It’s That Time of Year Again – The FAFSA

By Gavin L. DiStasi | October 30, 2025

With the recent return of autumn, the annual ritual for college-bound students of filling out the Free Application for Federal Student Aid (FAFSA) is once again upon us. This process is often dreaded by students and parents alike, as it can be a fairly time-consuming and frustrating one. Despite this, each October, the FAFSA reopens for the year, and the vast majority of people hoping to receive, or to continue receiving, financial aid for college, are required to complete it. So in light of that, we wanted to give you as much information as possible in the following primer.

What is the FAFSA?

The FAFSA is a free (no-cost) application that collects information about a student and their family’s finances—income, assets, number of family members, etc.—to estimate how much the family should contribute toward college costs. That estimate is used to figure out the student’s eligibility for various federal, state, and institutional aid programs.

Historically, families would fill out dozens or over a hundred questions on older versions of the FAFSA. But thanks to reforms in recent years, the form has been simplified (sometimes referred to as the “Better FAFSA”) with fewer and more targeted questions. The FAFSA is updated each year, and students must submit it annually if they want continued aid.

Once submitted, the FAFSA generates a figure called the Student Aid Index (SAI) (which replaced the older “Expected Family Contribution,” or EFC). The SAI reflects the financial strength of the student’s household and is used by colleges and financial aid offices to calculate how much “need-based” aid to offer.

How do colleges use the FAFSA?

When a student indicates (on the FAFSA) which colleges or career schools they’re interested in, those institutions receive the student’s FAFSA data. Each school’s financial aid office uses that information to:

  • Determine how much federal aid the student is eligible for (grants, work-study, direct loans)
  • Plug the student’s financial picture into the college’s own cost model (cost of attendance minus SAI)
  • Decide institutional (college-funded) grants or scholarships, if available
  • Package together a “financial aid offer” that tells the student how much aid the school will provide, and how much remains as the family’s responsibility

In other words, the FAFSA is the common baseline that helps standardize how aid is distributed. Many states and scholarship programs also use FAFSA data to allocate their funds. Without a FAFSA, a student may be disqualified from a large suite of federal, state, and institutional aid programs altogether.

Why it is important to complete the FAFSA

There are several reasons why completing the FAFSA is critical:

  1. Access to federal aid – Grants, subsidized and unsubsidized loans, and federal work-study require FAFSA submission. You can’t access them without it.
  2. State and institutional aid – Many states use FAFSA results to distribute state grants or aid. Colleges often require the FAFSA to award institutional grants or scholarships.
  3. You might qualify even if you think you won’t – Some families assume their income is “too high” to qualify, but eligibility depends on many factors. It’s usually worth applying anyway.
  4. Maximizes your options – Because financial aid offers differ from school to school, completing the FAFSA gives you the widest set of choices and the best chance of obtaining aid.
  5. It’s “free money” and favorable loans – Some of what you receive via FAFSA-based aid doesn’t have to be repaid (grants). Loans offered via FAFSA typically have lower interest and better repayment terms compared to private loans.

In short: completing the FAFSA is often the most important thing a prospective college student can do in terms of financial planning.

Why complete the FAFSA early rather than later?

Timing matters with the FAFSA for several key reasons:

  • Priority deadlines – Many state aid programs and institutional scholarships have early or priority deadlines. If you miss those, you may lose access to certain funds.
  • First-come, first-served funds – Some programs (especially state or institutional funding) operate on a first-come basis until funds run out. Filing earlier can improve your chances.
  • Better planning and certainty – If you submit early, you may know your financial aid package well before you have to commit to a college, which helps you compare net costs and make informed decisions.
  • Time to correct errors or appeal – If your FAFSA has issues, or if your financial situation changes (job loss, medical expenses, etc.), earlier submission gives you time to make corrections or submit appeals (called “professional judgment”).
  • Avoid delays or backlog – In past years, technical issues or delays in FAFSA processing have caused hold-ups. Filing early helps you avoid being squeezed by system glitches or late submissions.

Recent updates and reforms in the FAFSA process

Because the FAFSA is such an important gateway to aid, it has undergone significant revisions in recent years. Here are the recent or upcoming changes you should know:

The FAFSA Simplification / Better FAFSA changes

In 2020, Congress passed the FAFSA Simplification Act, which set in motion reforms to make the FAFSA simpler and more equitable. The “Better FAFSA” initiative is gradually rolling out these changes.

