The Free Application for Student Aid, or FAFSA, is an application that college students can submit to the U.S. Department of Education to apply for a federal grant. Unlike scholarships that award money based on academic criteria, students qualify for federal aid according to household income and financial need. The FAFSA requires students and their families to list an inventory of all income and financial assets to determine eligibility.
EFC
The U.S. Department of Education uses information about a student's household income and assets to determine his estimated family contribution, or EFC. The student receives an EFC number between 0 and 9999 that determines how much aid, if any, he qualifies for. Students with an EFC of 0 qualify for the maximum Pell Grant, an amount that changes from year to year. For example, a full time student with an EFC of 0 who attends school in the 2010 - 2011 school year will receive $2,775 per semester of school.
Income and Assets
Students must list all income on the FAFSA including information from previous tax returns and current bank account balances. The FAFSA also asks for information on bonds, investment accounts and certificates of deposit, as well as the value of land or property owned by the family that does not serve as part of the family's primary residence. Additionally, families must list the value of educational savings accounts and the refund value of pre-paid tuition plans.
Annuities
Families who own annuities may be able to avoid listing them as assets on the FAFSA. The U.S. Department of Education determines a student's EFC based on income, but income-producing accounts such as annuities and IRAs do not count as long as the annuity account-holder does not take payments as income. A student with too much income or too many assets to qualify for aid can move money into an annuity to lower his EFC and possibly qualify for more aid. Other non-taxable accounts such as 401(k) retirement accounts and health savings accounts are excluded from income on the FAFSA as well.
Apply
To apply for federal student aid, a student must thoroughly complete the FAFSA by the deadlines associated with his school and state. The FAFSA website lists the deadlines of most colleges and universities that it sends aid to, and each school's financial aid office can also provide this information. The Department of Education accepts paper applications sent by mail to the address listed on the application. Paper applications are available online, or students can request one by phone at 1-800-433-3243. Alternatively, students can electronically submit the FAFSA online for faster processing.
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