The Free Application for Federal Student Aid (FAFSA) may be the most important part of ensuring college affordability. This is how you can get access to low interest government loans, grants, and it helps a college determine need-based aid. Stafford Loans, Perkins loans, pell grants, state grants, and institution grants all stem directly or indirectly from FAFSA information, so it is very important that it is completed. The application may seem difficult at first, but with the IRS data collection tool, it becomes a lot easier to fill out. It is important to not lie on your FAFSA because you can be selected to provide proof to back up your responses. The link to the FAFSA can be found here.

Dependent vs. Independent

The FAFSA assumes that families will help contribute to an education even if the student is not living with them. This is where a student needs to determine if he or she is a dependent or an independent student. Generally, if you are a veteran, active service member, married, have dependents you support, or are over 24 you can be considered independent. You can determine whether you are an independent or dependent by visiting the FAFSA website. It is important to note that even if parents do not claim the student as a dependent on their taxes, the student may still be a dependent for financial aid purposes.

The difference between a dependent and independent student during the financial aid process is very important. Dependent students need to provide information for both themselves and their parents because it is assumed that both the student and the parents will help pay for the education. Independent students often collect more aid, and are able to take out more Stafford Loans to offset the fact that there is only one income being used to pay for the education. However, there are more stringent rules on who can be considered independent on the FAFSA

FAFSA Calculations

The FAFSA uses very long calculations to come up with the Expected Family Contribution (EFC). The EFC is essentially what the government believes you and your family should be able to contribute in that specific year for college. If you are dependent, the FAFSA takes into account both your and your parents’ assets and income to determine the EFC. If you are an independent, the FAFSA takes into account just student assets and income.

The FAFSA uses data from tax returns and requires that you list certain assets that are then used to calculate EFC. Student income and assets are weighted higher than parental assets because it is expected that the student contribute more of his or her assets since it is his or her own education. Some debts are also subtracted out in these calculations. Essentially, the government expects the student to contribute a greater percentage of income and assets to the education than the parents.

Remember, it is very important to fill out the FAFSA because this is where the college, state, and federal governments will determine how much aid will be given to you.

Eligible and Ineligible Assets

The FAFSA has specific criteria for what is eligible and what is ineligible when filling it out. Fortunately, the online FAFSA site has resources in the information circles that explain what assets are ineligible and eligible for that space when filling out the application.

Some Eligible Items Include:
  • Cash
  • Checking
  • Savings Account
  • 529 plans
  • Brokerage Account Holdings (stocks, bonds, mutual funds, etc.)
  • Investment Properties
  • Businesses with > 50 employees
  • Trusts
Some Ineligible Items Include:
  • Life Insurance
  • Most Retirement Accounts (401k, IRA, etc.)
  • Equity of Primary Residence
  • Small Business Assets
  • Consumer Debt
  • Automobiles