Paying for all the expenses that come with earning a degree is a challenge for most individuals and their families, regardless of income or savings. As the cost of college continues to climb, it is pertinent to have access to some form of financial aid.
The Free Application for Federal Student Aid, more commonly referred to as the FAFSA, is the necessary tool used to identify the total amount that a student (or his or her family) is expected to contribute to their higher education expenses.
By submitting the FAFSA, students are able to apply for a variety of financial aid programs, including federal grants and student loans.
Nearly all colleges and universities rely on the FAFSA to determine financial aid awards, and the Department of Education through the Office of Federal Student Aid is responsible for processing new applications each year.
Here’s how the FAFSA got started, how it works, and the financial aid available to students and their families through the FAFSA.
A Brief History of the FAFSA
The role of the federal government in higher education has a longstanding history, but the FAFSA has not always been an integral part of the relationship between the Department of Education and students.
In 1954, the first national organization focused on financial aid was established. The College Scholarship Service (CSS) was intended to help students identify types of aid available to them, through a series of forms like the Parent’s Confidential Statement, or PCS, and the Student Financial Statement, or SFS.
It wasn’t until 1966 when the National Association of Student Financial Aid Administrators (NASFAA) was established to help streamline the process of determining aid for students. It took another decade to see the introduction of the Financial Aid Form from the CSS and NASFAA as a simpler way to apply for aid. Finally, in 1992, the FAFSA was added to higher education mandates and was required to be free to students.
The FAFSA was made available online for the first time in 1997, and since that time, millions of students and their parents have went online to apply for federal financial aid for college. Each year, it is estimated that $150 billion is awarded to students through the FAFSA process today.
How Does the FAFSA Work?
The FAFSA may be a bit daunting at first, but it is necessary if a student is to receive federal financial aid. All individuals who are on their way to college, either for the first time or as a returning student in an undergraduate, graduate, or professional degree program are eligible to complete the FAFSA. Even those who believe they won’t qualify for financial aid because of their financial circumstances or means are encouraged to go through the process. Note that the FAFSA only will help students with federal financial aid, it is not affiliated with other private student loan providers.
Deadlines & Requirements
The FAFSA needs to be completed before the start of each school year so that a determination of available financial aid can be made. The deadline for completing the FAFSA is June 30 each year, and the application opens to the public on October 1 the year prior.
There is no requirement to know the specific school a student will attend in the upcoming school year, but it is important to have an idea of the colleges and universities an individual plans to apply for when filling out the FAFSA. In addition, students should take the time to gather specific information, including:
- The student’s social security number
- Driver’s license number
- Tax return details for the student and the student’s parents (if applicable) for the previous year
- Bank statements, investments, and untaxed income source documentation
With this information, the Department of Education is able to determine a student’s expected family contribution, or EFC. This is the calculation that represents the ability of a student or her family to pay for higher education costs as well as a need-based eligibility for federal student aid.
The EFC along with eligible federal aid funds are laid out within the Student Aid Report (SAR), provided to students once the review of the FAFSA is complete. From there, the specific school(s) a student applied to will provide an award letter that details the types of funding available and in what amounts.
How to Fill Out the FAFSA
Completing the FAFSA can be accomplished in several different ways, including online, via downloaded PDF, or by requesting a printed FAFSA directly from the Department of Education.
The online method is the most streamlined for students since instructions and tips are provided throughout the process. Students simply navigate to the FAFSA website to get started.
Alternatively, students may download the appropriate FAFSA form in a PDF to complete offline. The same information is required as in the online process, but any PDF version of the application must ultimately be printed and mailed in for processing.
Students may also request a printed version of the FAFSA be sent directly to them via mail. The same process as the PDF option is required to complete a print and mail FAFSA.
Once a FAFSA is completed, the Department of Education sends out the SAR between three days and three weeks after receiving a completed submission. The final award letter from the college or university will arrive after the SAR is received, but the timeframe varies from school to school.
Federal Aid Through the FAFSA
There are several types of financial aid that may be awarded through the FAFSA, including federal student loans, grants and scholarships, and other aid like work-study programs.
It is important for students and their families to understand the types of federal student aid they are eligible to receive, how they work, and what is required in terms of repayment over time.
Each student has the potential to receive one or more types of federal student aid through the FAFSA based on his or her dependent status, expected family contribution, and financial need.
Federal Student Loans
Federal student loans are funds offered to qualified undergraduate, graduate, and professional degree students that must be repaid over time, plus interest. As the most common type of student aid received through the FAFSA, federal student loans are beneficial in paying for college expenses that cannot be covered by individual or family savings, or other forms of federal student aid. Federal student loans come in a variety of forms, including:
There are two types of Stafford loans made available to students who submit the FAFSA: Direct subsidized and Direct unsubsidized loans. Direct subsidized loans are funds borrowed from the Department of Education to undergraduate students who are able to show a financial need related to earning a degree.
Subsidized loans have somewhat better terms than unsubsidized loans, mainly because the Department of Education pays the interest on these loans while a student is in school and during a six-month grace period after leaving school.
