WHAT IS THE FAFSA?

In order to gain access to numerous state and federal financial aid programs for college degree programs, today's students absolutely must fill out the FAFSA form. The FAFSA, which stands for the Free Application for Federal Student Aid, is essentially a central application that collects financial information and then distributes that data to universities. While applying for financial aid should not affect acceptance into college, universities make a decision about a student's financial aid package based on any number of factors, from their own income to their parents' income, any investments, and any tuition-based considerations that might affect the affordability of a given degree program. To understand more about how the FAFSA works, it's important to understand which pieces of information it collects and what will be required of the application procedure.

Start By Determining Dependent or Independent Student Status

The FAFSA produces different financial aid determinations for students based on their status as either a dependent student or one who is financially independent. Generally speaking, undergraduate students are considered dependents of their parents in all but a handful of cases. Exemptions are generally granted if the student has been married of emancipated, if their primary guardian is incarcerated or if their primary guardian has passed away. When a student is classified as dependent, both their income and their parents' income are combined when calculating eligibility for grant and loan programs.

Graduate students, those who have married, or those who are older than age 24, are typically considered independent students. This means that only their income, and not the income of their parents, is considered for the purpose of distributing financial aid. If a student is married, their spouse's income may need to be considered when calculating financial aid packages, however.

Prepare the Proper Documentation When Providing Financial Data

Because the FAFSA is first and foremost a declaration of wage and income, applicants will need to make sure that they have the proper information available prior to starting the application procedure. The most important document to have on hand is the student's most recent tax return. If necessary, a parent's or spouse's most recent tax return must also be available.

The FAFSA will ask a series of questions that can be directly referenced on certain lines of the tax return. These questions will assess annual income from a full-time or part-time job, any additional sources of income like child support or Social Security payments, and any income derived from investments, tuition savings accounts, or retirement accounts. Using a complex federal formula, this information is used to determine how much the student is able to pay toward the cost of their education and how much of this cost will be covered by aid programs.

Make the Process Easier with the IRS Data Retrieval Tool

Sometimes referred to as the DRT, the Data Retrieval Tool can be used early in the FAFSA filing process to automatically pull in income information from the student's, spouse's and parents' tax returns if they were filed at least a few weeks in advance of the FAFSA application. This makes it easier to complete the process, and can even eliminate the necessity of having paper tax returns on hand during the application procedure.

An Instrumental Way to Increase the Affordability of College Tuition

The Free Application for Federal Student Aid is one of the key parts of applying to college, ensuring its affordability, and maintaining federal and state grants or loans on an annual basis. With yearly application and analysis of financial data, the FAFSA gives students the financial resources they need to affordably secure an advanced degree of their choosing.

Related: A Guide to Understanding 529 College Savings Plan