What Is FAFSA and Why It Matters for Families
If you are a parent or grandparent helping a student prepare for college, you may be wondering how families actually afford it. With tuition, housing, and other expenses often reaching tens of thousands of dollars per year, many families are surprised to learn that financial aid is not automatic. It starts with one critical step that too many families delay or overlook.
The Free Application for Federal Student Aid, or FAFSA, is the form used by the U.S. Department of Education to determine a student’s eligibility for financial aid, including grants, loans, and work-study programs.
Whether you are a parent supporting your child or a grandparent contributing to a grandchild’s education, completing the FAFSA can open the door to meaningful financial support.
For example, one family may qualify for a federal grant that reduces out-of-pocket tuition, while another student may gain access to a flexible part-time job through a work-study program. On the other hand, families who assume they will not qualify or miss the June 30 deadline often leave valuable aid on the table.
Types of Financial Aid Available Through FAFSA
FAFSA determines eligibility for several types of financial aid:
➡️ Federal Grants
Grants are one of the most valuable forms of aid because they do not need to be repaid. These are typically awarded based on financial need.
Example: A student may receive a Pell Grant that covers a portion of tuition each year, reducing the need for loans.
➡️ Federal Student Loans
Federal loans generally offer lower interest rates and more flexible repayment options than private loans.
Subsidized Loans
Available to students with financial need. The government pays the interest while the student is in school.
Unsubsidized Loans
Available regardless of financial need. Interest begins accruing immediately.
Example: A student who takes only unsubsidized loans may graduate with a higher balance due to accumulated interest.
➡️ Work-Study Programs
Work-study provides part-time job opportunities, often on campus, with schedules designed around classes.
Example: A student may work 10 to 15 hours per week to help cover the cost of books and living expenses.
How the Student Aid Index (SAI) Is Calculated
Financial aid eligibility is determined using the Student Aid Index (SAI). This formula estimates how much a family can contribute toward college costs.
In general, a lower SAI means a student may qualify for more financial aid.
➡️ What Income Is Counted
Taxed Income
- Wages and salaries
- Business income
- Interest and dividends
- Capital gains
- Rental income
Untaxed Income
- Child support
- Tax-exempt interest
- Certain veteran benefits
Example: Even tax-exempt income, such as municipal bond interest, is included in the calculation.
➡️ What Assets Are Counted
Cash and Savings
- Checking and savings balances
- Cash on hand
Investments
- Stocks, bonds, mutual funds
- Cryptocurrency
- 529 plans (typically parent-owned)
Real Estate (excluding primary residence)
- Rental properties
- Vacation homes
- Land
➡️What Assets Are Not Counted
- Primary residence
- Retirement accounts (401k, IRA)
- Life insurance policies
- Personal belongings
Example: A grandparent may have significant retirement savings, but those assets are not included in FAFSA calculations.
How Parent and Student Finances Impact Financial Aid
One detail that often gets overlooked is how differently parent and student finances are treated:
- Parent income is assessed at approximately 22% to 47%
- Student income is assessed at 50%
- Parent assets are assessed at about 5.64%
- Student assets are assessed at 20%
Example: Savings held in a student’s name can reduce financial aid eligibility more than if those same funds were held by a parent.
This is particularly important for grandparents who are considering how and when to provide financial support.
FAFSA Deadline 2026 and How to Apply
The FAFSA opens each year in October and closes on June 30. Missing the deadline can result in the loss of access to federal aid, and some school-based aid is awarded on a first-come basis.
Families should complete the FAFSA every year the student is in college.
How to Apply
- Visit studentaid.gov
- Create an FSA ID for the student and the parent
- Gather tax returns and financial records
- List the schools that should receive the FAFSA
Once submitted, you will receive a Student Aid Index, which colleges use to build financial aid packages.
FAFSA Preparation Checklist for Parents and Grandparents
To make the process easier, here is a simple checklist to help you prepare:
✅Before You Start
- Create FSA IDs
- Confirm schools
- Plan to complete early
✅Gather Documents
- Tax returns and W-2s
- Income records
- Investment balances
- 529 plan values
✅Understand Key Factors
- What income and assets are included
- How assets are titled
- Timing of financial decisions
✅Submit and Review
- Complete FAFSA accurately
- Double-check entries
- Review your SAI
- Compare financial aid offers
Common FAFSA Questions
What is the FAFSA deadline for 2026
June 30, although applying earlier can improve access to additional aid.
Do families need to complete FAFSA every year
Yes, the FAFSA must be submitted annually.
Can higher-income families still qualify for aid
Yes, some forms of aid are not need-based.
Can grandparents help without impacting aid
Yes, but how support is structured can make a difference.
Next Steps for Parents and Grandparents
The FAFSA is not just a form to complete. It is an important part of how college costs are calculated and how financial opportunities are determined.
For many families, the challenge is not filling out the application. It is understanding how decisions around income, savings, and financial support can influence the outcome.
We often see situations in which assets are held in a student’s name or where financial support is structured in a way that unintentionally reduces aid eligibility. These are common planning gaps and can often be addressed with the right approach.
With the June 30 deadline approaching, now is a good time to review your situation and ensure your financial decisions are aligned with both education funding and your broader plan.
If you would like guidance, we are available to help you think through your options and take a more intentional approach.