include taking an equity loan if you choose. This only applies to federal aid. A typical financial aid package can also contain aid from sources other than the federal government, such as state grants and loans, or scholarships, grants and waivers from the school's own resources. These can have their own requirements. Particularly with private schools that are offering significant aid from their own endowments, equity may be part of the picture, and there may be expectations that the family use some portion of their own assets. This is generally a very modest amount, but it varies widely from school to school, so you would need to discuss it with your particular school.

The government won't care about the 100k worth of the home. They will care about the 5k equity (and other equity and cash). Likely they will give full tuition scholarships or loans.

There is no federal requirement for parents to pay for their kids college, actually. In terms of our civilization, average parents/middle class parents paying for their kids college. Is only about two decades old. Most used to work their way through college as well as student loans and such.

The government expects that you won't have children you cannot afford to raise -- and educate. How you do it is up to you. For most people, the first step is getting education themselves so that they earn enough money to raise a family. The second step is not having more children than they can afford. The third step is living frugally and saving