For students who haven't earned a scholarship, then need-based financial aid can play a vital role. The key to receiving a generous package rests largely on the Free Application for Federal Student Aid form, better known as the FAFSA. This is the document that schools use to determine federal aid, including Federal Direct Loans and Pell Grants. Many institutions also use it to decide whether students are eligible for any of their own scholarship funds.

Much of the time, parents don’t give the FAFSA much thought before the deadline. By understanding how the form works, however, you’ll have a better chance of meeting the aid criteria. It’s also important to look beyond the form itself and realize that finding the right school can be just as important to your aid prospects as what you put in the document.

Here are some basic steps for ensuring that you get the best combination of grants, loans, and work-study programs possible.

Perhaps the easiest move you can make is to fill out the FAFSA as early in the year as possible. That’s because many federal loans and grants are awarded on a first-come, first-served basis. Even if the university has a much later deadline, it helps to submit the document as soon after Oct. 1 (the new, earlier FAFSA filing date) as possible.

Don’t put this off as waiting can hurt your chances of obtaining any available funds.

The FAFSA is the main tool universities rely on to determine the applicant’s “expected family contribution” (EFC)—essentially this is the money that the college or university estimates the student and the student's parents can put toward tuition and other expenses. All else being equal, a lower EFC will result in greater need-based financial aid.

When calculating the family’s portion of expenses, the biggest factor is its income level. Needless to say, it helps to keep the amount of taxable income as low as possible in the base year.

 Author’s Note: In part due to the 2021 Consolidated Appropriations Act, beginning in July 2023 the term "student aid index" (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure actually is—an eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses.

How can a family accomplish this feat without hurting itself in the short term? One way is to postpone the sale of stocks and bonds if they generate a profit, as the earnings will count as income. That also means holding off on early withdrawals from your 401(k) or IRA. Besides, ask your employer if you can defer any cash bonuses to when they won’t have a negative impact on your child’s financial aid.

If you’ve been putting money away for your children’s college education over the years, you’ll be in much better shape when they graduate from high school. But all that saving does have a small catch—some of that money will be included in your EFC. One important aspect to realize about the FAFSA is that schools anticipate students will contribute more of their assets toward higher education than parents will.

Consequently, your application will fare much better in most cases if any college savings accounts are in a parent’s name. So if you set up a Uniform Gift to Minors Act (UGMA) account for your child to avoid gift taxes, you could be hurting your chances of need-based aid. You’re often better off emptying these accounts and putting the money into a 529 College Savings Plan or a Coverdell Education Savings Account. Under current rules, these are both treated as a parent’s asset, as long as the student is classified as a dependent for tax purposes.

Having a substantial family income doesn’t always mean that financial aid is beyond your reach. It’s important to remember that the needs-analysis formula is complex. According to the U.S. Department of Education, factors such as the number of students attending college and the parents' age can affect your award. It’s always a good idea to fill out the FAFSA just in case.

Keep in mind, too, that some universities won’t offer their own financial aid, including academic scholarships, if you don’t fill out the FAFSA first. Don’t assume that FAFSA is only for low- and middle-income families often closes the door to such opportunities.

While the FAFSA is a vital tool in determining need-based aid, some families actually put too much emphasis on the document. The fact is, most financial-aid counselors have the authority to use resources as they see fit. The expected family contribution usually plays a big role, but it may not be the only factor they’ll consider.

The more an institution values the student’s skills and experiences, the more likely it is to woo them with an attractive aid package. The key is to look for colleges representing a good fit and reach out to the financial aid office about your child’s prospects for grants or federally subsidized loans.  

Reach out and ask for our guidebook on “Save 1000s on The Cost of College” to see how we might be able to help you and your child reach their higher education goals.