How Does FAFSA Work?

Mike Brown Updated on August 26, 2020

Here's a super-hot tip for you: You should fill out the FAFSA even if you think you won't qualify for financial aid. Why is that? Because the FAFSA, which stands for the Free Application for Federal Student Aid, is the gateway to receiving multiple types of financial aid for college, including federal, state, and school-based aid.

It's one of the most important documents you'll fill out during your college career. Here's everything you need to know about the FAFSA.

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What is the FAFSA used for?

Many people are surprised to learn that the FAFSA is about more than federal student aid. In fact, the FAFSA is so important that financial aid officers say that skipping the FAFSA is the most-costly mistake you can make with your education.

FAFSA determines your 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 (in some states), including grants, scholarships, and loans
  • School-based financial aid, including need-based grants and scholarships
  • School-based merit aid, since many schools require the FAFSA to be on file before any aid awards are distributed

While the FAFSA can feel like a chore to fill out, the upside is that it provides one-stop shopping for multiple sources of college money. 

See also: The #1 Most-Costly Mistake People Make When Paying for College

Two more acronyms you need to know: EFC and COA

FAFSA uses financial information about you and your parents (if you're a dependent) to determine your financial need. That information is then shared with the colleges you've applied to. 

Once you've been accepted to a college or university, that institution will use the information on your FAFSA to determine your Expected Family Contribution (EFC). Theoretically, the EFC is the amount that your family would reasonably be expected to pay for you to attend that school. However, there's often a substantial gap between the EFC and what a family is able to pay, so don't panic if your EFC is much higher than expected. 

The school will compare your EFC to the Cost of Attendance (COA). The COA will differ for every school, but it generally includes tuition and fees, room and board, books, personal expenses, and travel. 

The difference between your EFC and COA is what will determine your financial aid for each school you apply to. 

See also: What Do You Need To Fill Out the FAFSA?

Who should complete the FAFSA?

All college students should complete the FAFSA, as should all students who are attending professional schools or certificate-granting programs. That includes students who plan to enroll or who are enrolled in:

  • Two- or four-year colleges
  • Graduate schools
  • Professional schools
  • Any program that rewards a degree, certificate or credit
  • Post-second vocational and technical schools
You should complete and submit a new FAFSA each year you are in school. And be sure to submit your Renewal FAFSA as soon after October 1 each year as possible. Often, state and school grants and loans are limited and awarded on a first-come, first-served basis.

If you have a high school diploma or a General Equivalency Diploma (GED), or you have completed high school in a home school setting approved under state law, and meet any of the following requirements, you are eligible to complete the FAFSA:

  • U.S. citizen with a Social Security number. Males between the ages of 18 and 25 must also be registered for the Selective Service.
  • Legal permanent resident or eligible non-citizen like a U.S. national.
  • A person born in one of several Pacific Islands like the Federated States of Micronesia, American Samoa and the Marshall Islands.
  • A person with refugee status, victim of human trafficking and who has been granted political asylum.

Those with criminal records are still eligible for federal financial aid unless you were convicted of possessing or selling illegal drugs while you were receiving federal financial aid in the past.

See also: FAFSA Eligibility: Who Qualifies for FAFSA Aid?

How is FAFSA aid distributed?

Here's a weird wrinkle with the FAFSA: You apply for aid through the U.S. Department of Education, but you'll be notified of your financial aid awards through the schools you've applied to. 

If your FAFSA qualifies you for federal grants, loans, or work-study programs, that money is disbursed directly to your school. With grants or loans, your school will apply that money toward your tuition, fees and (if you live on campus) room and board. Your school will notify you each time money is disbursed to cover expenses, typically twice a year. Any money that is left over will be paid to you to use for other expenses associated with school. You may be able to choose how that money is paid to you: via check, cash, a credit to your bank account or a prepaid debit or ATM card.

If you qualify for a work-study program, your school will pay you directly unless you request that money be applied to your student account.

Go here for help filling out the FAFSA

Hopefully we've convinced you that filling out the FAFSA is worth your time. Check out our question-by-question FAFSA guide to breeze through the application faster. 

Published in: FAFSA

About the Author
Mike Brown

Mike is responsible for the editorial and marketing direction of Nitro. He has a history of helping people through his educational background—first as a teacher at the Pennsylvania State University and then through 15 years of development and marketing of education programs. Read more by Mike Brown

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