Understanding the FAFSA: What Families Need to Know

Plant growing out of money cup

Most families with students applying to college have heard of the FAFSA, the Free Application for Federal Student Aid. This is a form you need to complete to obtain financial aid from the federal government. However, not every family knows if they should complete a FAFSA. According to Al Hoffman, a veteran financial aid guru, “You need to file to tell the college if you need money, and, you need to file to tell the college if you do have money!”

What this means is that even if you think you will not qualify for any aid, it may be in your best interest to file anyway, to make sure that you don’t miss out on scholarships. Some colleges, including the Georgia Institute of Technology, require families to submit a FAFSA in order to be considered for merit awards as well as need-based financial aid.

The FAFSA determines a student’s eligibility for need-based programs that are funded by the federal government, including work-study jobs, subsidized and unsubsidized loans, and Pell Grants. If students are extremely needy, an additional few hundred dollars may be available through the SEOG (Supplemental Educational Opportunity Grant). Veterans and their dependents may be eligible for specific additional benefits.

Families may not be familiar with how their financial need is assessed. This article will introduce families to principles of need analysis under the federal methodology. This applies to colleges that use the FAFSA form alone. There are colleges that also use the CSS Profile or their own forms for a deeper dive into families’ resources. Applying for federal aid is the first step in making the most of the opportunities available to make college more affordable.

As you get started, don’t be scared by the financial aid alphabet soup! Here are a few definitions that will help you make sense of some of the terms. As you already know, FAFSA stands for Free Application for Federal Student Aid. EFC stands for Expected Family Contribution. COA stands for Cost of Attendance. FWS stands for Federal Work Study. NPC stands for Net Price Calculator, a tool that colleges must post on their financial aid websites. The NPC enables families to estimate their ballpark COA (see how you needed to know what COA stood for?!).

How do I know how much college will cost?

The Cost Of Attendance or COA is posted on the financial aid page of each college’s website. This is the sticker price, before any discounts. This is not likely to be the price you will pay. Most colleges award scholarships, which are tuition discounts for the students they want to recruit. By filing the FAFSA, you may receive federal aid and state aid as well. However, if your Expected Family Contribution (EFC) is higher than the Cost of Attendance, then the sticker price could be it – unless your student obtains merit scholarships.

How much will colleges expect us to contribute?

When you complete the FAFSA, a percentage of the parents’ income and assets is added to a contribution from the student’s income and assets. The sum of these four elements makes up your Expected Family Contribution or EFC. The EFC is the amount that your family is expected to contribute from your resources. This amount is printed on your last FAFSA page as well as on the first page of the Student Aid Report (SAR).

Until September 27, you can use the FAFSA4caster to calculate your family’s Expected Family Contribution (EFC) before you submit the real FAFSA, which opens on October 1 each year. The College Board also has an EFC calculator that uses both federal and institutional methodologies.

Will colleges ask me to pay more than my Expected Family Contribution (EFC)? 

For colleges that are need-blind and meet 100% of demonstrated need, the COA should be equal to your EFC. Regrettably, there are very few colleges in the US that can afford to meet 100% of demonstrated need. Most of those colleges require the CSS PROFILE or their own institutional forms in addition to the FAFSA. Your expected contribution as calculated by institutional methodology may be different than the EFC as calculated by the federal methodology.

What type of aid is available if a student demonstrates need?

There are three basic types of need-based financial aid: work-study, loans, and grants. Work-study jobs help students earn their own spending money while in college. Loans help families afford the expense of college over time, and grants (also sometimes referred to as scholarships) are gifts that do not have to be repaid.

What kinds of loans are available?

Loans are subsidized when the government pays the interest while the student is enrolled in college. On the other hand, unsubsidized loans accrue interest starting at the time of disbursement. Both are available to undergraduate students if they are degree-seeking and enrolled at least half-time at a school that participates in the Direct Loan Program. The unsubsidized direct loan for undergraduate students and the PLUS Loan for parents are available even if the family doesn’t demonstrate any financial need. (PLUS stands for Parent Loan for Undergraduate Students.)

Families can gain a huge advantage by understanding how their financial resources are being assessed under FAFSA. The questions on the FAFSA are supported by the Federal Methodology, which is revised every few years by negotiated rulemaking and approved by Congress before it becomes law. While colleges can give out their own institutional funds any way they want, they must dispense federal aid in accordance with those laws.

How much can an undergraduate student borrow?
  • In the first undergraduate year, students can borrow up to $5,500. Up to $3,500 can be subsidized if students demonstrate need.
  • In the second undergraduate year, students can borrow up to $6,500. Up to $4,500 can be subsidized if there is
  • In their third and fourth years, undergraduate students can borrow up to $7,500 each year, of which $5,500 can be subsidized if they demonstrate need.

