The primary purpose of the FAFSA is to determine how much financial aid a student qualifies for, including both need-based and non-need-based aid. It determines eligibility for federal need-based grants, including the Pell Grant and Federal Supplemental Educational Opportunity Grants (FSEOG); subsidized federal student loans, which are based on need; unsubsidized federal student loans, which most students qualify for regardless of need; federal work-study; state-based financial aid, including grants, scholarships, and loans; school-based financial aid, including need-based grants and scholarships, and school-based merit aid (since many schools require the FAFSA to be on file before any aid awards are distributed).

To determine a family's financial need, the FAFSA asks a series of questions about the parents' and student's income and assets as well as other factors, such as how many children there are in the family.