Five Things Families Should Know About the FAFSA

For families planning to fund college, completing the Free Application for Federal Student Aid (FAFSA) is an important step in understanding financial options available to them. While the FAFSA for the upcoming academic year typically becomes available on October 1, navigating the process involves more than simply completing a form. Understanding the requirements and planning ahead can make a meaningful difference. Here are five key things families should know as they navigate the financial aid process.

1. Income generally matters more than assets in determining aid

Colleges use the Student Aid Index (SAI) to help determine a student’s financial need and eligibility for federal student aid, including grants, loans and work-study programs. The SAI considers both a family’s income and assets, but the two are not weighted equally. In general, income has a greater impact on the calculation than assets. The SAI calculation generally considers four main factors: parent income, parent assets, student income, and student assets. The formula is driven primarily by income, while savings have a more modest impact. Under the federal aid formula, the assessment of parental income generally ranges from 22%–47%, while assessable parental assets may be counted at a rate of up to approximately 5.64%, depending on the family's circumstances. For students, 50% of income and 20% of assets may be counted. For this reason, parent-owned 529 plans are generally treated more favorably in the federal aid calculation established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), which are typically considered student assets.

2. Grandparent-owned 529 plans are not considered as part of the aid calculation

Due to changes in the FAFSA process, distributions from grandparent-owned 529 savings plans are no longer treated as student income in the SAI calculation. This includes other non-parent-owned accounts as well. Historically, while a grandparent-owned 529 was not counted as a reportable asset on the FAFSA, distributions from the account could be treated as student income, potentially reducing eligibility for need-based financial aid in a subsequent academic year. Beginning with the 2024—25 FAFSA, this is no longer the case.

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However, some colleges require families to complete the CSS Profile administered by the College Board, in addition to the FAFSA, when determining eligibility for institutional financial aid. The CSS-Profile may request information on non-parent-owned 529 accounts, and colleges may consider these accounts when calculating aid eligibility. Families should understand the requirements of each college to which a student is applying.

3. Complete the FAFSA as early as possible

Completing the FAFSA as early as possible may help families maximize their financial aid opportunities. While the application determines eligibility for federal aid, some state and institutional aid programs have their own deadlines and limited funding, making early submission particularly important. Families should check federal, state, and college-specific deadlines to avoid missing potential aid opportunities.

4. Don’t assume your income is too high to qualify

Even if a family believes its income is too high to qualify for financial aid, completing the FAFSA will still be worthwhile. There is no universal income cutoff for federal student aid eligibility. Eligibility depends on several factors such as the cost of attendance, which will vary among colleges. Completing the FAFSA may also be necessary to access certain state-based aid, institutional grants and scholarships, as well as federal student loans. Having a FAFSA on file can also be helpful if a family experiences a significant change in financial circumstances, such as a job loss or substantial reduction in income. In these situations, families can contact the college’s financial aid office to discuss their circumstances and determine whether an adjustment to their financial aid eligibility may be warranted. Lastly, some colleges require a completed FAFSA to be considered for merit-based scholarships or other forms of aid not based on financial need.

5. Not all financial aid is created equal

A financial aid package may include a combination of grants, work-study opportunities, and student loans, each of which affects a family’s college costs differently. Families should look beyond the total amount of aid offered and focus on how much represents free assistance versus borrowing. They should also consider other factors that affect the overall cost of an aid package, including interest rates and loan terms. For example, a financial aid package that includes student loans may be considerably more expensive today than a similar package offered several years ago, given the broad increase in interest rates.

Closing thoughts and action steps

Remember to file the FAFSA every year. Families must submit a new FAFSA for each academic year to be considered for federal student aid
Get organized before you begin. Gather relevant tax information, records of reportable assets, and other information to help completing the application easier.
Use available resources. Visit studentaid.gov to learn more about the FAFSA process and use the Federal Student Aid Estimator to get an early estimate of potential federal student aid eligibility.
Engage with college financial aid offices. If your family is comparing offers from several colleges, consider contacting financial aid offices directly to ask questions about an award, clarify available assistance, or discuss whether additional financial aid may be available. Some colleges may be willing to reconsider an offer based on competing awards or a change in family circumstances.

For more information on how 529 college savings plans may affect financial aid eligibility, check out our brochure, Saving for Education with 529s and the Effect on Financial Aid, for additional insights and planning considerations.

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