How the FAFSA Works

By: Dave Roos
For most students, the journey towards a college degree begins with a search for financial aid.
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The U.S. government believes in the power of higher education and is willing to put its money behind it. In the 2007-2008 school year, 66 percent of all undergraduate college students in the nation received some amount of federally funded financial aid. For full-time undergraduates, the number jumped to 79.5 percent with an average aid amount of $12,700 per person [source: NCES].

The federal government provides billions of dollars every year to qualified undergraduate, graduate and professional students through grants, loans and work-study jobs. These funds are managed by the Student Financial Aid office of the U.S. Department of Education and dispersed by the individual schools.


To receive any form of federal financial aid -- which includes Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Perkins Loans, Stafford Loans, PLUS Loans and Federal Work-Study jobs -- you must submit the Free Application for Federal Student Aid, known by its acronym, FAFSA.

The main purpose of the FAFSA is to collect a student's (and often his or her parents') financial information to calculate something called the Estimated Family Contribution (EFC). The EFC is the amount that a family can reasonably afford to pay each year for higher education. To calculate the amount of financial aid a student receives, a school's financial aid office will subtract the student's EFC from the total cost of attendance (tuition plus living expenses).

For this reason, the FAFSA is more than just a federal application. State governments use the EFC generated by the FAFSA to hand out state-funded grants and scholarships. And many individual schools use the FAFSA's EFC to decide who will receive institutional grants, scholarships and loans. Some schools use additional calculation methods and even a separate financial aid application called the CSS/Financial Aid PROFILE.

For the 2009-2010 school year, the Student Financial Aid office processed over three million FAFSA applications, a 20 percent increase over the previous year [source: NASFAA]. Keep reading to learn more about the application process and some tricks for streamlining the process.


Who Can Fill Out the FAFSA?

The FAFSA is for any student who plans to enroll -- or is currently enrolled -- in postsecondary education. "Postsecondary education" means any form of education beyond high school. That includes two- and four-year colleges, graduate schools, professional schools (like law, business or medical school) and just about any program rewarding a degree, certificate or credit, including most vocational and technical schools.

Most people fill out their first FAFSA when they're beginning the college application process. However, you need to submit a new FAFSA application for each year that you intend to receive financial aid [source: FAFSA]. So if you attend a four-year college, you will need to fill out and submit the FAFSA four separate times. This is because the government needs the most up-to-date and accurate financial information to make its calculations.


Not everyone living in the U.S. is eligible to receive federal student aid. First of all, you need to be a U.S. citizen, legal permanent resident or an "eligible non-citizen" like a U.S. national. This one gets complicated, because there are exceptions for people who are born in several Pacific Islands like the Federated States of Micronesia, American Samoa and the Marshall Islands. There are also exceptions for people with refugee status, victims of human trafficking and those who have been granted political asylum [source: FAFSA]. For all special considerations, please contact the Federal Student Aid Information Center at 1-800-4-FED-AID.

If you're a U.S. citizen, you must have a Social Security number. If you're a male between the ages of 18 and 25, you must also register for the Selective Service. The final pre-requisite for receiving federal financial aid is a high school diploma or a General Equivalency Diploma (GED).

In general, people with criminal records are still eligible for federal financial aid. The only exception is if you were convicted of possessing or selling illegal drugs while you were receiving federal financial aid in the past [source: FAFSA].

If you're eligible to receive student aid, then it's time to prepare to fill out the FAFSA.


Before You Fill Out the FAFSA

The FAFSA can be complicated, so make sure you have all the necessary materials on hand before you begin.
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The FAFSA is complicated. After all, this is the same government that brought you the IRS. That said, you can streamline the process considerably by gathering all of your documents and information before you start the actual application.

The first step is to complete your income tax return for the most recent year -- which is easier said than done [source: FAFSA]. The FAFSA asks for financial information directly from your tax returns, so it's very helpful to have your returns handy. If you're applying for financial aid as a dependent of your parents, then you'll be using your parent's tax returns. If you're applying as an independent, then you need to supply your own income information.


While you're digging out the tax return, you might as well grab all of your financial records. This includes W2 forms, investment data (bonds, stocks, CDs), mortgage statements, IRA statements, bank statements -- anything that shows how much money you have and where it is.

If you can't remember your Social Security number, now is the time to figure it out. If you're applying as a dependent, you will also need at least one of your parents' Social Security numbers and birth dates. If you're not a U.S. citizen, you'll need your permanent resident card or alien registration information [source: FAFSA].

The best way to be fully prepared to fill out the FAFSA is to download, print and complete the FAFSA on the Web Worksheet. This checklist runs through every question that you'll be asked on the actual FAFSA. If you don't know the answer on the worksheet, you won't know it on the FAFSA, so now is the time to figure it out. The good news is that once you can supply all of the information on the worksheet, the real FAFSA is a breeze.

The final thing you need to do before starting the application is to apply for a Federal Student Aid PIN. If you're filling out the FAFSA online, you will need to enter a unique four-digit personal identification number (PIN) as an electronic signature. If you're applying as a dependent, both you and one of your parents will need a PIN [source: FAFSA]. The good news is that it's easy and fast to get a PIN -- simply supply your name and Social Security number -- and you can even choose your own. Note: you don't need a PIN if you are mailing in the paper version of the FAFSA.

