Why is FAFSA Important?

The FAFSA is the most important tool available to finance your education, and while the term may be familiar, some don't know what it means. What does FAFSA stand for? It stands for the Free Application for Federal Student Aid. If there's one thing you need to know about it, it's this: You don't have to be intimidated.

“Don’t be scared. It’s not hard,” said Kristine Sedita, a team lead on Southern New Hampshire University’s (SNHU) Enrolled Student Services team. Her team helps students and parents navigate the FAFSA process to get federal aid such as Pell Grants and subsidized and unsubsidized loans.

What is FAFSA? What is FAFSA Used For?

The FAFSA is an application that the federal government uses to gather the financial information it needs to assess what loans and grants you qualify for. The FAFSA needs to be completed each new aid year to determine eligibility for federal student aid. The aid year runs from July 1st through June 30th each year.

“It’s the tool the government uses to measure a family’s financial strength,” Sedita said. “The FAFSA is the only way you will receive any federal funding.”

Although you are applying for federal aid, the process is coordinated through the school or schools you plan to apply to.

"It is completed on studentaid.gov, and any U.S. citizen can apply for the FAFSA," said Donna Camire, a SNHU Global Campus director of Student Financial Services. "The amount and type of financial aid that will be offered to you will be based on information provided on the FAFSA."

Federal student aid is the best way to pay for college for several reasons. First, you may qualify for grants, which is money the government gives you that you don’t need to repay. Any loans you accept, you will have to repay, but they have lower interest rates and repayment doesn’t begin until you graduate or otherwise stop going to school. Also, if you qualify for a subsidized loan, the interest doesn’t begin accruing until you leave school.

“We try to promote FAFSA first," said Roisin Bettencourt, a team lead on SNHU’s Student Financial Services team. “We would always tell a student to get the better aid through the government first.”

What Do I Need to Fill Out the FAFSA?

The first thing you need to fill out the FAFSA is a Federal Student Aid (FSA) identification number. This is the information you will use to sign in to the federal student aid website and to sign the FAFSA. You can obtain your FSA ID through the FAFSA website by providing some basic information, such as your date of birth and social security number. All contributors will need an FSA ID, including those who may not have an SSN. This includes students, parent(s) of dependent students and spouses of independent student if taxes were filed separately.

Ensure you keep your FSA ID somewhere safe as you will need it every time you log in and complete your FAFSA. 

Once you've completed your FAFSA for the first time, the information will carry over year after year. You'll need to ensure you make any updates to your form each year, whether that be a change in income, marital status or dependents as a few examples. 

How Do I Determine if I’m a Dependent Student?

To be considered a dependent student you have to meet a number of conditions, such as being under 24 years old and unmarried. If you meet any of the following criteria, you are an independent student, according to the U.S. Department of Education’s Federal Student Aid Office:

• 24 years old or older
• Married
• Graduate student
• Military veteran or member of the armed forces
• Orphaned
• Ward of the state
• An emancipated minor who is homeless or at risk of being homeless
• Someone with legal dependents other than a spouse

Most students attending a traditional 4-year college right after graduating high school will be considered dependent students. There is a series of 10 questions on the FAFSA – including your age, residence and prior military service – that will determine your status. As a dependent student, you can qualify for up to $5,500 in loans in your first year of college. As an independent student you can qualify for up to $9,500, Bettencourt said.

All contributors also must grant consent to the transfer of Federal Tax Information (FTI) to the FAFSA using the FUTURE Act Direct Data Exchange (FA-DDX), even if no income was earned. If all contributors don't approve consent, the student will be ineligible for federal student aid.

According to the U.S. Department of Education's Office of Federal Student Aid, you’ll need some additional documentation, too, including: 

• Tax Records: The FAFSA uses what is called prior-prior year tax information to calculate your eligibility for federal education aid. That means if you’re applying for aid to be used in the 2024-25 school year, you need to provide your 2022 tax information by transferring it directly from the IRS using the FA-DDX. Although this transfer is automatic, the Office of Federal Student Aid said you may need these records on hand as you fill out the application.
• Untaxed Income: If you have other income that isn’t taxed by the government, such as child support or interest income, you’ll need to have the documents that show that income.
• Other Assets: This includes the balances of your checking and savings accounts, the value of any investments you have, as well as the value of any property you own aside from your primary residence. These values are not based on prior-prior year date, but the values as of the date you sign the FAFSA, Sedita said.

