Filing the FAFSA: Do it Soon, Do it Right
By Lynn O’Shaughnessy
If you’ve started college planning at all you’ve heard about the FAFSA. Do you need to fill it out? For the vast majority of families, the answer is yes. This application is your gateway to all federal aid.
The FAFSA, which stands for the Free Application For Federal Student Aid, is the government application that millions and millions of parents fill out every year in order to qualify for federal and state college aid. The FAFSA gives families access to aid like federal parent and student loans and the Pell Grant, which is the major grant for middle- to lower-income families. There are also some minor grants from the federal government, for instance, for students who want to be a teacher in certain high-need subjects, or if a parent was killed in the Middle East conflict.
Some parents will want to complete the FAFSA even if they won’t qualify for need-based financial aid. You need to fill out the FAFSA if you want your child to qualify for a work-study job on campus. Or if you think you might end up borrowing money for college. The federal Direct Loan for students is the best deal.
Some schools also require the CSS Profile
The FAFSA is for federal and state aid and the vast majority of schools use only this application, including to determine who gets their in-house institutional money. But there are about 200 colleges and universities, almost all private schools, that believe that the FAFSA doesn’t ask enough questions. They require not only the FAFSA, but the CSS Profile, which is how they decide who gets institutional need-based aid.
You can Google “CSS Profile” and find the list of participant institutions. To give you an idea of the schools that use the Profile, they include all the Ivy League members, University of Southern California, Stanford, NYU and elite liberal arts colleges that like Pomona, Claremont McKenna College and Amherst. Not very many public schools use the CSS Profile, but a few do, including University of Michigan, Georgia Tech, University of North Carolina at Chapel Hill and University of Virginia.
File as soon as you can
October 1st is the first day you can fill out the FAFSA. It’s always a good idea to fill it out as soon as you can. Now, some professionals do recommend that families wait a week or so because of potential software bugs or so many people wanting to file the FAFSA right away that the website crashes. The same is true for the CSS Profile, which can be filled out starting October 1st as well. The Profile is more involved and more in-depth than the FAFSA, and it may take longer to fill out.
Why would you file early? Well, there are deadlines for financial aid and some schools could have early deadlines. And studies show that kids who qualify for state or federal aid are more likely to get money if they apply sooner. Especially for some state schools, there are rolling admissions and only so much money to give out. With some state aid programs, it’s first come, first serve until the money runs out.
Tax returns the main source of data
It used to be that the FAFSA filing opened January 1 and you had to use the most recent tax returns. So you had to rush, rush, rush to get your taxes filed and then fill out the FAFSA. For the past few years, it’s been much easier because two-year-old tax returns are now used. Everybody should have those completed. Families are filing now for the 2025-2026 school year, which means you need 2023 tax returns.
Your tax return is the primary document you need to fill out the form. The FAFSA includes something called the “IRS Direct Data Exchange” which links to the IRS and populates all of the information from a household’s tax return onto the FAFSA. It’s really cool. So filling out the FAFSA doesn’t take much time. This won’t work in some cases, like if you are married filing separately, but it will for the majority of families.
What assets are counted?
You also need to have statements from your non- qualified investment accounts, such as checking, savings, CDs, nonretirement brokerage accounts, and college accounts—529s and Coverdells. The FAFSA, however, does not want to know about your retirement accounts. It also ignores non-qualified annuities, life insurance value, and the home equity of your primary home. It’s important that you don’t include these.
The CSS Profile is different. It doesn’t assess retirement accounts, but it does consider non-retirement accounts, including non-qualified annuities. And some Profile schools will want to know the cash value of your life insurance.
The FAFSA rules regarding divorce changed starting with the 2024-2025 school year. Until then, the parent with whom the child had lived the majority of a 12-month period ending on the day the FAFSA was filed was considered the custodial parent. This definition was easy to exploit by having the parent with the lowest wages and assets be the custodial parent for FAFSA purposes.
With the FAFSA changes, it no longer matters where the child is living. In an effort to align the FAFSA with the Internal Revenue Service Code, the custodial parent is now the one who provides the most actual financial support.
Thanks to the use of prior-prior tax returns, the parent who provided the most financial support in the calendar year of 2023 will most likely be the one completing the FAFSA for the 2025-2026 school year. The change, however, will not always mean that the parent, who claims the student on his/her federal income tax return, will be the one who must complete the FAFSA. One reason for this is because multiple support agreements made during some divorces can interfere with this.
Multiple support agreements can dictate which divorced parent will financially support a child. The agreement can designate who will
claim the child as a dependent without regard to who provides more financial support. Some agreements have parents taking turns
providing financial support.
Here is something important to understand: FAFSA verification regarding which parent is the custodial parent does not exist! Consequently, parents can effectively choose the parent with the lower household income to file the FAFSA.
Sometimes life changes
You do have to fill out the FAFSA every year because your income can change every year. It’s the same with the CSS Profile.
The fact that both of these applications use two-year-old tax returns can be problematic. Things change in two years, even more so this year because of the pandemic. Plenty of people no longer have the income or the assets they used to have. The CSS Profile has always asked, “Is there anything else you want to tell us about your finances?” You can tell them, “I lost my job and my tax return is irrelevant now.”
If you had to fill out the FAFSA and the Profile with financial information that’s just not right anymore, you don’t have the option of choosing to use a different year’s tax return. What you can do is reach out to the school and tell them your financial picture has changed. Be sure to provide documentation to back up your claims. And, it’s better to be proactive and reach out to schools when you file for financial aid, rather than waiting until you get your award letter. There’s a finite amount of money to be given away, and you don’t want to be at the end.
The Free Application for Federal Aid, or FAFSA, is meant to be easy and accessible for everyone. That means you need to just set aside the time and do it. If you have questions or concerns, find a financial professional who can help you understand certain definitions. That may be a good opening to the bigger discussion of how to pay for college, without ruining your retirement.