Some key changes already implemented or upcoming:

  • Fewer questions – The FAFSA has been dramatically shortened. Instead of over 100 questions, many students will see a much smaller number (around 36 or so, depending on the scenario)
  • Mandatory IRS Data Retrieval Tool – Instead of giving students the option to manually enter tax data, the FAFSA now requires using the IRS Data Retrieval Tool (DRT) for retrieving tax info. This improves accuracy and reduces errors
  • New terminology: SAI replaces EFC – As mentioned, the Expected Family Contribution (EFC) has been replaced by the Student Aid Index (SAI) as the key metric for aid eligibility
  • Changes in asset reporting – Starting for the 2026–27 award year, some family-owned businesses with 100 or fewer full-time employees, as well as farms on which the family resides, will be excluded from the net worth calculation for aid purposes
  • Pell Grant eligibility tweaks – Also under the 2026–27 FAFSA, the new law (the “One Big Beautiful Bill Act”) sets new rules for Pell Grant eligibility. For example, applicants whose SAI is twice or more the maximum Pell Grant amount may be disqualified from Pell

On-time launch and deadlines

In recent cycles, the FAFSA rollout has been delayed, creating confusion and compressed timelines. To address that, Congress passed the FAFSA Deadline Act, mandating that the FAFSA be released by October 1 every year with the deadline for completing the FAFSA remaining by June 30th. In 2025, the Department of Education launched the 2026–27 FAFSA on September 24, ahead of schedule—the earliest launch in the program’s history.

Because of past delays, some states or institutions have extended priority deadlines. For example, in California, the priority FAFSA deadline for UC and CSU systems was pushed to April 2 in one recent year to accommodate for delayed FAFSA rollout.

Fraud detection and verification

In mid-2025, the U.S. Department of Education reinstated various fraud detection measures (paused during the COVID-era) in response to discovered fraudulent or erroneous payments. These include tighter identity verification, screening based on Pell Grant limits, and coordination with Social Security and Homeland Security to prevent disbursing aid to ineligible recipients.

Other process enhancements

  • FAFSA now supports a more streamlined way to invite “contributors” (e.g., parents, spouses) to fill in their portion of the financial data. The new process is more user-friendly.
  • The Submission Summary tool allows applicants to verify what information they submitted and check for discrepancies or errors.

Completing the FAFSA: a brief overview of the process

Here is a simplified sequence of steps one typically follows when completing the FAFSA:

  1. Create an FSA ID — Student and each contributor (parent or spouse) must have an FSA ID (username and password) to sign and access the form. This should be done well in advance (it may take a few days to activate).
  2. Gather documents — Social Security numbers, tax returns (especially two years prior, per “prior-prior year” rules), W-2s, records of untaxed income, bank statements, investment balances, business/farm net worth (if applicable), etc.
  3. Log in and begin the FAFSA form at StudentAid.gov — Pick the correct aid year, enter personal data, answer dependency questions, etc.
  4. Invite contributors — If required, invite parents/spouses to submit their portion.
  5. Use IRS Data Retrieval Tool — For tax information, use the IRS DRT to import data securely and minimize entry errors.
  6. Answer remaining questions — This includes assets, household size, number of family members in college, etc.
  7. Add up to 20 schools — List schools to which your FAFSA data will be sent.
  8. Sign and submit — Both student and contributors must sign electronically (via FSA ID) and submit.
  9. Review Submission Summary / make corrections — Once processed, check the summary for errors. If needed, corrections or updates can be made later.
  10. Wait for your Student Aid Report / ISIR / financial aid offers — Colleges you listed will receive your FAFSA data and send you aid packages.

If your financial circumstances change (e.g. job loss, medical expenses), you can petition your college’s financial aid office via professional judgment adjustments, provided your FAFSA is submitted already.

Conclusion

The FAFSA is a pivotal tool in the U.S. higher education system. It enables students and families to access federal, state, and institutional aid by assessing financial need in a standardized way. Colleges rely on FAFSA data to craft aid offers, and many scholarships or grants are contingent on FAFSA submission. Because many funds are limited, and deadlines vary, completing the FAFSA early greatly improves your chances of maximizing financial aid. Recent reforms have simplified the form, introduced the Student Aid Index, tweaked asset rules, enhanced fraud prevention, and mandated an earlier annual launch. For any student planning on attending college or a career/technical school, filling out the FAFSA as soon as possible should be a high priority.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Topel & DiStasi Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Topel & DiStasi Wealth Management, LLC or performance returns of any Topel & DiStasi Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Topel & DiStasi Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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