The US Department of Education awards more than $120 billion in financial aid each year [1] to students who submit a FAFSA – Free Application for Federal Student Aid. Eligibility for Federal student aid is a complex calculation, based on many factors. Family income is only one element of the determination, and needs-based aid is only one form of available assistance. Furthermore, nearly every student who submits a FAFSA is eligible for some form of financial aid. This means that even if your family wealth is above average, your student should still submit a FAFSA. Here’s what you need to know.
Deadlines to Submit a FAFSA
Your student should complete a new FAFSA every academic year.
The window of time for submitting a FAFSA is October 1 through June 30 of the current academic year. For example, for the 2022-23 academic year, the opening date for submissions is October 1, 2022 and the deadline is June 30, 2023. Although Federal funds don’t run out, submit a FAFSA as soon as possible to avoid missing other critical deadlines (see below).
Beware of State and College Deadlines
Most states offer student aid programs based on the FAFSA. Deadlines differ by state.
Many colleges also use FAFSA information to calculate institutional aid. Each college sets its own application deadline, so check with the financial aid office. Note that not all colleges participate in the FAFSA program. You can compare institutions using the Department of Education’s College Scorecard.
No Application Fee
There are companies that specialize in facilitating FAFSA applications, but they typically charge a fee. The FAFSA itself is free and can be completed online in 30-45 minutes if all the necessary information is at hand.
Information Required to Submit a FAFSA
For any given year, the FAFSA requires tax data from the ‘prior – prior year,’ e.g., for 2022-23, information will be drawn from 2020 tax returns (the year before the year before). The FAFSA process includes an option to electronically transfer relevant data directly from the IRS into the application.
Additional information needed to submit a FAFSA includes bank and brokerage account balances, and the value of any investment properties. The FAFSA excludes assets such as money in qualified retirement plans and the net worth of the family home.
Student Aid Report (SAR) and Expected Family Contribution (EFC)
Within 3-5 days, the FAFSA generates a SAR (Student Aid Report). This contains the all-important Expected Family Contribution (EFC), an index number (not dollar amount) that reflects your family’s financial status. The EFC determines what type of Federal aid a student can obtain and how much. It’s also transmitted to the schools (up to 10) that were listed on the FAFSA. Colleges subtract the EFC from their Cost of Attendance (COA) to estimate total college costs, before allocating institutional aid. You can estimate your EFC here.
One FAFSA, Multiple Aid Options
Student aid comes in various forms:
- Federal Grants – Needs-based grants like Federal Pell Grants don’t need to be repaid.
- Federal Work-Study – Students work part-time on or off campus. Priority for these jobs is based on financial need. Money is earned and therefore doesn’t need to be repaid.
- Student Loans – By far the most common form of educational assistance and also the broadest in scope, student loans must be repaid in full, plus interest. For this reason, it’s essential to understand the type of loan on offer, its terms and conditions. Typically, Federal student loans offer lower interest rates and more lenient repayment options such as income-based repayment schedules, and loan forgiveness for certain career choices. Private loans have more stringent application and repayment requirements. Interest rates on both Federal and private student loans are fixed for the life of the loan.
- College-based aid – A college may extend needs-based or merit-based student aid. Merit-based aid is based on academic, athletic, artistic, or other special interest achievements. However, institutional aid rarely covers the entire cost of college.
Other Ways to Offset College Costs
- Establish a 529 college savings plan. Contributions accrue tax-deferred, and many states offer an income tax deduction. Withdrawals for educational expenses are tax-free, too.
- Apply for scholarships and grants.
- If applicable, take advantage of the Federal income tax credits for education expenses.
- Study part-time to spread out the cost of college. Note, however, studying less than half-time may impact eligibility for many forms of student aid.
- Consider starting out at a community college but be sure that all credits are fully transferable.
- If you’re working, ask your employer about education assistance.
- Some colleges offer life experience credits, which can shorten the length of your studies. Military experience often counts as credit.
- Members of the military and their dependents may qualify for special grants and loans such as the Federal Iraq And Afghanistan Service Grant. In addition, the Post-9/11 GI Bill can be a valuable educational funding resource for eligible personnel and their families.
SageVest Kids is a financial literacy resource provided by SageVest Wealth Management. SageVest integrates comprehensive and customized financial planning into our wealth management services. This includes preparing for college costs, as well as retirement planning, legacy considerations, and more. Please contact us to find out how we can help you and your family prepare for a financially successful future.