The federal government limits the amount of debt an undergraduate student can take on. The total amount dependent students can borrow over four years is $27,000. The college receives slightly less than that because the origination and disbursement fees are deducted from the loan. If students graduate and find employment within six months, they are typically able to repay this amount. Even when parents don’t need their children to take out loans, these can be a way to help students put some ‘skin in the game,’ build credit, and increase financial awareness. Loans for undergraduate students are less expensive than those for parents. Given the very low interest rates and fees for the upcoming 2020-21 academic year, many students, including those whose families might not have considered loans in the past, may discover that federal loans make college affordable in these uncertain times.

What are the current loan rates?

Federal loans made between July 1/, 2020 and June 30, 2021 for dependent undergraduate students:

Type of Loan Interest Rate Origination Fee
Unsubsidized Direct loan 2.25% 1.059%
Subsidized Direct Loan 0 0 while in school
Grad Plus loan 4.30% 4.228%
Parent PLUS loan 5.30% 4. 228%


I really don’t want to take out loans. Do I have to bother with the FAFSA? 

There are several reasons to file a FAFSA beyond borrowing funds to pay for college.

  • During these uncertain times, many households have lost jobs due to the Covid-19 pandemic. If a family’s financial situation deteriorates, -the college can review the family’s situation immediately if it has a FAFSA on file, they. More information on how the federal government is responding to the crisis can be found here: gov/coronavirus.
  • Think of the FAFSA as an insurance policy. It’s good to have in case your financial situation, even unrelated to the virus, changes.
  • One important fact to remember is that on FAFSA you reported your prior-prior year income, and much may have changed in two years. If your current financial situation is very different, then this can be reported directly to the college financial aid administrators but they cannot consider an appeal without already having a FAFSA on file.
  • We can anticipate that many more families will appeal their financial aid award due to the changing economic climate.
  • Financial aid administrators are interested in helping families to the extent possible, and it’s useful for parents to think of them as advocates for their students. Once the FAFSA is filed, the team can work together to find a way forward.
  • Keep in mind that your EFC is split among the dependents you have enrolled in college at any one time. If your EFC was high you might not have qualified when your oldest child went to college, but you may if more than one is enrolled.
  • Finally, as previously stated, some colleges only award merit scholarships after a FAFSA has been submitted.
When can you file the FAFSA?

High school seniors who are applying to enroll in college in the fall of 2021 can file a FAFSA after October 1, 2020 here. Each state and college sets their own deadline for applying for financial aid, but a good general rule of thumb is that the family should apply for financial aid at the same time the student is applying to college (rather than after) so that the financial aid award will be available at the same time as the admission decision.

Who files the FAFSA?

Both the student and one parent need to file. Each needs to obtain a Federal Student Aid “FSA” ID in order to create an electronic signature. The Department of Education has redesigned its website and provides excellent visuals and videos on how to get your FSA ID and how to complete FAFSA from A to Z (instructions are available in English and Spanish): https://studentaid.gov/h/apply-for-aid

Remember to note down the amount of your Expected Family Contribution listed on the last page of your FAFSA and front page of your Student Aid Report (SAR). It’s often overlooked, but it is actually the most important number on the whole document! This is the minimum amount you’re expected to contribute.

What does a typical financial aid award look like? 

A financial aid award lists your federal need-based aid, a merit scholarship your student may have received, and any other goodies the college can give out.

For example, Lucy’s EFC is $20,000 and the COA at her favorite college is $48,000. If such a school meets 100% of Lucy’s need, she would get a financial aid package that would include federal aid and institutional aid that would add up to $28,000. Because Lucy filed the FAFSA, she will receive the Direct Federal Loan for $5,500 in her first year, of which $3,500 will be subsidized because she demonstrates need. She’s a good student with strong standardized test scores and recommendations, so let’s say the college gives her a $10,000 annual merit scholarship. Now her balance to pay is $32,500 (48,000 – 10,000 – 5,500) but her EFC is still $20,000. So there’s a difference, or gap, of $12,500 that Lucy and her family will need to cover. This is where the federal PLUS Loan or a private loan or home equity loan may be used for bridging the gap.

This simple example illustrates one case where the college doesn’t meet full financial need. Lucy may still attend her favorite college if her parents are willing to take loans. Families vary in their ability to contribute to college costs. Colleges vary in their ability to meet the financial need of families. Students need to remain flexible and cast a wide net to ensure they are accepted to colleges that not only meet their personal needs, like academic and cultural fit, but also meet their financial needs as well.

Claire Law is nationally recognized expert in college financial aid. She teaches college affordability to educators enrolled in the Independent Educational Consultant program at UC-Irvine. She will soon publish her book: College Affordability for Everyone, directed at professionals and families navigating the college process.

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