When it’s time to apply for financial aid, most students will fill out the FAFSA, while some students will fill out the FAFSA and CSS Profile. But why two forms? And for what purpose? Certified Financial Planner Ann Garcia breaks down the differences between these two financial aid applications.
A quick overview
The primary purpose of the FAFSA is to determine eligibility for need-based financial aid through the federal government. This includes Pell Grants, student loans, and work-study programs. Beyond federal aid, most colleges also use the FAFSA to determine and allocate their institutional financial aid. This involves applying the same formula and output used for federal aid to award institutional need-based dollars.
The CSS Profile is an additional financial aid form that provides a more comprehensive assessment of a family’s financial situation. It’s used by about 250 private colleges. If a school requires the CSS Profile, students will need to submit the FAFSA as well. Ann explains, “You never do the CSS Profile without the FAFSA because in order for the college to award any federal dollars as part of your aid package you have to have completed the FAFSA.”
Who completes which form?
When it comes to the FAFSA or CSS Profile, “Both the student and the parents fill it out,” says Ann. But there are differences between the forms for parents.
In the case of married parents, one parent completes the FAFSA on behalf of the household. If parents are divorced, the parent providing the most financial support is responsible for filing out the form.
Like the FAFSA, the CSS Profile only requires one parent to the complete the form on behalf of the household if the parents are married. When parents are divorced, both parents must submit their financial information.
While some colleges might consider only one parent’s information for the CSS Profile, most want to examine the financial details of both to gain a broader look at a family’s financial assets.
FAFSA Simplification for students and parents
Instead of toggling between FAFSA sections, “The student completes theirs, the parent completes theirs, and then it’s complete,” explains Ann. “Instead of this constant back and forth.” Read more about the simplified FAFSA.
Income consideration
“Previously it was the case that the same inputs went into both forms, and so the strategies that you would use were the same for both forms. But now there’s this divergence in how income is being treated,” says Ann.
The FAFSA now focuses on total income derived from the tax return. The formula takes your adjusted gross income and adds any untaxed income on your tax return, including IRA contributions, self-employed retirement plan contributions, Roth IRA distributions, and untaxed interest income. The formula also subtracts for actual federal tax liability, sourced from the tax return.
The CSS Profile takes a broader look at total income from all sources, including W-2 forms in addition to tax returns. The formula adds back untaxed income from various sources, like contributions to 401(k), 403(b) and HSA. Unlike the FAFSA, the CSS Profile requires you to report gifts or money paid on your behalf.
“People engage in a lot of strategies to hide their assets, but it’s really your income driving the formula,” says Ann.
An important consideration with income is the year of reporting. For both forms, income is based on the “prior, prior” year. For instant, if you’re completing the FAFSA in 2024, you would use 2022 federal tax information.
For families with high school seniors, your income year would start January 1 of sophomore year and end December 31 of junior year. It’s important to keep this in mind as you plan for financial aid.
Asset consideration
Reporting assets on the FAFSA and CSS Profile varies significantly, and FAFSA Simplification further diverged the two. Ann covers some of the major differences:
529 reporting
FAFSA Simplification changed how 529 balances are reported. Moving forward, families only report 529 balances belonging to the student submitting the FAFSA. While the CSS Profile requires families to report each child’s 529.
Some families might consider rolling over their oldest child’s 529 into a sibling’s account, but Ann cautions against this. “There are rules about how frequently you can do roll overs, and you might find you’re a little short of money to pay tuition if you did that.”
Business value and child support
Both the FAFSA and CSS Profile now require you to report the adjusted value of a parent-owned business. Additionally, if a parent receives child support, it is considered an asset on both forms.
Home equity
The CSS Profile distinguishes itself by considering a broader range of assets including home equity. Unlike the FAFSA, which follows a standardized formula, the CSS Profile allows colleges to exercise discretion with various data points. The treatment of home equity, for instance, varies among institutions. Some colleges consider the full value, others cap it at a multiple of the parents’ income, while others exclude it entirely.
In general, understanding the valuation differences between parent and student assets is essential. Parent assets on the FAFSA are valued at 5.64% compared to 5% on the CSS Profile. Both forms value student assets at 20%.
Ann advises families to consider strategic moves, like contributing to a Roth IRA for their student since retirement assets are excluded from both formulas. Families might also consider moving some of their student’s savings into a parent-owned 529 to receive more favorable treatment.
Choosing the right filing date is crucial too, considering that assets are reported on the day of filing. Families can strategically time filing to align with Roth IRA contributions or to account for bills and expenses that may reduce asset values. Additionally, planning around bonuses or equity compensation payouts can influence the aid calculation.
When to file
“We hear so often, ‘You have to file the FAFSA right when it comes out. You have to file a FAFSA right when it comes out.’ You don’t,” says Ann.
Only people eligible for “state-based grant programs that are awarded on a first-come, first-served basis where there are limited funds” should consider filing as soon as possible. Everyone else should align their filing date around the colleges’ FAFSA submission deadlines.
Ann points out, “Although financial aid eligibility is calculated by the FAFSA and the CSS Profile, financial aid is allocated by the colleges themselves, and so they do not need to see your FAFSA until they have made a decision about whether or not to admit you.”
Sibling discount
Before 2024-2025, the FAFSA formula considered how many students a family had in college, dubbed the “sibling discount.” Today, the FAFSA only calculates the student aid index per student.
Families with multiple college students may no longer receive federal aid like Pell Grants, subsidized student loans, or work-study for each student. Ann suggests, “If that is your situation, I strongly encourage you to reach out to your college if you have a student that’s already in college, and you’re concerned what their aid package is going to look like.”
“The good news for families is once a college has admitted your student, they are highly incentivized to graduate your student,” adds Ann. “You will find in many cases that colleges are willing to step up and help fill some of the gap that the formula might not include.”
Planning with net price calculators
“If you are a high-need student who is working hard to make sure that your FAFSA and your CSS Profile are as advantageous to you as possible, there’s an additional step you need to take, which is researching financial aid policies at the colleges you’re looking at,” says Ann.
What students can do is check out the net price calculator on each college’s website. It’s a valuable tool that shows the estimated costs of attending that specific college. While these estimates aren’t binding, they can illustrate a college’s level of generosity and be used at various stages of the college planning process.
Final tips
Assessing need-based eligibility
If your student aid index is higher than the cost of attendance at a college, you may not be eligible for need-based financial aid. In that case, Ann recommends, “give yourself a break” from strategizing on the FAFSA. She still recommends families fill out a FAFSA form to be eligible for student loans or in case their financial circumstances change.
Reviewing tax returns
Before filing, review your tax return, paying close attention to IRA or 401(k) rollovers. Correctly reporting these rollovers is crucial on the FAFSA to avoid potential issues with financial aid eligibility.
Importance of college choice
“Neither [form] is the tooth fairy,” cautions Ann. The most generous financial aid normally comes from the colleges themselves. Ann suggests that need-based families look for colleges that tend to be generous.
