What is FAFSA, and how does it work?

According to the Education Data Initiative, 83.8% of first-time, first-year undergraduate students receive some sort of financial aid. In order to receive federal financial aid, students must fill out the Free Application for Federal Student Aid, or FAFSA.

The FAFSA is a form students fill out to determine eligibility for federal financial aid for college, a career or professional school or a graduate institution. The personal and financial information you report on the FAFSA is used to calculate your expected family contribution (EFC). That number helps the federal government, your state government, and schools determine how much financial aid you may be eligible to receive. It's a smart step to take to help you prioritize and plan for college costs.

When you submit your FAFSA form online, the information goes to the federal processor and usually takes three to five days to be evaluated. Paper applications take seven to 10 days to process. After that, it's sent on to your selected schools so they can determine your financial aid eligibility.

Each school has its own process and timeline for awarding aid, so you can check with them directly for details.

The FAFSA helps the federal and state governments and educational institutions determine how much money a student may receive in grants, loans, and work-study funds for their higher education pursuits. Some states and schools also use the FAFSA to award need-based scholarships.

The two main types of federal student loans are subsidized and unsubsidized. Subsidized loans are need-based, meaning that the government pays the interest while the student is in school. Unsubsidized loans are not need-based, and they accrue interest right away. Students do not have to make payments on an unsubsidized loan while enrolled in school.

Both subsidized and unsubsidized loans have fixed interest rates set by the federal government. It's important for students to be aware of their loan repayment terms because the conditions vary depending on the type of funding.

Before filling out the FAFSA, you will need to have the following information handy:

• Your Social Security number
• Your parents' Social Security numbers (if you are a dependent student)
• Your driver's license number (if you have one)
• Federal tax information or tax returns, including W-2s, for you and for your parents (if you are a dependent student)
• Bank statements and records of investments (if you have them)
• Records of untaxed income, such as child support received, interest income, and veterans non-education benefits for you and for your parents (if you are a dependent student)
• Information about your college plans, such as the name and address of the schools you're applying to, the program of study you plan to pursue, and your planned enrollment date

You may be able to use an IRS Data Retrieval Tool, which takes information from your tax returns and auto-fills sections of the FAFSA. But once you've gathered all the details, you're ready to complete the FAFSA.

Once the required documents in order, you'll start the process by creating your federal student aid identification, or FSA ID. This is an online account you'll use to access the FAFSA. You will need to provide your name, date of birth, and Social Security number and select a username and password.

With your FSA ID, you can log in and begin filling out the FAFSA. Once you have completed the form, you will review it for accuracy and then submit it.

After you have submitted the form, you will receive a copy of your Student Aid Report, and your data will be sent to the colleges you listed. Individual schools will then let you know whether or not you've been awarded a financial aid package.

The FAFSA is the only way to apply for and get federal financial aid. This includes grants, loans, and work-study programs. If you don't submit the FAFSA, you can't be considered for any of those forms of aid.

Many states and colleges also rely on the FAFSA to award their scholarships and grants. Even if you aren't eligible for federal aid, filling out the FAFSA may still help you receive some financial assistance for college.

And one key advantage to completing the FAFSA is so that you can gauge how much college will cost you out of pocket.

Completing the FAFSA every year is one of the best ways to ensure you have the financial resources available to you while pursuing higher education. Even if you don't think you'll qualify for any aid, it's worth completing the FAFSA to exhaust all your options. Plus, if your financial situation changes from one year to the next, the FAFSA can help you adjust your aid package accordingly.

In order to be eligible for federal student aid, you must meet these qualifications:

• Be a U.S. citizen or eligible noncitizen
• Have a valid Social Security number
• Have a high school diploma or equivalent
• Be enrolled in an eligible degree or certificate program as a regular student at least half-time
• Not be in default on a federal student loan or owe money on a federal grant
• Maintain satisfactory progress in your course of study
• Sign the certification statement on the FAFSA form

It's neither. The FAFSA is an application for you to be considered for financial aid, which can result in you getting grants, scholarships, loans, or work-study programs. Educational institutions determine aid packages once they receive a student's FAFSA. Once the report and schools' financial aid packages are presented to you, you'll have to take steps with the school you'll ultimately attend to accept the award and formally apply for any loans.

There is no income cap for the FAFSA — anyone can complete it. Many colleges require students to fill out the FAFSA to be considered for merit-based scholarships regardless of financial need, family size or family income.

Student aid, especially scholarships, are awarded on a first-come, first-served basis, so it's wise to submit it as soon as possible. Deadlines can change, but the FAFSA submission window in recent years has opened on October 1 the year before the desired school year and generally closes on June 30 at the end of the desired school year depending on the school.

If you need help completing the FAFSA or understanding your financial aid eligibility, work with a financial advisor. They can help you make a plan to pay for higher education that's suited to you personally.