Holiday shopping dominates the headlines and airwaves this time of year, but it's also when teenagers and young adults are deep into thinking about one of the most important financial decisions of their lives: whether and where to go to college.
And the primary tool in that decision is the document that must be filled out before each new academic year: the Free Application for Federal Student Aid, or FAFSA.
The application is updated every year, with the newest form becoming available around Oct. 1 in both printed form (10 pages including instructions) and on the government's financial aid website — studentaid.gov. It can be filled out in English or Spanish.
About a week or two after completing a FAFSA, a student will get an estimate of his or her eligibility for federal aid. That information will go to the schools the student designates, which will then set the stage for the type and amount of aid a school will offer the student.
And the rule of thumb and top advice for filling it out is to do it as soon as possible.
"The earlier that they apply, that means we can communicate with them about their application status or if there's anything incomplete," said Brittany Tweed, financial aid chief at Metro State University in St. Paul, Minnesota.
College enrollment has been declining in the U.S. for several years and will come under more pressure by the middle part of the decade due to the steep decline in U.S. births during the 2008-09 recession. As a result, federal officials and college leaders are trying to simplify the aid process and simply let more people know that aid is available.
Last year, an estimated 813,000 students were eligible for the Pell Grant — the largest federal grant program offered to undergraduates — but didn't submit a FAFSA, according to National College Attainment Network, a nonprofit organization of scholarship funds.
This year, the FAFSA form has taken out some questions, such as those about selective service registration and drug convictions, that may have deterred some people from considering higher education. "That's just one more barrier that a student could read about and say, 'This isn't for me,'" said Meghan Flores, state grant and financial aid manager at the Minnesota Office of Higher Education.
Bigger changes to simplify the process are ahead. Here's a rundown on the financial aid application process for people aiming to be in college in the 2022-23 academic year beginning July 1.
What's at stake
As with any governmental process, a lot of jargon and acronyms must be learned. To start, the Department of Education uses the FAFSA to calculate a student's EFC, which stands for Expected Family Contribution.
Subtract the EFC from a school's cost of attendance and you've got a student's financial need. Financial aid fills the gap in the form of Pell Grants, work-study, scholarships, other grants and then loans.
Students should aim for grants first, of course, then turn to other forms of aid. The current maximum Pell Grant award is $6,895 per school year, though that may be increased with a decision expected to come from the Department of Education this month.
The FAFSA also serves as the application for federal loans, which come in two forms. Subsidized loans are the most beneficial to students and families because the government pays interest on them until a student graduates.
But even federal loans that are not tied to need, such as the Federal Stafford Loan and Federal PLUS Loan, are accessible only by filing a FAFSA.
Steps in the process
Set up a Federal Student Aid ID at studentaid.gov. For traditional college students, those coming right out of high school and dependent on their parents, IDs will also need to be set up for the parent or parents individually.
FAFSA requires the Social Security number of the student and the student's parents if, as is likely for traditional-age students, the student is a dependent.
The application requires tax information from the parents and the student, if the student has been working. For the 2023-24 academic year, tax information from 2021 is needed.
There's a way to link FAFSA to the IRS database, but it is one of the most complicated parts of the application process. For online applicants, Flores explained, "The taxpayer can put some of their biographical information in, leave the FAFSA site, grab their tax information from the IRS and then have it imported directly into their FAFSA."
But under a law signed by President Donald Trump in 2019, the Department of Education and Internal Revenue Service will have a direct data connection set up for FAFSA applicants by next October for the 2024-25 academic year. "That's where we'll see simplification have a bigger impact," Flores said.
The financial aid formula is heavily weighted toward income. The FAFSA also seeks information about untaxed income, such as payments to retirement savings plans. Many financial advisers recommend that students and families try to minimize income by avoiding realizing capital gains in a year covered in a FAFSA application.
A FAFSA also requires that both the student and parent list their assets, not including the home where they live. Some other forms of student aid may consider the primary home value.
The Department of Education's formula for aid eligibility is explained in a 29-page guide that's available on the studentaid.gov website. It shows that student assets are assessed at a higher rate than parents' assets, which leads many advisers to tell families to put college savings plans in the name of parents.
Fortunately, the online FAFSA doesn't have to be filled out and filed in one session. Applicants can save the document, log in again using the Federal Student Aid ID and finish later.
Metro State's Tweed said offices like hers at many colleges are ready to help students. "A lot of mistakes are simple typos," she said.
High school counselors step in for students and families dealing with the process for the first time. But more than half of the students now enrolled in the nation's higher education institutions are adults who aren't straight out of high school.
"I think students find financial aid applications and financial aid offices are very intimidating," Tweed said. "But we're a profession filled with people who just want to help students navigate the process."