Unsubsidized loans are also made available through the FAFSA, but they are offered to undergraduate, graduate, and professional degree students. Interest accumulates on an unsubsidized loan from the time the funds are dispersed.
The total cost of unsubsidized loans can be far greater than subsidized loans, but the total amount available to borrow is higher for unsubsidized loans than it is for subsidized loans. For either type of Stafford loan, students are required to repay the balance plus interest, no matter if they graduate.
Through the federal Perkins Loans program, some students may qualify to receive low-interest federal student loans for undergraduate or graduate degrees. Based on information included in the FAFSA, Perkins loans are offered to those who can show an exceptional financial need from a participating college or university. Instead of the federal government acting as the lender, the school offering the Perkins loan collects payment from the borrower once repayment begins.
The interest rate on Perkins loans is 5%, and the total amount offered is dependent on the student’s need and fund availability from the school. Like federal Stafford loans, repayment is required once a student leaves at least half-time status at the college or university.
Parent PLUS Loans
The federal government also offers Parent PLUS loans as a form of financial aid. After completing the FAFSA, parents of eligible students may apply for a Parent PLUS loan through the Department of Education. Individuals must have strong credit history to qualify for a Parent PLUS loan, and those who receive Parent PLUS funds can expect a fixed interest rate of 7% for the life of the loan.
The total amount offered to parents through the PLUS loan program is the total cost of attendance, less any other financial aid received. Parents who borrow to help pay for their child’s college expenses are required to begin repaying a PLUS loan balance plus interest shortly after the loan funds are dispersed.
Grad PLUS Loans
Graduate level students in need of additional financial aid may qualify for a Grad PLUS loan through the FAFSA and the Department of Education. Similar to Parent PLUS loans, Grad PLUS loans require strong credit history to qualify. Graduate students receive a fixed interest rate of 7% for the life of the loan.
The total amount borrowed cannot exceed the cost of attendance minus other financial aid received. Unlike Parent PLUS loans, graduate students taking out a Grad PLUS loan may defer repayment until six months after leaving half-time status at school. Repayment of principal and interest is required, however.
Grants and Scholarships
In addition to financial aid in the form of loans, some students may qualify for grants and scholarships through the FAFSA. Grants and scholarships are funds made available to students who meet certain criteria relating to financial need, or to those who have specific skills or attributes.
Unlike federal student loans, grants and scholarships do not have to be repaid. Receiving grants and scholarships can make a significant difference in the total cost of attending school to earn a degree. The Department of Education runs several grant programs, each which require the FAFSA to be submitted in order to determine eligibility.
Federal Pell Grants
Students pursuing an undergraduate degree may qualify to receive a federal Pell grant if they have a significant financial need. The amount of a Pell grant varies for each student based on his or her cost of attendance, full or part-time status as a student, and plans to attend school for a full academic year.
In most cases, federal Pell grants do not have to be repaid so long as a student maintains enrollment in an undergraduate degree program that participates in the program.
Federal Supplemental Educational Opportunity Grants
The Federal Supplemental Educational Opportunity Grants program, or FSEOG, is made available through participating schools to students who have an exceptional financial need. Only undergraduate students are eligible to receive FSEOG funds, and like other grants, no repayment is required so long as enrollment in an eligible undergraduate program is maintained. The total amount of each FSEOG offer varies based on the school’s level of funding and the student’s financial need.
Teacher Education Assistance for College and Higher Education Grants
The Teacher Education Assistance for College and Higher Education grant program, known as TEACH, is offered to students who plan to become teachers in high-need fields located in a low-income area. Funding up to $4,000 per year is available to students who plan to complete specific coursework in the field of teaching and sign an agreement to serve at least four years in a qualified teaching environment. No repayment is required so long as the criteria for maintaining the grant are met.
Iraq and Afghanistan Service Grants
Students who are ineligible to receive a federal Pell grant based on their expected family contribution and have a parent or guardian who was a member of the U.S. armed forces and passed away as a result of military service in Iraq or Afghanistan after the events of 9/11 may qualify for an Iraq and Afghanistan Service grant. Total funding received may not exceed the federal Pell grant annual limits, and no repayment is required so long as students resubmit the FAFSA each academic year.
Other Student Aid Programs
In addition to loans and grants offered by the federal government, there are other types of federal student aid individuals may qualify for by submitting the FAFSA.
Federal Work-Study Program
Both undergraduate and graduate students may qualify for a federal work-study program which provides part-time jobs to students with a financial need. During their time at school, students who participate in a federal work-study program may work on or off campus in a job that is related or unrelated to their field of study. The income received is meant to help offset the out of pocket cost of attending school, although funding varies for each school participating in the program. Only students who submit the FAFSA may be offered a federal work-study program.
State Government Aid
Submitting the FAFSA may also provide students opportunities to receive financial aid from the state in which they are a resident or where they plan to attend school. Each state has its own higher education office, and types and amounts of funding vary greatly from one state to the next.
Each school’s financial aid department evaluates student FAFSA submissions to determine what school-level aid may be available based on merit or financial need. Students will be able to view school-specific offers when they receive their award letter.