FAFSA Guide: How to File and Maximise Aid

What the FAFSA determines

The form produces a Student Aid Index, which schools subtract from their cost of attendance to calculate financial need. That number drives Pell Grant eligibility, subsidised loan eligibility, work-study and most need-based institutional aid.

Even families who expect no need-based aid should file. Unsubsidised federal loans, which have fixed rates and federal protections, require a FAFSA, and many merit scholarships and state programmes use it as a gate.

Which year's income counts

The FAFSA uses prior-prior year income — tax data from two years before the academic year begins — imported directly from the IRS. That means the financial picture is largely set before the student applies, and it is the reason financial planning for aid needs to start early.

If your circumstances have changed materially since that tax year — job loss, divorce, death of a parent, large medical costs — file anyway and then request a professional judgement review from each school's financial aid office with documentation. Aid administrators have statutory authority to adjust the figures.

What counts as an asset and what does not

Asset treatment matters because student-owned assets are assessed at a far higher rate than parent-owned assets.

• Excluded: retirement accounts, the family's primary home, and the value of small family businesses in most cases.
• Counted as parent assets: 529 plans owned by a parent, taxable brokerage accounts, second properties, cash savings.
• Counted heavily as student assets: money in the student's own name, including custodial UTMA/UGMA accounts.
• Grandparent-owned 529 distributions no longer reduce aid under current rules — confirm before relying on it.

Deadlines and common errors

There are three deadline layers: the federal deadline, each state's deadline, and each college's own priority date, which is usually the earliest and the one that matters. Missing a school's priority date can cost institutional grant money even when eligibility is unchanged.

The recurring errors are simple: using the wrong parent for a divorced or separated household, reporting retirement account balances as assets, mistyping Social Security numbers, forgetting to sign with the FSA ID, and failing to list every school under consideration.