Tips for Completing the FAFSA and Maximizing Your Potential Aid
Each year, millions of students miss out on financial aid simply because they don’t complete the Free Application for Federal Student Aid (FAFSA) correctly—or at all. Many families skip the FAFSA because they think their income and/or assets are too high to qualify for aid. In reality, many people who think they don’t qualify for aid actually do. Completing the FAFSA is also required at most schools to receive merit-based aid that isn’t tied strictly to income.
If you are already in college and not receiving aid, you should still apply each year and you may become eligible for aid during your remaining years.
Understanding how to complete the form will make the process much smoother and help you maximize the aid you qualify for. Here are some tips when completing the FAFSA.
1. Gather Your Information Ahead of Time
Here is a list of the documents you’ll need:
- Social Security number (or Alien Registration number if you’re not a U.S. citizen)
- Federal income tax returns, W-2s, and records of income
- Bank and brokerage statements and records of investments
2. Apply Early
The FAFSA opens on October 1 each year for the following academic year. Many states and schools award aid on a first-come, first-served basis, so applying early increases your chances of receiving grants and scholarships before funds run out. You can list up to 20 schools so even if you are unsure of where you want to go you can list all of your potential schools.
3. Use the IRS Data Retrieval Tool
The FAFSA includes an option to link directly to your IRS tax return through the IRS Data Retrieval Tool (DRT). This feature automatically fills in your income and tax information, reducing errors and the likelihood of being selected for verification.
4. Don’t Skip Questions
Leaving blanks can delay your application or reduce the amount of aid you qualify for. If a question doesn’t apply to you, enter a zero rather than leaving it empty.
5. Don’t Overestimate Independence
Claiming independent status when you don’t qualify can cause problems. FAFSA has strict rules—students under 24 are usually considered dependent unless they meet criteria like being married, having children, or military service.
6. Double-Check Before Submitting
Review your information thoroughly, especially Social Security numbers, income data, and school codes. Errors can slow down processing and affect aid eligibility.
7. Sign and Submit
Your FAFSA isn’t complete until you and (if required) your parent electronically sign it using your FSA IDs. Be sure to complete this step to avoid delays.
8. Keep Copies and Follow Up
Save a copy of your FAFSA confirmation page and review your Student Aid Report (SAR) once it’s processed. Check for errors and update any changes promptly.
Maximize Your Student Aid Index (SAI)
1. Minimize Reportable Assets Before Filing
The FAFSA evaluates assets as of the day you file (not the entire year). Consider these actions to reduce reportable assets before submitting.
- Pay down debt: Reduce credit cards, auto loans, or mortgage balances.
- Make necessary purchases: Buying a car or completing home renovations can lower cash/assets.
- Move money into retirement accounts: Contributions to retirement accounts are not counted as FAFSA assets.
- Keep student savings lower: Assets held in the student’s name are assessed at a higher rate (20%) versus parental assets (5.64%). One option: have students use savings to pay expenses and then give a “graduation gift” after college.
2. Understand What Assets You Should Report
Some commonly mistaken reportable items are actually excluded. Knowing exclusions can materially affect your SAI.
- Housing: Your primary residence is excluded. Paying down the mortgage is one way to shield home equity from consideration.
- Retirement accounts: 401(k)s, pension plans, IRAs, SEP, SIMPLE, and Keogh plans are not counted as FAFSA assets.
- Life insurance and annuities: The cash value of whole life insurance policies and qualified annuities are not reported.
- Personal property: Cars, clothing, furniture, appliances, and other personal belongings are excluded.
- UGMA/UTMA accounts: If you are the custodian but not the account owner, you typically do not report these on the FAFSA.
- 529 plans (with conditions): 529 plans owned by non-custodial family members (grandparents, aunts, uncles) are not reported as assets.
- Small businesses: The net worth of a family-owned small business is included this year but is scheduled to be excluded starting in 2026.
3. Be Strategic with 529 Plans
- Parent-owned 529s: Treated as parental assets (assessed at ~5.64%). Distributions are no longer treated as untaxed income on the FAFSA and should not be reported as income.
- Grandparent-owned 529s: Not included as a reportable asset on the FAFSA, and therefore do not directly affect SAI. Some 529 plans allow transferring ownership — moving ownership to a trusted grandparent, relative, or friend is an option, but you would relinquish rights to the plan, so trust is essential.
4. Understand Income Timing
FAFSA uses prior-prior year tax information (for example: the 2025–26 FAFSA uses 2023 income).
- One-time income events: Selling stock or taking large withdrawals from retirement accounts during the relevant tax year can reduce aid eligibility. If possible, time these events outside the years FAFSA examines.
- Defer income if possible: Ask your employer about deferring bonuses or other income to a different tax year.
- Student income: Student earnings are assessed heavily — for 2025–2026, student income above $11,400 is assessed at 50%. Consider whether additional earnings are worth the potential aid reduction versus focusing on academics/activities.
5. Max Out Tax-Advantaged Accounts
- Retirement, HSA, FSA contributions: Contributions lower taxable income on tax returns, which can improve aid eligibility since FAFSA references tax information.
- Shelter assets: Because FAFSA does not count retirement balances as assets, maximizing retirement contributions is an effective sheltering strategy.
6. Consider Professional Judgment Appeals
If your family’s financial situation changed after the prior-prior tax year (job loss, major medical bills, etc.), contact the financial aid office at your student’s prospective college. They can review your situation and may adjust FAFSA data through a professional judgment appeal to better reflect current circumstances.
Final Thoughts
Completing the FAFSA may feel intimidating, but it’s often worth the effort. Filing early, understanding which assets to report (and which to exclude), avoiding common mistakes, and planning ahead can be the difference between little or no aid and significant financial support for education.
*The information presented represent only the opinions and viewpoints of Opal Advisors and is for general educational purposes only. This content should not be construed as legal, tax, or financial advice and we do not guarantee that the following suggestions will result in any particular outcome.
