Survey Reveals Deep Misunderstandings About Financial Aid

Key takeaways

• Most students are unsure about the type of aid the FAFSA qualifies them for. Fifty-two percent of respondents think the FAFSA is only for federal financial aid, when in fact state programs, as well as colleges and private scholarship organizations, can also use the information submitted. When it comes to taking out private student loans, however, you would apply directly with the lender.
• Unclear deadlines could lead to missing out on first-come, first-served aid. Seventy-one percent of respondents think they can submit their FAFSA anytime, so long as they meet the deadline. But in truth, there can be multiple different deadlines for federal, state, and college programs.
• Students are confused about how their parents fit into their applications. For example, 35% of respondents believe they won’t get aid if their parents aren’t U.S. citizens. But Federal Student Aid only has a citizenship requirement for students.

Financial aid myths and misconceptions

College tuition is higher than ever, and most students and their families rely on financial aid to cover costs. But many are confused about how the financial aid process works, according to our new survey.

Almost 2 out of 3 people, for instance, are under the false impression that a high family income disqualifies them from receiving financial aid. And 71% of respondents think it doesn’t matter when they submit the FAFSA, when, in fact, some aid is distributed on a first-come, first-served basis.

Financial aid plays a huge role in paying for school, so it’s imperative you understand how it works. Find out if you share any of these common misconceptions and make sure to clear them up so that you don’t miss out on money for college.

52% think the FAFSA is only for federal financial aid

Although FAFSA stands for the Free Application for Federal Student Aid, it’s not solely used for federal financial aid. In fact, many state programs rely on the information you provide in the FAFSA to distribute merit- and need-based aid. Similarly, some colleges and private scholarship organizations look at the FAFSA before giving out awards.

“The FAFSA is used to apply for state and college aid, not just federal aid,” said Mark Kantrowitz, financial aid expert and publisher and vice president of research at Savingforcollege.com. “Less than 200 colleges and universities use a supplemental form, the CSS Profile form, to award their own financial aid. But they must still use the FAFSA for federal and state aid.”

This aid might come in the form of grants or scholarships, or it could be student loans you need to pay back. It could also involve work-study, which is a program that makes you eligible for a part-time job on campus.

Even if you don’t plan on accepting federal financial aid, submit the FAFSA so that you’re in the running for nonfederal aid as well.

71% don’t seem to be in a rush to submit the FAFSA

When it comes to submitting the FAFSA, 71% of respondents said it doesn’t matter when they hit submit as long as they meet the deadline. This misconception is dangerous for a couple of reasons. For one, the FAFSA could have several different deadlines, including federal, state, and college deadlines.

The federal deadline doesn’t fall until the end of the academic year for which you’re applying for aid, which is too late to be useful. College and state deadlines fall much sooner, and some scholarship organizations also want to see your FAFSA information well ahead of the federal deadline.

If you submit too late, you could miss out on aid. So make sure to check with both your state of residency and college for any FAFSA deadlines. What’s more, some sources distribute financial aid on a first-come, first-served basis until it runs out.

“It is best to file the FAFSA as soon as possible on or after Oct. 1,” said Kantrowitz. “Students who file the FAFSA in the first three months tend to get more than double the grants, on average, of students who file the FAFSA later.”

Instead of waiting around, try to complete it as close to the date it becomes available as possible. That way, you’ll have a better chance of receiving aid — and you’ll have one less task to worry about as you get ready for college.

62% believe a high family income disqualifies them from financial aid

Nearly two-thirds of respondents think they won’t qualify for financial aid if their parents make too much money. Although a high income might disqualify you from need-based financial aid, such as Direct Subsidized Loans or the Pell Grant, you can still qualify for merit-based aid from your state or college. Plus, any student attending an eligible school can qualify for Direct Unsubsidized Loans from Federal Student Aid, and creditworthy parents can take out a Parent PLUS Loan.

