If you have children heading to college soon, or if you are headed back to school as an adult, filling out a FAFSA will determine whether or not you are eligible for any federal financial aid. It’s one of the many important documents you’ll need to deal with, and learning how the FAFSA works will help you with the financial aid process.
There are lots of ways to pay for college, and federal financial aid is just one of them. There are scholarships, cash flowing college costs, and ways to reduce the costs overall, think attending community college first.
And, many students will benefit from filling out a FAFSA, and that’s probably one of the most common misunderstandings about how the FAFSA works – families earning as much as $180,000 in 2019 may be eligible for financial aid.
When you consider that the median household income for 2017 was only $60,336, there is a lot of space in there for students to benefit from filling out a FAFSA.
The M$M Quick and Easy Guide to learning how the FAFSA works
What is FAFSA?
Let’s get the most basic thing out of the way first – what is FAFSA?
FAFSA stands for Free Application for Federal Student Aid. It’s a document put out by the U.S. Department of Education, and you will need to fill out a FAFSA to receive financial assistance from colleges, states, and the federal government.
I’m going to get into specifics in a minute, but basically, the FAFSA uses your family’s financial information to determine your financial aid needs, or how the government and colleges can help you pay for your education. It’s necessary paperwork for scholarships, loans, and grants.
What you need to fill out a FAFSA
In some ways, filling out a FAFSA is really similar to doing your taxes because you’ll need to provide the following information:
- Social Security Number
- Alien Registration Number (if you aren’t a U.S. citizen)
- Federal Income Tax Records, W-2’s, and records of any other money earned
- Bank statements and records of investments
- Records of untaxed income
- An FSA ID number to sign the FAFSA
Not every piece of information on that list will be applicable to everyone, but everyone will benefit from collecting the information before they get started. It just streamlines the process.
For your tax information, most people can use the Data Retrieval Tool to pull information from the IRS. There will be a few questions to verify your identity, and after that, the IRS will transfer your information to the FAFSA.
M$M tip: For more articles related to college costs and saving for college, here are some of my favorites:
- Are Parents Actually Saving for College?
- Is a College Degree Worth It?
- Should Parents Pay for College?
- Federal Student Loan: 6 Things I Wish I Knew
Defining FAFSA terms
Before answering the question “how does the FAFSA work?”, it might be helpful to review some of the terms I’ll be using in this guide.
COA – Cost of Attendance
The COA is how much it will cost you to go to school for the full year at most two-year and four-year colleges. For programs that last a different period of time, like an 18-month certificate program, your COA might look a little different because it covers a different tuition period.
Your COA will include:
- Tuition and fees
- Room and board, or living expenses for students who won’t be using traditional room and board
- Cost of supplies, books, transportation, loan fees, and other miscellaneous expenses
- An allowance for a child or dependent care if applicable
- Costs related to a disability
- Some costs for eligible study-abroad programs
EFC – Expected Family Contribution
This is a number that takes your family’s taxed and untaxed income, assets, and benefits, like unemployment and social security. The size of your family and number of family members who will also attend college or technical schools during the same year will also be factored into the EFC formula.
The FAFSA figures that 20% of the COA will be covered by the student’s assets and 5.64% of the parent’s assets. For parents saving up for college, putting the majority of that savings in your name means your child will be eligible for more financial aid.
However, if your child has a 529, even if it is in your child’s name, those assets will be evaluated at the parental rate of 5.64%. That’s just another reason why 529 plans are so freaking awesome.
This is financial assistance in the form of grants, subsidized loans (meaning the government pays the interest while you’re in school and during the 6-month grace period after you graduate), and work-study programs.
These are loans that can be taken out by either the student or the parents, and the major differences between need and non-need based loans is how interest is paid and accrued while you or your child is in college.
You can read more about need-based options and non-need-based options a little farther down.
How does FAFSA work to determine your financial aid needs?
Once you fill out a FAFSA, your aid will be determined by subtracting your EFC from the COA.
Cost of Attendance – Expected Family Contribution = Need-based Aid
The amount of need-based aid cannot exceed your total financial need or COA.
For example, if your COA is $25,000, and your EFC is $17,000, your need-based aid would be $8,000.
