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How to avoid 8 common mistakes that hurt your chances of getting federal financial aid for college

Don't let these errors cost you the money you need for your education expenses.

Zephyr Picture | Photolibrary | Getty Images

The offer mentioned below for SoFi Student Loans is no longer available.

As acceptance letters from colleges and universities begin to appear in mailboxes across the country this spring, soon-to-be undergrads (and their parents) have lots of questions about the future, but maybe none as pressing as "How am I going to pay for this?"

For many, federal financial aid plays an important part in making higher education affordable and every October, the Free Application for Federal Student Aid (FAFSA) opens for students seeking help from the government. Completing the FAFSA application is the first step to determining your eligibility for grants, scholarships, work-study programs and federal student loans. However, any errors you make on the form could mean receiving less aid than you qualify for.

CNBC Select spoke with Mary Jo Terry, a managing partner at private student loan refinancing company Yrefy, for a breakdown of the eight most common FAFSA mistakes and how to avoid them.

1. Not submitting an application at all

Everyone who plans to attend college or graduate school should complete the application, regardless of their financial situation.

It's common for families to believe their income is too high to qualify for financial aid and not bother applying. In fact, there are no set FAFSA income limits that determine eligibility. And since the FAFSA is free to complete, so there's no harm in seeing what aid you may receive. 

"The reality is that FAFSA is like an insurance policy, except it costs you nothing," Terry says. "If you don't use the federal aid, you don't use the federal aid." In other words, just as insurance protects against financial risk, FAFSA serves as a safety net for students who are uncertain about whether they'll need assistance covering the cost of college.

In 2021, roughly 813,000 incoming first-year college students did not apply for federal aid despite qualifying, according to a report from the National College Attainment Network. More than $3.75 billion in potential aid went unclaimed that year. 

Even if you think you may not qualify for need-based aid, some schools may recommend or require filling out the FAFSA for certain scholarships. 

2. Waiting until the very last minute to apply

To receive aid offers for the 2022–23 academic year, applicants must submit the FAFSA form by Jun. 30. The process of filling it out will take around 45 minutes to an hour and a half, according to Terry. 

Apart from the federal deadline, each state has its own FAFSA deadline to determine eligibility for state-based financial aid programs, like the California-specific Cal Grant. Yet less than half of families that have students enrolled in college know about their state's deadline, according to a Sallie Mae national study. It's recommended that students complete the FAFSA as soon as possible after it opens to meet both sets of deadlines.

College resource site Edvisors compiled a list of state deadlines for the FAFSA.

Many programs have limited funding, so eligible applicants often receive aid on a first-come, first-serve basis. Applying early raises your odds of getting awarded the maximum amount possible before funds run out. Once grant funding is exhausted, certain schools may start offering loans instead, while others cease awarding financial aid altogether. 

It takes time for the Office of Federal Student Aid to process your FAFSA application — typically 3–5 days if you used the online form — and for the colleges to determine your package. If you wait until the last minute, you may have less time to explore and compare financial aid offers from different schools.

Waiting until the last minute also makes it difficult to correct any errors in your application that may be flagged after submission. Keep in mind that uncorrected mistakes could potentially cost you funding.

3. Not doing the prep work 

Before you start the FAFSA application, you'll want to gather a few key pieces of information. You'll need your Social Security number (or your Alien Registration Number if you aren't a U.S. citizen). The form may also ask for your driver's license or state identification number.

The FAFSA requires you to indicate your tax dependency status, which can affect your eligibility for financial aid. Be sure to gather copies of your federal income tax returns, including W-2 forms from the previous year, to reference. If you are considered a dependent student, you will need to use your parents' federal income tax return information.

The following may also need to be reported if it applies to you or your parents:

  • Any assets, such as savings accounts, stocks and real estate other than the primary residence 
  • Bank statements and records of investments if you have any
  • Any records of untaxed income, such as child support or government benefits 

4. Not creating an FSA ID 

The Office of Federal Student Aid highly recommends that you create an FSA ID, which is needed to access, sign, or correct your information online. 

According to Terry, for some individuals, filling out the FAFSA form isn't always done in one sitting; some individuals may realize they're missing some information and need to finish the application later. Having an FSA ID allows you to quickly pick up where you left off.

Note that for dependent students, you cannot share the same FSA ID with a parent. Each person needs unique credentials to electronically sign and submit their portion of the FAFSA. Take care not to mix up the parent and student FSA IDs, Terry warns.  

Students can use the same FSA ID to renew their application every year they attend school. Applicants should write their FSA ID down and store it in a safe place to avoid the trouble of resetting their password when it's time to reapply for aid.

