FAFSA Works: Every person who plans to attend college and their parents should understand how the Free Application for Federal Student Aid (FAFSA) process functions. Some might overlook applying for financial help for college, assuming their income is too high to meet the criteria. However, irrespective of their family’s income, they could qualify for various types of financial support, including aid from the federal government, state, school, and even scholarships based on merit.
In reality, it’s a wise decision for nearly all families with a child heading to college to complete the FAFSA form.
How Does FAFSA Works?
The main purpose of the FAFSA is to figure out how much financial assistance a student can get. This help can be based on their financial need or not. The FAFSA decides if a student is eligible for federal grants that are based on need, like the Pell Grant and Federal Supplemental Educational Opportunity Grants (FSEOG). It also helps students get federal loans, where some loans are based on need and some are not. Additionally, the FAFSA helps students get federal work-study jobs, state-based financial support, like grants, scholarships, and loans, as well as financial help from the school itself, including need-based grants, scholarships, and merit-based aid.
To understand how much a family needs financial aid, the FAFSA asks questions about the money the parents and student make, the things they own, and other details like how many kids are in the family. Then, it calculates an amount called the Expected Family Contribution (EFC).
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The FAFSA form is the official way that students and their families ask the government for money to help with college costs. Other groups, like states, colleges, and private scholarships, also look at this form to decide how much aid to give.
When it comes to money you have, the FAFSA thinks around 20% of a student’s money and about 5.64% of the parents’ money should be used for college each year. This includes things like savings and investments, but not retirement accounts, life insurance, or certain other things. The value of the family’s house is also not counted.
The details you give on the FAFSA decide if you get aid because you need it, or because you don’t need it, or maybe a mix of both.
If you’re not ready for the full FAFSA form, you can use the Federal Student Aid Estimator from the Department of Education to guess how much aid you might get and how much you might need to pay.
Here are some of the programs that need you to fill out the FAFSA:
Need-Based Financial Aid
Federal Pell Grants
Grants are a great kind of financial help because you don’t have to pay them back. The main federal grants for college are called Pell Grants. They are given to students who have a big financial need. These grants are mostly for students doing their first college degree, but some programs for becoming a teacher can also get them. The biggest amount you can get is $7,395 for the year starting July 1, 2023, and ending June 30, 2024.
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The financial aid office at a college decides how much money students can get. They look at how much your family can pay (this is called your Expected Family Contribution) and how much the college costs.
Federal Supplemental Educational Opportunity Grants
You don’t have to pay back these grants either, but they are only given out by specific schools. The money you can get varies from $100 to $4,000 every year. Just like Pell Grants, these extra grants are for students who don’t have a lot of money to pay for college.
Federal Direct Subsidized Loans
These loans are given by the government and they are called subsidized loans. This means you won’t need to pay extra money (interest) on them while you’re in school and for six months after you finish. The amount of money you can borrow with these loans is different based on your school year and if you’re seen as depending on your parents or not. It can be from $3,500 to $12,500 each year. But remember, these loans can’t be used for graduate studies.
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The U.S. Department of Education provides these loans with low-interest rates to students who can get them and need help to pay for college or career school.
Federal Work-Study
The federal work-study program offers part-time jobs at certain colleges and universities that pay you. This can be for both students getting their first degree and those in advanced studies like graduate school.
Non-Need-Based Financial Aid
Direct Unsubsidized Loans
Unsubsidized loans are a lot like subsidized loans, but there’s one big difference: the government doesn’t help with the interest while the student is in school or for six months after they finish. If students or their parents don’t pay the interest during this time, it gets added to the main loan amount.
Colleges can include these loans in a financial aid package no matter how much money a family has. For students who depend on their parents, they can borrow up to $31,000 in unsubsidized loans while studying for their first degree. But if their parents can’t get federal PLUS loans, they might be able to borrow even more.
Federal PLUS Loans
These loans are for parents or students doing advanced studies. The government doesn’t help with the interest, so if the interest isn’t paid while the student is in school, it gets added to the main loan amount.
Teacher Education Access for College and Higher Education (TEACH) Grants
Students who are studying to be teachers can get these grants. They can receive up to $4,000 per year (starting from the 2022-2023 academic year), even if they don’t meet the criteria based on financial need.
To be eligible, the student must take specific classes and, within eight years of finishing school, work for at least four years in a school or educational agency that helps families with low income. You don’t need to pay back these grants unless you don’t meet the requirements, in which case the grant becomes a regular loan that you have to repay.
What Is the Point of a FAFSA?
The U.S. Department of Education uses the FAFSA to determine a student’s eligibility for need-based federal financial aid for college based upon their financial situation. Federal financial aid may include federal grants, scholarships, work-study, and/or loans.
Is the FAFSA a Loan or Free Money?
The FAFSA is not a loan. It’s like a form you complete to figure out if you can get a federal loan. After you fill it out, you might qualify for three main types of financial help. Some of this is like a gift, some you have to work for, and some you need to pay back.
Who Qualifies for a FAFSA?
To be able to get different types of federal student aid, there are some general rules you need to meet. These include having a need for financial help, being a U.S. citizen or an allowed noncitizen, and being enrolled in a valid degree or certificate program at a college or career school. But remember, for each type of aid, there are more specific rules you must meet. Most students can get some form of financial help from the government to cover college or career school costs. Things like your age, race, and what you’re studying don’t affect whether you can get this help.
When Should I Fill Out My FAFSA for 2023–2024?
To be considered for federal student aid for the 2023–2024 award year, you needed to complete a FAFSA form by June 30, 2024. Each state also has its own deadline.
The Bottom Line
Most families—regardless of how much they earn or have accumulated in assets—will find it useful to fill out FAFSA. If it turns out that they are ineligible for free money in the form of grants or scholarships, they are still likely to be eligible for non-need-based aid in the form of direct unsubsidized loans from the federal government. Federal student loans typically have more favorable terms than loans from private lenders and offer a variety of flexible repayment options.
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