<p>Yes, the family will have to fill out FAFSA if they are going to have a student in college and want fiancial aid. Most all colleges require that. CSS PROFILE is not always necessary, but schools that require that tend to be the ones more generous in financial aid, though they also define their own need. </p>
<p>The issue should be raised with each financial aid office as to how insurance payout has to be reported. From what I have heard, financial aid counselors tend to be generous with how the payout is counted for FAFSA purposes in that it helps the student get more government funding. But unless the income is very low, that usually means eligibility for subsidized loans. Not really a big deal. As to how an individual college is willing to fund the family with its own money in terms of financial aid is truly up to the fin aid counselors. </p>
<p>If it appears that the payout is a true impediment in getting good financial aid, I suggest that the student take a gap year, until the dust clears from this payment. Unless a school is one that guarantees to meet need, however, it will be difficult to see whether the insurance is a factor or if the school is just gapping as usual, as most schools do. The insurance proceeds at such schools could just be a smoke screen. BUt if the student is accepted to schools where 100% of need is provided, and it is clear that these proceeds are an issue that the schools could not get around, then he needs to take that gap year and reapply for financial aid when that payment has cleared.</p>