What’s more, your eligibility for financial aid doesn’t just depend on family income. It also takes into account your college’s cost of attendance.

“Financial aid is based on financial need, which is the difference between the cost of attendance (COA) and the Expected Family Contribution (EFC),” said Kantrowitz. “So, a wealthier student might qualify for financial aid at a high-cost private college even if they don’t qualify for financial aid at an in-state public college.”

Even if you don’t expect you’ll have any financial need, regardless of a college’s cost of attendance, it’s still a good idea to submit the FAFSA. Life can be unpredictable, and you don’t want to be left without options if your family’s financial circumstances change.

As long as you fill out the FAFSA, you can make changes throughout the school year. But if you never submitted it in the first place, you might need to wait until the following year to apply for aid.

Students are confused about how their parents fit into the FAFSA

If you’re an undergraduate student, you most likely have to include your parents’ information on the FAFSA. But our survey uncovered a lot of confusion about how parents fit into the FAFSA.

For instance, 59% of respondents believe they don’t have to include their parents’ information if they support themselves. But Federal Student Aid considers nearly all students younger than 24 to be dependents, regardless of whether they’re making money on their own.

Along similar lines, 56% of respondents believe they don’t need to include themselves in their parents’ household size if they don’t live with them. Unless you’re an independent, you do need to include yourself in household size, regardless of where you live.

Including yourself could work in your favor, as Federal Student Aid takes household size into account when determining your eligibility for aid. If your family has a lot of household members or more than one child in college at the same time, you could qualify for more aid.

“The parent contribution portion of the EFC is divided by the number of children in college,” Kantrowitz said. “When a family goes from having one child in college to two, it can be like dividing the parent income in half.”

Finally, over one-third of respondents think they don’t need to include a stepparent in the FAFSA. But if a divorced parent has remarried, you must include their spouse’s information on the FAFSA. And 35% believe they won’t get aid if their parents aren’t U.S. citizens, but Federal Student Aid only has a citizenship requirement for students, not for their family members.

If you’re an undergraduate, chances are your parents will play a big role in the FAFSA. So make sure you understand what information needs to be included so that you don’t lose any valuable financial aid.

40% think they must file their taxes before they can fill out the FAFSA

When your family fills out the FAFSA, they’ll include information about their taxes. In years past, this process was somewhat convoluted. The FAFSA wasn’t available until January, and most people hadn’t filed their taxes by then. As a result, they had to guess and make changes later.

“Previously, when the FAFSA was based on prior-year income, families were filing their federal income tax returns at the same time as the FAFSA, so there was a complicated song and dance about filing the FAFSA based on estimates and later updating it after the income tax returns have been filed,” said Kantrowitz.

Today, the process has gotten much easier. The FAFSA opens on Oct. 1, so most families will have already filed their taxes by then. Plus, they can provide “prior-prior year income,” so families applying for the 2018-19 academic year could fill in their tax information from 2016.

You can also use the IRS Data Retrieval Tool to import your information easily. Unlike families in years past, you and your parents probably don’t have to worry about timing your FAFSA and tax returns just right.

Educate yourself about financial aid so you don’t leave money on the table

Financial aid can be confusing, so it’s natural to have questions about the process. But it’s also important to find answers to those questions so that you don’t lose out on money for college.

While our survey revealed a lot of misconceptions about financial aid, it also revealed that many people are aware of their confusion. In fact, less than half of respondents said they felt confident or “very confident” in their knowledge of financial aid and how it works.

If you or your child is headed to college in the fall, spend some time learning about the financial aid process and timeline. And make sure that you don’t just rely on the FAFSA, but also take time to apply for external scholarships as well. By exploring every avenue for financial aid, you can access the funds you need to make college affordable for you and your family.

Methodology

This survey was conducted via SurveyMonkey on Aug. 15, 2018, with a nationally representative sample of 1,007 respondents who are in the process of or have previously applied for financial aid for themselves or their children.