Now you're ready to start the real application. Keep reading for some more FAFSA tips.


Completing the FAFSA

The FAFSA may be complicated, but it isn't a test. This isn't the SAT and there are no trick questions (at least intentionally). The federal government actually wants you to fill this thing out successfully, so it's provided lots of help along the way. With the online version of the FAFSA, every question comes with a "Help and Hints" window with tips about how to fill in each field. And at the top of each page, there's even a "Live Help" link that launches a live chat session with a customer service representative [source: FAFSA].

If you have already filled out the "FAFSA on the Web" worksheet, then you're fully prepared to fill out the online application. The whole process should take you less than an hour from start to finish. If you haven't filled out the worksheet, gather together all of the documents and information that we mentioned on the previous page: tax returns, financial information, Social Security numbers and PINs.


Next you need to choose which FAFSA school year to complete. The FAFSA designates school years from July 1st to June 30th. So if you're entering school in August 2010, you'll fill out the 2010-2011 FAFSA. If you're applying for a summer session that begins in June 2010, you'll fill out the 2009-2010 version. Check with your school if you're unsure which FAFSA to choose.

Once you choose the application year, you will begin the online application by entering your social security number, name and selecting a FAFSA password. This is different than your PIN. You will need to the password to log back into a saved application. Once you begin the online FAFSA, you can save it at any time and come back later to finish it. There are "save" buttons at the bottom of every page.

There are seven steps to completing the FAFSA:

  1. Student demographics -- your name and contact information
  2. School information -- the Federal School Codes of the schools where you'll be applying for financial aid. You can look these up at the Web sites of the schools themselves or through a searchable FAFSA database. Don't worry, you can add or delete school codes later
  3. Dependency status -- whether you're applying as an independent or dependent of your parents.
  4. Parental demographics -- parents' names and contact information
  5. Financial information -- directly from your latest tax returns
  6. Sign and submit -- where you enter your PIN
  7. Confirmation -- You're done!

The Federal deadline for submitting the FAFSA is midnight Central Time on the very last day of the school year. So if you're filling out the 2010-2011 FAFSA, the deadline is midnight on June 30, 2011. Every state has its own FAFSA deadline for state grants and scholarships. Consult this chart for more details. Your school might have its own financial aid deadlines, so check with them as well.

In the end, the FAFSA is all about calculating your Estimated Family Contribution. Learn more about this magic number on the next page.


Calculating the EFC

The Estimated Family Contribution (EFC) is a critical number for determining the amount of financial aid a student receives. The role of the FAFSA is to collect enough financial information to determine how much the student and his or her family is able to pay for college.

A few days after submitting the online version of the FAFSA, you will receive an e-mail with a link to your Student Aid Report (SAR). The SAR includes a detailed summary of the information you submitted on the FAFSA along with your official EFC. If you think your EFC is way off, double-check your financial information. If there's a mistake, you can correct and resend your SAR.


The tricky thing about the EFC is that not every school relies solely on the FAFSA for calculating the amount a student is able to pay. The FAFSA's EFC is calculated using something called the Federal Methodology (FM) created by the Higher Education Act of 1965 [source: FAFSA]. But there's also an alternative formula -- used by roughly 300 private colleges -- called the Institutional Methodology (IM) [source:]. The IM was developed by the College Board [source: College Board].

What's the difference between the FM and the IM? The FM relies almost exclusively on the adjusted gross income from IRS forms as the indicator of a family's earnings. The IM considers a broader range of assets, including home and farm equity, the assets of a non-custodial divorced parent, and accounting methods that artificially reduce the reported gross income (like depreciation and capital losses) [source: Wake Forest]. The IM also assumes the student will work during the summer to help pay for college. Many schools consider the IM a more accurate picture of family finances.

In order to calculate the EFC using the IM, students must submit a separate financial aid application in addition to the FAFSA called the CSS/Financial Aid PROFILE (or just PROFILE for short).

The bottom line is that the FAFSA's EFC is not the only indicator of how much financial aid you'll be offered by your school. Every school assembles its aid packages using varying amounts of federal and school-based aid. The FAFSA is used to determine eligibility for all Federal aid like Pell Grants, Perkins and Stafford Loans and Federal Work-Study [source: Sallie Mae]. But the school may use the IM or other methods to determine eligibility for institutional grants and scholarships.

Keep clicking for lots more information about paying for college.


Lots More Information

Related HowStuffWorks Articles


  • College Board. "Why Your EFC Isn't Set in Stone"
  • College Board. "Your EFC: FAQs"
  • FAFSA. "Before Beginning a FAFSA"
  • FAFSA. "Documents Needed"
  • FAFSA. "FAQs: Eligibility"
  • FAFSA. "Filling Out a FAFSA Overview"
  • FAFSA. "Reapplying for Federal Student Aid"
  • FAFSA. "Sign Electronically With Your PIN"
  • National Association of Student Financial Aid Administrators. "Applications for Student Aid Increase for 2009-10."
  • National Center for Education Statistics. "Fast Facts: Do you have any statistics on financial aid for postsecondary undergraduates?"
  • Sallie Mae College Answer. "Student Financial Aid"
  • "2010-2011 EFC Quick Reference Table"
  • Wake Forest Student Financial Aid. "General Questions"