Should High-Income Families Fill Out The FAFSA?

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

The result of these changes is to potentially allow more student aid to become available to low-income borrowers via additional Pell Grants.

Larger families may also receive less financial aid overall due to the closure of a loophole that lets families with multiple dependents divide their income for college aid purposes. The Student Aid Index (SAI) will also consider the value of businesses as an asset for the purpose of determining federal financial aid, which has not been the case until now.

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

If you’re unlikely to receive financial help for school, is there really a point to filling it out?

While it seems like skipping the FAFSA may not make any material difference for those with high incomes or huge amounts in assets, most people I spoke to on the topic said that filling it out makes sense for high-earners more often than not.

Most Families Should Still Fill Out the FAFSA

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

If you have a student with excellent grades, a very high GPA or impressive scores on standardized tests like the SAT, it’s possible you could miss out on 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 would not have access to without filling out the FAFSA. In fact, financial advisor Kathryn Kubiak-Rizzone of About Time Financial Planning points out that filling out the FAFSA is the only way to unlock the option to borrow for school with the help of federal student loans.

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

She also points out that the financial situation of a family could change from one part of the year to the next. If the unforeseen happens and a parent loses their job or passes away, having a FAFSA on 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 your dependent from receiving federal financial aid for school.

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

When You Shouldn’t Fill Out the FAFSA

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

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

That said, Dr. Robert Kohen of Kohen Educational Services says that he wouldn’t recommend families skip the FAFSA based on reaching an arbitrary income or asset limit since so many different factors can come into play. Instead, Kohen recommends families use financial aid calculators from the federal government first (like this one) to see how aid might work when their entire financial picture is taken into account.

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

Other Considerations For High Earners

Filling out the FAFSA can position families to borrow for school with federal student loans if they need to, and there’s nothing to lose if they don’t wind up qualifying for any help. In the meantime, people with high incomes should probably get their ducks in a row when it comes to covering the costs of higher education that are likely coming their way if they have a child heading off to college in the coming years.

One important tool to look into in this realm is the 529 college savings plan since it lets families 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 typically invest the underlying funds in order to secure long-term growth.

Cieniewicz also says that high-income parents should encourage their children to apply for private scholarships just like everyone else. After all, private scholarships are typically awarded with no bearing on a family’s finances.

“Rather, they are dependent on things such as essays, video, or application criteria,” he said.

As a last resort, families with high incomes and no outside help to pay for school can try the old-fashioned way to pay less and negotiate with their school. At the very least, they could give it a try.

Gilberti says that there are definitely opportunities to pay lump sums for college tuition, which can help families lock in their price. These opportunities can include both prepaid college tuition plans and situations where you call your school and ask for a cash discount if you pay for a year of college tuition and fees upfront.

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