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A Quick Guide to How FAFSA Works

The primary purpose of the FAFSA is to determine how much financial aid a student qualifies for, including both need-based and non-need-based aid.

It determines eligibility for federal need-based grants including the Pell Grant and Federal Supplemental Educational Opportunity Grants (FSEOG);

Subsidized federal student loans, which are based on need; unsubsidized federal student loans,

Which most students qualify for regardless of need; federal work-study; state-based financial aid, including grants, scholarships, and loans; school-based financial aid,

Including need-based grants and scholarships, and school-based merit aid (since many schools require the FAFSA to be on file before any aid awards are distributed).

To determine a family's financial need, the FAFSA asks a series of questions about the parents'

And student's income and assets as well as other factors, such as how many children there are in the family. It then comes up with an Expected Family Contribution.

The FAFSA is the official form that students or their families use to apply for financial assistance for college from the federal government.

States, individual colleges and universities, and private scholarship programs rely on the information provided in the application as well.

In terms of assets, the FAFSA assumes that 20% of a student’s assets and 5.64% of the parents’ assets should be available for spending in any one college year.

Those assets include bank accounts and investments but excludes the value of retirement accounts, life insurance policies, and annuities. Any equity in the family home is also excluded.

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