Once you have provided all of the necessary information, FAFSA will provide a FAFSA Submission Summary (FSS) with a calculated Student Aid Index (SAI) and a series of funding options for which the student might qualify. If you qualify for the Pell Grant, it will be listed here. You will also be offered at least one of two types of federal loans.

It’s important to remember that you don’t have to accept any of the aid offered. These are options you have, and one of the smartest steps you can take now is to speak with a financial counselor at the school you’re interested in attending. They can help you evaluate how your aid package compares to the actual cost of attending the school, what amount you may have to pay in addition to the federal aid, as well as options for covering that additional cost.

“The FAFSA is a really smart starting point,” Bettencourt said. “Once that’s done, touching base with a financial counselor is really smart because they might have some other options.”

Types of Grants and Loans

Now that you have a financial aid offer, it’s important to understand what exactly you’re being offered:

• Grants: A federal grant, such as the Pell Grant, is money you can use for your education and don’t have to pay back to the government. The specific amount you may be awarded a Pell Grant is based on your SAI, the cost of the school you attend and other factors.
• Loans: There are two main types of direct loans offered by the U.S. government. Subsidized loans are offered based on financial need, and the loan interest doesn’t begin occurring as long as you are enrolled in school at least part-time, plus an additional six months after you leave school. An unsubsidized loan is not based on financial need and interest does accrue while you are attending school.

The amount of money you can borrow in subsidized or unsubsidized loans varies and depends on your dependency status and what year you are in school. Loans can range from $5,500 to $12,500 per year, according to the Department of Education's Federal Student Aid Office.

There are also Direct PLUS Loans, which are available to parents of undergraduate students or students pursuing a graduate degree.

What Can FAFSA Money Be Used For?

Any financial aid you receive doesn't come all at once and is typically broken up throughout the year based on your enrollment. That money you get from the federal government through the FAFSA process can be used for educational purposes. In general, that means tuition, books, room and board and other various fees schools might charge.

Bettencourt said one of the most important considerations to make before choosing a school to attend and accepting your financial aid offer is how much you need to borrow — as opposed to how much you can possibly borrow — and what your repayment schedule will look like once you graduate.

“I think the biggest thing that people need to realize is that it’s an application for grants and loans and it’s their choice to use the loans,” she said. “We want people to take what they need … instead of taking everything.”

Bettencourt compared it to buying a car. Part of taking out a car loan, for most people, includes evaluating what the monthly payments are going to be. That should be the case for educational loans, too, she said, but sometimes isn’t since those payments often won’t start for several years.

What are the Deadlines for Filling Out the FAFSA?

The FAFSA process starts Oct. 1 for the school year that begins the following fall and must be completed by the end of June. But many states have priority deadlines, which you can find here.

What's the FAFSA Simplification Act?

According to Chris Couture, a financial aid expert and assistant director of training for student financial services at SNHU, The FAFSA Simplification Act has brought the most sweeping changes FAFSA has ever seen. But thankfully, the updates were designed with you in mind.

“They're reducing it from over 100 questions down to roughly 38 questions that students and parents will have to complete in order to become eligible for federal student aid,” Couture said. That means if you're applying for financial aid through FAFSA this year, you'll answer 62 fewer questions than past applicants.

But Couture noted one more notable difference in the process this year. “The changes will require students and parents to transfer their information from the IRS to the Department of Education," he said. “That used to be optional.”

Apart from that new requirement, The FAFSA Simplification Act will only make the application process faster and — like its title suggests — simpler.

The changes are currently live for the 2024-2025 school year. If you have any question about the changes — or any other part of the financial aid process at SNHU — you can contact student financial services for more information.

Joe Cote is a staff writer at Southern New Hampshire University. Connect with him on LinkedIn.