Demystifying the FAFSA: A Simplified Guide to Filing Your Application
By Colin Craig
If you are a busy high school senior or a parent of a soon-to-be graduate, the college financial aid process can feel overwhelming. If you can relate, please know that you are not alone! In my prior career as a financial aid counselor, I saw first-hand the confusion that the FAFSA and financial aid process can (understandably) cause families. While this is not an exhaustive guide, my hope is that this post can help make the FAFSA application process easier for you and your family.
The Free Application for Federal Student Aid – the first step for being considered for financial aid at most colleges and universities – opens annually on October 1st for the upcoming academic year and filers use prior-prior tax year information and current asset information while filing the application. For example, if you (or your child) are considering attending college beginning in Fall 2023, you will file the 2023-24 FAFSA using 2021 tax information at https://studentaid.gov.
Many states require the FAFSA to be submitted by a certain date to be considered for state grant funding (for example, Pennsylvania has a May 1st FAFSA filing deadline for the PA State Grant program), and some colleges have priority filing deadlines as well, so it is best to file the FAFSA as soon as possible in the Fall.
You will begin the application process by creating an FSA ID (i.e. your user name for the Federal Student Aid system), and you will be prompted to provide information such as your Social Security Number, date of birth, and family information such as the number of people in your household and number of people in the household attending college.
Reporting Tax Information
Once you get to the financial sections of the FAFSA, you will be given two options: you can either manually transcribe your tax information (such as your Adjusted Gross Income) from your federal tax return, or you can use the IRS’s Data Retrieval Tool to automatically import most of the tax information to the FAFSA.
While either option is fine, most financial aid professionals recommend using the Data Retrieval Tool to ensure accuracy of the information reported (since it is being pulled directly from the IRS). Inaccurate information reported on the FAFSA may be “verified” and corrected by the institution, resulting in changes to financial aid eligibility.
In addition to entering items from your federal tax return, you will also be asked to enter information about your earnings and untaxed income information, so make sure to have any W-2s, Federal Tax Return Schedules, unemployment compensation, and Social Security documentation handy while filing the application.
Reporting Assets on the FAFSA
When you get to the section on the FAFSA where you report your assets, make sure to answer the questions as of the day that the application is filed. I recommend having your bank and investment account statements readily available while filing the FAFSA, as that information will be needed as part of the application process.
On the questions that ask about the net worth of your investments, be sure not to include the home in which you live, as noted on the FAFSA application. In addition, don’t include 401(k) plans, pension funds, annuities, non-education IRAs, or Keogh plans as assets in this section.
The assets section of the FAFSA can be a tricky section for investors because the list of what to include and what not to include is extensive. I highly recommend consulting the notes section of the PDF version of the FAFSA for guidance while filing the FAFSA (see page 9 here).
How to Report Major Changes in Income?
You may be thinking to yourself, “our family’s financial situation has drastically changed since the prior-prior tax year, and I’m worried that won’t be reflected on the FAFSA.”
This is an understandable concern, but it is important to note here that the Department of Education grants authority to financial aid professionals to review and adjust FAFSA data to more accurately represent your Expected Family Contribution (EFC) on a case-by-case basis.
If you have had a change to your financial situation, such as a job loss, reduced income, or the death of the primary household wage earner, I recommend reaching out to the financial aid office at your college once you have filed the FAFSA. They will likely require additional documentation, such as updated tax returns, paystubs, unemployment documentation, or death certificates, but if it has the possibility of impacting your financial aid eligibility, it may be worth it the effort!
Looking for Help
The FAFSA can be confusing. While I hope this post can serve as a reference point to get you started, we have only touched the tip of the FAFSA iceberg in this blog post. If you get stuck while filing the FAFSA, I recommend using the following references to help you get that application submitted:
- Federal Student Aid’s website has plenty of helpful resources, including their FAFSA filing guide available here. Additionally, Federal Student Aid can be reached via phone at 1-800-433-3243.
- Reach out to your college’s (or prospective college’s) financial aid office. Financial aid professionals answer FAFSA questions regularly, and it is likely they will have a helpful answer for you. If you live close to the college or university, you can even ask if you can stop by the office for assistance with the application in person.
Benjamin Franklin said that an “investment in knowledge pays the best interest.” Paying for your or a child’s education is a big financial investment but one that can reap intellectual, personal, and financial benefits for a lifetime. If you’re wondering how saving for college fits into your overall financial plan along with saving for retirement, paying off your mortgage or other considerations, give us a call.
We love helping families see the big financial picture and how all the pieces can fit together! In future posts we will discuss your education savings options and how we can help you plan.
Colin Craig, MBA is an Investment Associate at Beacon Wealth Consultants where he serves as a member of the investment management team. Prior to working at Beacon Wealth, Colin served as Senior Student Financial Services Advisor at Geneva College in Beaver Falls, Pennsylvania.