"No, I won't qualify. My parents make too much money."

Have you ever heard that comment? It's a common misconception. Lots of students and their parents mistakenly assume that all financial aid is based on your income. (Check out Staci's post from a few months ago to see her real-world experience with this.)

Since the time for applying for financial aid is right around the corner, I think it's time to set the record straight.

Here's the deal: Some financial aid is need-based, some is not.

Which financial aid IS based on need? Mostly the "free" money like grants and some scholarships. The subsidized Federal Stafford Loan is also based on need (this is the one where the government pays the interest while you're in school). The Federal Perkins Loan(PDF) is also based on financial need (this loan comes directly from your school).

Which financial aid is NOT need-based? The unsubsidized Federal Stafford Loan (you're responsible for the interest on this loan). Students who are attending an eligible school at least half-time will typically qualify for the unsubsidized Federal Stafford Loan.

And there's another one: The Federal PLUS Loan is also not based on financial need. Parents can take out a PLUS loan to help their dependent undergraduates pay for college. Graduate students can take out a PLUS loan for themselves to help cover their education costs.

With all these financial aid options, it's amazing how many people just don't fill out the FAFSA  (Free Application for Federal Student Aid). While some may think they don't qualify, others think they can handle college costs on their own, and still others may fill out the application but miss key deadlines.

You don't have to take my word for it. Check this out: The American Council on Education published a brief  a couple years ago noting that half of all undergraduates—or approximately 8 million students—in 1999-2000 who attended a college or university that participated in federal student aid programs failed to apply for financial aid.

Lots of these students were from low and moderate income families and would likely have qualified for a Pell Grant . Also, more than half the students who filled out the FAFSA in 1999-2000 did so after important deadlines had already passed, which lowered their chances for getting state and institutional aid.

So what's the message here? If you're interested in getting federal aid to pay for college, don't make assumptions about whether or not you'll qualify, and don't delay in applying. Fill out your FAFSA as soon as possible after January 1 of your senior year, and see what kind of award packages your schools come back with.

Are you planning to fill out the FAFSA this year? If you did so last year, how did things turn out? Did you get the aid you expected?