FAFSA 101: Understanding the US Financial Aid System

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Madeleine Karydes
Madeleine Karydes

Madeleine attended UC Berkeley and double-majored in English and Media Studies. She is now an integral part of the Empowerly team.

So, the time has come to sit down with your previous tax documents, your caffeinated beverage of choice, a fresh pen, and a lot of gumption…. That’s right: it’s time to file your financial aid documents. Don’t be scared! Take a deep breath and read the rest of this article. We have some easy, approachable pointers to help you avoid errors as you take on the US financial aid system. Even if you don’t exactly even know what the FAFSA is yet. (Everyone starts somewhere.)

Empowerly focuses on helping students from various backgrounds put their best foot forward to college admissions officers. Our community expertise lies in the applications themselves, and all the preparation work that leads you to a successful admissions journey. We have a lot of collective experience navigating the college application landscape, and the many, many forms that come with it! 

If you are completely lost and need a finance expert to take a look at your holistic financial situation, we understand. That’s why we partner with SMARTTRACK College Funding. They provide some wonderful resources for when our students and families get really lost in the college funding frontier!

For now, I’ll share some pointers we can give you to help out with the FAFSA, CSS, and financial aid package paperwork. We know, the US financial aid system can be complex. Let’s start with square one.

“What exactly is the FAFSA?”

If you are applying to schools, are in a university or are the parent or relative of a university student, then chances are you have heard the term FAFSA. This term might haunt you or you may not have a clue what it means. Either way, you could do with knowing as much as possible about what this means and how it works.

What Does FAFSA Stand For?

FAFSA is the go-to term for guidance counselors and financial aid officers but what does it stand for? FAFSA is the Free Application For Federal Student Aid. This form is used by almost every college and university in the US financial aid system to determine the aid a student will receive based on demonstrated need.

What Is This Form Used For?

The FAFSA is essentially a form that students need to fill out well before the university term begins in order to determine how much the family of the student should be contributing to their education. This is called the Expected Family Contribution (EFC). That number is assessed based on the need of the student for aid in order to pay for their higher education.

The FAFSA is a form that takes into account many different factors. The intent is to come to a fair distribution of aid to all students. The financial aid that this form will help to assess is not just at a federal level but helps to assess the state aid, and programs that offer money through the college like work study programs and grants.

Who is Eligible?

According to Student Financial Aid Services Inc. not everyone that is attending a college or university in the United States is eligible for the financial aid that would be awarded after the need assessment was completed using the FAFSA.

In order to be eligible for the form and the aid, all prospective students need to meet a set of requirements. Some of the most prominent are listed below. For example, the student must:

  • Have a social security number
  • Be a citizen of the US, a US National, or an eligible non-citizen
  • Have a high school diploma or GED
  • Complete the form with the sole intention of using the aid for educational purposes
  • Must not have a drug-related offense during the time of the awarded aid

There are a few other requirements, but these are the ones that will apply most widely to students.

Understanding how this aid works and who it applies to is the best way to get the largest amount of aid available. Whether it is the first time approaching the form or the student is a veteran, FAFSA is a necessity for all students.

Great! I’ve got all that. Now, can we talk about the bigger picture?

You betcha. Let’s dig into all the basics of the financial aid you might be eligible for based on how you file these documents. It might take some extra work, but the US financial aid system has resources once you know how to find them.

Financial aid can be based on financial need or be merit-based aid. Need-related aid is the most common financial aid and is based on an applicant’s assets and income. Merit-based aid, on the other hand, are usually scholarships that go to applicants who demonstrate talent in academics, arts, or athletics. 

Need-based Financial Aid

Need based financial aid is determined by determining an applicant’s cost of attendance (COA) at a certain university, then subtracting the applicant’s Expected Family Contribution (EFC). 

Cost of Attendance (COA) includes college tuition and fees, on-campus room and board, books and supplies, and transportation. 

Expected Family Contribution (EFC) determines an applicant’s eligibility for need-based federal student aid. EFC is an estimate of the parent or student’s ability to pay for college expenses, considering family size (number of siblings and grandparents living at home), living expenses, and savings. The EFC formula is complex and changes each year (further details can be found here).

Examples of Need-based Aid:

  • Pell Grant determines eligibility based on the applicant’s cost of attendance and financial need. Unlike a student loan, Pell Grant does not have to be repaid. 
  • Subsidized and unsubsidized student loans are federal student loans to help cover college costs. 
    • Direct subsidized loans have better terms. The U.S. Department of Education pays interest on a direct subsidized loan when an applicant is enrolled in college at least half-time, during the grace period (first six months after leaving college), and during a period of deferment.  
    • For a direct unsubsidized loan, on the other hand, an applicant is responsible for paying the interest. If the applicant does not pay the interest during college, grace periods, or deferment periods, the interest will accrue and become capitalized (added onto the principal amount of the loan). 
  • Work-study allows students to work part-time to earn financial funding for college. 

In order to apply for need-based aid, applicants must fill out the FAFSA (Free Application for Federal Student Aid) and/or the CSS Profile.

Wait, what’s the CSS?

If you have been following along: the previous description of the FAFSA is largely transferable to the CSS Profile. The CSS, however, primarily partners with private institutions, as opposed to the federal aspect of the FAFSA. So, you might have to fill them both out, depending on your final college list. But once you tackle the FAFSA, the CSS follows suit. Not so bad, huh? 

Most colleges use FAFSA as the sole need-based aid application. The FAFSA contains around 130 questions about the applicant’s family’s financial situation. FAFSA can be submitted as early as October 1st before the year of enrollment! The latest date is usually June 30th of that following year (aka, the summer before you enroll). However, most financial aid is provided on a first-come, first-served basis, so applicants are urged to submit their FAFSAs as close to January 1st as possible. 

Around 200 schools also require the completion of the CSS Profile to assess an applicant’s eligibility for the college’s aid. The CSS is a little longer and takes correspondingly more time to complete than the FAFSA. You’ll need to check each school to know when you can (and should) submit the CSS forms, however, since there’s no standardized date.

As a final point on need-based aid, don’t stress about your GPA on this one. It’s good to note that academics such as SAT/ACT scores or grades do not affect need-based aid.

Merit-based Financial Aid

This kind of aid can still be awarded to applicants who do not demonstrate financial need. Merit-based aid in the form of grants and college scholarships are often provided by the university (or outside organizations). They do not come from the government. Merit-based aid can be awarded for academic achievements and special talents in the arts and athletics. Examples of merit aid are scholarships, awards, and tuition waivers.

Something that is very critical to remember: some merit-based scholarships are still awarded via the information gained by the FAFSA or CSS! So even if you don’t think you’ll qualify for need-based aid, those documents are definitely still worthwhile.


There you have it, folks. The US college financial aid system is overwhelming, but it literally pays to take some time to figure it out. We hope these pointers can help you avoid errors that would prevent you from affording the school of your dreams. 

Don’t worry, if even this was a little too complicated for you! If this was a little much just yet, there are resources out there to help you. Reach out to our partners at SMARTTRACK, and of course, Empowerly, if you need guidance. We want to help.

Questions? Let us know!