What is the FAFSA, and how does it work?

In this episode of A Wiser Retirement® Podcast, we discuss how the Free Application for Federal Student Aid (FAFSA) is crucial in determining eligibility for financial aid, including grants, loans, and work-study opportunities. Whether or not your family qualifies for aid, understanding the FAFSA’s purpose and process is essential for anyone navigating college costs.

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Summary

What Is FAFSA?

FAFSA stands for the Free Application for Federal Student Aid. It provides colleges with a snapshot of a student’s financial background to determine eligibility for federal, state, and institutional aid. This includes:

  • Pell Grants (need-based aid that doesn’t need to be repaid)
  • Subsidized Federal Loans (no interest accrual while in school)
  • Unsubsidized federal loans (interest accrues immediately)
  • Federal Work-Study Programs
  • Institutional Aid and Scholarships (including some merit-based awards)

While some families may not qualify for federal aid, many schools still require the FAFSA to be submitted, even for merit-based scholarships.

Who Should Fill It Out?

In most cases, everyone applying to college should consider filling out the FAFSA. However, high-income families may not benefit from need-based aid, and if the school doesn’t require FAFSA for merit awards, skipping the application could save time. It’s always a good idea to ask schools directly if FAFSA is required for any merit or institutional scholarships.

FAFSA Deadlines and Requirements

  • Opens: October each year
  • Deadline: Typically in June, but earlier submission increases chances for aid
  • Frequency: Must be submitted every year
  • Time to complete: Around an hour

Common FAFSA Mistakes to Avoid

  • Missing the Deadline: Aid is often awarded on a rolling basis.
  • Leaving Fields Blank: Always enter “0” if something doesn’t apply.
  • Not using the IRS Data Retrieval Tool: This simplifies the income reporting process.
  • Assuming Your Child Will Handle It Alone: Parents often need to be involved for accuracy.
  • Failing to Reapply Each Year: Even returning students must submit a new form annually.

FAFSA and High-Income Families

Families with higher incomes may not qualify for federal or state aid, but submitting the FAFSA can still be required by private colleges or for merit aid consideration. Some families hesitate to submit the form, fearing it could influence scholarship awards, but there is no official evidence of merit aid being reduced based on reported income.

When FAFSA Isn’t Necessary

If your household income exceeds aid thresholds (often around $35,000 for Pell Grants), and the colleges your child is applying to don’t require FAFSA for merit-based scholarships, you may not need to complete it. However, make sure to verify requirements with each school.

How Financial Advisors Can Help

Filling out the FAFSA is also a great opportunity to start teaching your college-bound student about money management. A financial advisor can help you:

  • Evaluate whether you qualify for any aid
  • Plan for education expenses strategically
  • Discuss smart borrowing and avoiding unnecessary debt
  • Make the most of college funding options

Should you fill out the FAFSA?

While FAFSA may seem overwhelming, it unlocks valuable financial aid opportunities and provides a launching pad for important family financial discussions. Whether or not you expect to qualify for aid, knowing what’s required and why can help you make better decisions for your child’s education and financial future.

Need help navigating your options? Schedule a consultation with one of our financial advisors to create a personalized plan for funding college with confidence.

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