But, you may also be eligible for non-need-based aid, which typically takes the form of loans. This number is calculated by subtracting the need-based financial aid you’ve already been awarded and any private scholarships from the COA
So, using that same example above, but you are also receiving $5,000 in private scholarships, the formula for determining your non-need based aid would look like this:
– $8,000 need-based aid
– $5,000 private scholarships
= $12,000 non-need-based aid
How is need-based aid covered?
Federal Pell Grant
After your need is determined by using the FAFSA, Pell Grants are one of the most helpful options for students qualifying for financial aid. A grant means you will not need to repay the amount you receive, and they are most commonly awarded to undergraduates.
For the 2019-2020 school year, the maximum amount you can receive through a Pell Grant is $6,195.
Federal Supplemental Educational Opportunity Grant (FSEOG)
Not all schools participate in this grant option, but if they do, you may be eligible for $100-$4,000 a year.
Federal Direct Subsidized Loan
You may hear these referred to as Stafford Loans, and the amount you can borrow cannot exceed your financial need. You must be in school at least half-time to qualify. The government will cover the interest these loans accrue while you’re in school and during your post-graduation grace period.
For the 2019-2020 school year, loan amounts range between $5,500 and $12,500 per year.
Federal Perkins Loan
You must have exceptional financial needs to qualify for a Perkins Loan, and not all schools offer them.
Federal Work-Study Jobs
Work-study programs give students an opportunity to earn money to pay for their education while in school. The jobs are part-time, available to part and full-time students, and are typically community service jobs and/or related to your field of study.
Covering non-need-based Aid
Direct Unsubsidized Loan
The amount you can borrow for an unsubsidized loan is based on your COA and other financial aid you’ve already received, and you don’t have to qualify for financial aid to qualify for these loans. With an unsubsidized loan, you will be responsible for paying all of the interest during all of the periods. If you don’t pay interest while you are in school, it will be added to the principal of the loan.
Federal PLUS Loan
These are loans parents or graduate students can take out to cover the COA. The U.S. Department of Education will be your lender, and good credit history will be important for the borrower. Just like unsubsidized loans, interest will accrue during the loan period and is not covered by the government.
TEACH (Teacher Education Access for College and Higher Education) is an option for students going to school to become teachers. As of 2019, the maximum amount you may receive is $4,000 per year. Because it is a grant, it does not need to be repaid, however, you will need to take certain classes and spend at least four years teaching at schools or organizations that serve low-income families in order to receive it.
How does FAFSA work? FAQs
Where do I get a FAFSA?
Online and printable versions of the FAFSA are available at studentaid.ed.gov.
When do I need to fill out a FAFSA?
For the 2019-2020 school year, the FAFSA is currently available and the deadline for submission is June 30, 2019.
For the 2020-2021 school year, the FAFSA will be available on October 1, 2019, and the deadline is June 30, 2020.
You should begin filling out the FAFSA as soon as possible because those who file earliest have the best chance of receiving more financial aid.
How often do I need to fill out a FAFSA?
You will need to refile your FAFSA every year that you plan to attend school.
Can parents lower their assets?
Knowing that a FAFSA takes your assets into consideration, you might be wondering what you can do to help your chances of receiving more financial aid. There are a couple of options:
- Spend money on college prior to filing out the FAFSA, like buying a computer or car.
- Pre-paying your mortgage
- Paying more on your credit cards
- Parents can increase their retirement contributions while their child is in high school
The reason parents can reduce their assets by increasing their retirement contributions is because the FAFSA does not include the value of your retirement assets. Other financial factors that aren’t seen as assets are your home, insurance policy, and annuities.
Do I need to use my parent’s financial information?
The short answer is yes. Even if your parents aren’t claiming you as a dependent, you file your own taxes, and have a job, you will still need to use your parent’s financial information when filling out a FAFSA.
The only exceptions for undergraduate students under the age of 24 as of December 31 of the award year are for those who are married, have dependents of their own other than a spouse, are an orphan, a veteran or active duty military. There are some other very limited criteria you may meet that let you file as an independent, but the chances are pretty small.
How does the FAFSA work? My final word
The FAFSA is a necessary part of going to school, whether that’s a community college, four-year university, or trade school.
Once you gather the necessary information, filling out a FAFSA is a relatively painless process. I mean, it’s not fun, but it’s not as awful as you might think. Filing out and filing your FAFSA online is probably the easiest and most efficient option.