Starting Oct. 1, current and prospective college students can complete the Free Application for Federal Student Aid, known as the FAFSA, for their share of $150 billion in federal student aid — including grants, scholarships, loans and work-study — for the 2022-2023 school year. 

Every year, college financing experts plead with students and their families to complete the FAFSA as soon as possible because schools often distribute student aid funds on a first-come, first-served basis according to the date the students complete the financial aid application. And every year, students miss out on billions.

"October 1 is incredibly important when it comes to paying for college because the FAFSA is the gateway to $150 billion in aid to help pay for higher education, including scholarships, grants, work-study and federal student loans," says Ashley Boucher, who recently served as director of corporate communications for Sallie Mae. "But some of that aid is limited, some of it is first-come, first-serve, and so families want to be among the first in line to apply for their fair share of aid and that means preparing for this October 1st application date."

Last year, FAFSA applications fell — even though financial need increased.

Discover Student Loans polled 1,500 parents with college-bound teens in early March 2020 and again in May 2020. They found that 48% of parents lost income as a result of the pandemic and 44% said they cannot afford to pay for as much of their child's education as they had originally planned. As a result, 39% of those who in March said they did not plan to apply for federal aid, in May said they would.

During the 2020-2021 academic year, only 68% of students and their families submitted the FAFSA, down from 77% during the 2018-2019 academic year and 71% during the 2019-2020 academic year. Last year marks the lowest percentage ever recorded by Sallie Mae since the organization began its How America Pays for College report in 2008.

Lower-than-normal completion rates can be seen across a wide range of students. According to Sallie Mae's report, 67% of low-income families, 70% of middle-income families and 66% of high-income families submitted the FAFSA.

Boucher says the decrease is "incredibly alarming" and "grounded in falsehoods." 

The most common reason families gave for not submitting the form was that they didn't think they would qualify for any financial aid. But, there is no official income cutoff to apply for federal student aid.

Typically, "aid is available for anyone with a household income below $250,000 a year," Charlie Javice, founder and CEO of Frank, an online FAFSA platform, previously explained to CNBC Make It. As a vast majority of Americans make less than $250,000, Javice says, being too rich to get aid "only applies to less than 5% of the U.S. population."

"So it's really important as FAFSA season comes up that people don't forget that there is no such thing as being too rich to file FAFSA," he says. "Everyone should be doing it."

Other common reasons students gave Sallie Mae for not completing the FAFSA were that they missed the deadline, found the application too complicated and didn't have enough time.

A recent survey of 1,000 undergraduate students by Student Loan Hero found that 85% of students don't know that the FAFSA determines eligibility for free aid such as grants and work-study in addition to loans and 41% don't know that filing the FAFSA early increases their chances of getting more financial aid.

"These misconceptions could be causing some students to ignore the FAFSA completely — one in five said they don't plan to submit it this year. It's a good idea for all students to submit the FAFSA, since it doesn't have an income cutoff and can be used for more than just federal aid," says Rebecca Safier, a student loan counselor for Student Loan Hero.

"One of the most dangerous misconceptions we discovered was that 43% of students believe you need to accept the full student loan amount you're eligible for," Safier says. "You don't need to accept all (or any) of the student loans you're offered, and in fact should try to minimize borrowing as much as possible so you don't end up with burdensome debt after graduation."

"Many families are still experiencing economic challenges as a result of a pandemic and we want to see more families keep their dollars in their wallet, and not pay more for college than they have to," says Boucher. "Of course, that means starting with the FAFSA, but it doesn't end there."

Students can also lower their college costs by appealing the first financial aid offer they get from a college they want to attend. 

According to Sallie Mae's report, 29% of families who received a financial aid offer from a college appealed for more aid and 71% of those appeals were approved, leading to higher grant amounts in most cases. 

Thanks to recent updates, the FAFSA application can be completed in as little as four minutes and CNBC Make It's step-by-step guide for completing the FAFSA can help walk you through the process. 

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