5. Not going back to correct mistakes or make updates

The length and complexity of the FAFSA application make it easy for typos and mistakes to occur. To reduce the chances of errors slipping through, carefully review each section and question before submitting the form. You should double-check your personal and financial information entries, which can require specific formatting. 

In some cases, making errors could delay the processing of your FAFSA or the distribution of your financial aid package. But Terry cautions against believing that once you've finished your FAFSA, that's it: "You can go back and make corrections and updates," she says. 

Mistakes are not the only reason you may need to log back in. Terry adds that unemployment, the addition of a new child or dependent, divorce, and a significant change in income or other circumstances could cause you to update your application.

If a correction or update is needed, log in to your FAFSA account with your FSA ID and choose the "Make FAFSA Corrections" option. From there, you can update your information, add or remove schools, or make other changes to the application.

Just remember that some changes may require additional documentation or verification, which could delay the processing of your award. Additionally, if you make a correction after the federal or state deadlines, it may affect your eligibility for certain types of aid. For this academic year, you have until September 9 to send in any updates. 

6. Not using the IRS Data Retrieval Tool

One way to avoid mistakes is by using the IRS Data Retrieval Tool, which automatically transfers your tax information to the FAFSA. 

"That's going to be the fastest way to get your tax information into the FAFSA and get you verified to determine what kind of aid you have available," Terry says, estimating that 95% of applicants can use the tool. 

The tool ensures that the data entered matches exactly what the IRS has on file, helping to prevent processing delays or discrepancies in the offer amount. If the tool can't pull your tax information, you might need to enter the required information manually. 

7. Not checking your email after filing 

The FAFSA could still require your attention after you hit submit. The Educational Department requests verification — an audit-like process that asks applicants to submit extra documentation to prove the information they provided is accurate — from about one in five applicants, according to a 2021 NCAN report

If selected, you should see an asterisk next to the expected family contribution on the Student Aid Report, a summary document you will receive after filing the FAFSA. The financial aid offices from the schools listed on your application may also send you an email or physical letter asking for information.

For that reason, Terry recommends checking your email and online portal regularly after submitting the FAFSA to stay informed about the status of your application and additional requests. 

"I tell people to just set up an email address specifically for this," she says. "If the financial aid officer is asking for verification of information that was provided on the FAFSA, you're going to need to respond quickly."

But getting selected shouldn't cause you to panic. "Do not feel like you're being singled out," she adds. "It's like a random lottery. You just happen to make a list because the schools have to physically verify a certain percentage of their students."

8. Not carefully reviewing your SAR or financial aid offers

After filing the FAFSA, you'll receive the Student Aid Report within a few days to three weeks. The report lists an expected family contribution, which the schools listed on your application will reference when determining aid eligibility. Be sure to check that all information is correct and up-to-date. 

The SAR is not the final decision regarding financial aid. Offers are typically created by the financial aid offices of schools themselves, rather than the Office of Federal Student Aid. An offer will include a breakdown of the different types of aid available, such as grants and loans, along with the corresponding amounts you are eligible to receive. 

Once you receive those aid offers, Terry says to thoroughly review them and understand the terms behind each type of aid before accepting. 

"The first thing you're going to want to do is to try to get the least expensive aid possible. Those are your grants or scholarships and endowment money," she recommends. "Then go into subsidized financial aid, unsubsidized financial aid, and really take a look at what the packages that they're offering before you get into private loans." 

You need to exercise caution when deciding what offered loans to accept. Taking on too much debt can come with long-term consequences and hobble your personal finances for years to come. Students should only accept the loans they need and can afford to repay in the future.

It's possible to appeal an aid offer if a student believes they are eligible for more aid based on financial circumstances.

What happens if I don't qualify for federal aid?

There are several alternatives available to help pay for college, even if you don't qualify for federal aid based on the FAFSA. 

Many colleges offer work-study programs, which help students get part-time jobs on campus or with select outside organizations. The wages they earn can offset the cost of tuition and other college expenses. 

Another option students may consider are private loans. These are educational loans provided by private lenders, such as banks and credit unions. Unlike federal loans, private loans may require a credit check or co-signer. They typically have higher interest rates and fewer protections, such as loan forgiveness or deferment options, compared to federal student loans. 

Borrowers may later choose to refinance their student loans as a way to get a lower interest rate and potentially reduce their monthly payments. CNBC Select ranked SoFi Student Loan Refinancing as the best overall option due to its extensive offering of payment protections, including COVID forbearance and loan deferment. If you have a co-signer, Citizens Student Loan Refinancing may be a good choice for you.


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Bottom line

Completing the FAFSA can be overwhelming, but avoiding these common mistakes can maximize the amount of financial aid available to students. You can take several steps to help safeguard against errors, including using the IRS Data Retrieval Tool, setting up an FSA ID, and checking your email after applying.

Catch up on Select's in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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