That's correct, FAFSA is geared for lower middle class. However, the determination of what class a family is in is income and assets of the year prior to entry into college. People can be clever with their tax returns and, for instance, purchase a new house to live in, classify that as an expense, and since the house you live in is not considered an asset, lower the net income level of the family. It is not illegal, since you did really buy a house and it does count as an expense. There are many games like this that a person with a good accountant can play.

The real people who get screwed on FAFSA are people who are on the border of the lower and upper middle class. Usually a family in this position can't afford to play games to tweak their status, nor can they really afford to pay fully for college. As a result, these families have to take out loans and end up in 6 figure debt 4 years later.