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How Does FAFSA Work?

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? 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.

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

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What is the FAFSA used for?

Many people are surprised to learn the FAFSA is about a lot more than federal student aid. In fact, the FAFSA is so important that financial aid officers say skipping the FAFSA is the most-costly mistake you can make when pursuing 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
  • Some state-based financial aid, including grants, scholarships, and loans
  • School-based financial aid, including need-based grants and scholarships
  • School-based merit aid, since many schools require you file a FAFSA to consider you

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 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 actually 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 (and college-bound) students should complete the FAFSA, as should all students planning to attend professional schools or certificate-granting programs. That includes students who plan to enroll or are enrolled in:

  • Two- or four-year colleges
  • Graduate schools
  • Professional schools
  • Any program that rewards a degree, certificate, or credit
  • Post-secondary vocational and technical schools
You should complete and submit a FAFSA for each school year. After your first FAFSA, you can submit a Renewal FAFSA in the following years. It has some of your information prefilled, so it's a little easier — and faster — to complete. Try to file the FAFSA as soon after October 1 each year as possible. Often, state and school grants/loans are limited and awarded on a first-come, first-served basis.

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

  • U.S. citizen with a Social Security number
  • born in the Federated States of Micronesia, American Samoa and the Marshall Islands
  • legal permanent resident or eligible noncitizen like a U.S. national.
  • a person with refugee status or victim of human trafficking who has been granted asylum.

In addition, males between age 18 and 25 must be registered with the Selective Service. 

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 room and board (if you live on campus). Your school will notify you each time money is disbursed to cover expenses, typically twice a year. Any money left over will be paid to you to use for other expenses associated with school. You may be able to choose how you receive that money: 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. 

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