Should high-income families fill out the FAFSA?

The 2024-2025 FAFSA is full of changes – from the December start date, to replacing the Expected Family Contribution (EFC) with the Student Aid Index (SAI).

The effect of these changes is to potentially allow more student aid to become available to low-income borrowers through additional Pell grants.

Larger families may also receive less financial aid overall because of the closing of a window that allows families with multiple dependents to split their income for college aid purposes. The Student Aid Index (SAI) will also consider the value of businesses as an asset in determining federal financial aid, which has not been the case until now.

Many of these changes have left small business owners and middle- to high-income families wondering if they will qualify for any financial aid and if they should even bother filling out the Free Application for Federal Student Aid (FAFSA) at all.

If you’re unlikely to get financial aid for school, is there really any point in completing it?

While it appears that skipping the FAFSA may not make any material difference for those with high incomes or huge amounts of assets, most people I spoke to about the matter said that filling it out makes sense for those with high incomes more often.

Most families will still need to fill out the FAFSA

According to financial advisor Jordan Gilberti at Viewmost families should fill out the FAFSA even if they have a high income, as some schools require this form to receive merit-based aid.

If you have a student with excellent grades, a very high GPA, or impressive scores on standardized tests such as the SATyou may lose some merit aid a child might otherwise be eligible for through their school if you skip the FAFSA.

Not only that, but there are other types of aid and loans that you wouldn’t be able to access without filling out the FAFSA. In fact, his financial advisor Kathryn Kubiak-Rizzone About Financial Planning points out that completing the FAFSA is the only way to unlock the borrowing option for school with the help of federal student loans.

“Even if you don’t plan to take out loans, it can be helpful to keep your options open,” he said.

He also points out that a family’s financial situation can change from one part of the year to another. If the unexpected happens and a parent loses their job or dies, having a FAFSA file can make it easier for students who need to apply for federal student loans or other financial aid to get through school.

Also remember that your income may not be as high as you think it is, or at least not high enough to prevent the dependent from receiving federal financial aid for school.

In fact, his financial adviser Daniel Cieniewicz Hyperion Financial says a family making $130,000 a year with four or more dependents could qualify for some kind of need-based aid through the government and directly through colleges. Meanwhile, families earning $140,000 a year with one dependent may lose federal student aid but still qualify for aid directly through school at elite colleges and universities.

When you Should not Fill out the FAFSA

While most families should fill out the FAFSA even if they think they won’t get (and don’t need) help paying for school, there are certainly some exceptions. For example, Cieniewicz points out that families earning north of $300,000 a year are unlikely to receive need-based college aid and could potentially skip the FAFSA if they believe the likelihood of receiving merit aid is low.

Meanwhile, someone with millions of dollars in a brokerage account or a seven-figure business might also decide that filling out the FAFSA is a lost cause, and it would be hard to blame them.

That being said, Dr. Robert Kohen’s Kohen Educational Services says she wouldn’t recommend families skip the FAFSA based on meeting an arbitrary income or asset threshold, since so many different factors can be taken into account. Instead, Kohen recommends that families first use federal financial aid calculators (eg this) to see how the aid can work when their whole financial picture is taken into account.

“Things like unusually high medical expenses, multiple kids in college at once, and the number of children in the household can all affect how much or little a college expects a family to contribute,” he said.

Other considerations for high incomes

Completing the FAFSA can position families to borrow for school with federal student loans if needed, and there’s nothing to lose if they don’t qualify for any aid. Meanwhile, high earners will probably have to get their ducks in a row when it comes to covering the higher education costs that are likely to arise if they have a child going to college in the coming years.

An important tool to consider in this area is the 529 college savings plan, as it allows families to save for college on a tax-advantaged basis. Some states even offer upfront tax advantages for contributing to this type of account, and you can usually invest the underlying funds to ensure long-term growth.

Cieniewicz also says high-income parents should encourage their children to apply for private scholarships like everyone else. After all, private scholarships are usually awarded without affecting a family’s finances.

“Rather, they depend on things like essays, videos or application criteria,” he said.

As a last resort, high-income families without outside help to pay for school can try the old-fashioned way of paying less and negotiating with their school. At least, they could try.

Gilberti says there are definitely opportunities to get a one-time payment for college tuition, which can help families lock in the price. These opportunities can include both prepaid college tuition programs and situations where you call your school and ask for a cash discount if you pay a year’s worth of college tuition and fees in advance.

“If you pay upfront, you may be able to significantly reduce your costs simply because of the inflationary aspect of college tuition.”