Understanding Types of Financial Aid
The FAFSA connects you to student loans and other financial aid options
If you're college bound and applying for the FAFSA, you may be confused about the types of financial aid available, the difference between federal and private student loans or even how financial aid works. It's easy to get overwhelmed, but taking the time to learn a little about your options can pay off in a big way. Use this guide to answer some of your FAFSA questions, then contact your school's financial aid office or one of our Student Lending Specialists to find out which financial aid options are right for you.
What is the FAFSA?
The FAFSA, short for Free Application for Federal Student Aid, is the nationally standardized application form used by the U.S. Department of Education for assessing a family's finances and its ability to support a student's post-secondary education. It is the cornerstone of the entire federal financial aid system for students attending colleges, universities and other post-secondary institutions in America.
More importantly, you and your family cannot apply for any federal student aid, including federally guaranteed student loans and grants, without completing the FAFSA form.
When should you apply for your FAFSA?
Students should start applying for the FAFSA as soon as possible after the application becomes available on October 1 for a college term that begins in the following fall. Remember that this is not a one-time process; you will need to reapply for the FAFSA for every year that you are in school. The fastest and most convenient way to get started is to apply for the FAFSA online. Once the process is complete, applicants and their parents can return to check the status of their FAFSA application and make corrections online.
Make sure you read the directions and FAFSA questions carefully and fill in all the required information. Don't leave anything blank that applies to you. For more tips on answering FAFSA questions, check out our tips on Filing the FAFSA. If you have any questions about applying for the FAFSA or are unsure about which sections apply to you, contact your school's financial aid office or our Student Lending Specialists for help.
What happens after you apply for the FAFSA?
After processing, the information collected from the FAFSA is shared with the applicant and their family, as well as with the financial aid offices of the institutions to which the student has applied and listed on their FAFSA.
The Student Aid Report (SAR), which is generated from completing the FAFSA, shows your Expected Family Contribution (EFC), which is the amount of money your family will be expected to contribute towards your education. The lower your EFC, the more financial aid you may qualify for.
Schools will use the information from the FAFSA to determine eligibility for other types of financial aid provided by the federal government, from your state, or from the school itself. This aid can include grants, scholarships and work study opportunities, so it's important to file your FAFSA as early as possible to take advantage of the limited funds available. Check out the next tab to learn more about campus-based financial aid options. Then, check out our sample financial aid award letter and learn how to use it.
What is Campus-Based Financial Aid?
When investigating financial aid options, don't overlook campus-based aid. Determined by your FAFSA results, this is the aid available to you through your school and administered by the school's financial aid office. You should see a line item on your financial aid award letter explaining which types of campus- based financial aid you are eligible for. Depending on what is available, you could receive up to $4,000 a year in supplemental financial aid. For many students, that can mean the difference between attending college or not. However, some of this aid may be in the form of federal student loans and will need to be repaid, so pay close attention to the details in your award letter.
How does campus-based financial aid work?
Campus-based financial aid options are available in several different forms:
- Federal Work-Study, which provides students part-time jobs, generally on or near campus, to help defray their college expenses. This encourages both community service and work related to the student's major course of study with an hourly rate of pay that's at least minimum wage, but sometimes higher.
- Perkins Loans that are needs-based, low-interest student loans offered by the federal government to undergraduate (up to $5,500 a year, or a lifetime ceiling of $27,500) and graduate students (up to $8,000 a year, or a lifetime ceiling of $60,000).
- Federal Supplemental Educational Opportunity Grants (FSEOGs) awarded to undergraduates with exceptional financial needs. These grants don't need to be paid back.
- School scholarships awarded based on your academic merit and financial need. While you should still search for third-party scholarships, the schools you are attending will generally let you know if you qualify for any additional funds unique to the institution.
Apply for campus-based financial aid early with your FAFSA
Financial Aid Award Letters
Financial aid award letters outline the financial aid options a college or university can offer once you've been accepted for enrollment. They are a direct response to the demonstrated financial need outlined in your FAFSA.
Your financial aid award letter is generally quite detailed and full of information about any grants, student loans, scholarships, work-study opportunities and other types of financial aid that can help defray the total cost of tuition, room and board and other fees.
Understanding this document is essential in helping you choose the right school, and the one that best fits the family budget.
How to evaluate your award letter
Most students apply to more than one school, and your final decision may be largely based on the award packages. Here are few key questions you should always consider when reviewing your financial aid options:
- What's the official cost of attendance for the school?
- How well does this offer fill your financial gap? That is, the difference between your family's expected contribution and the total cost to attend the institution.
- Is the aid front-loaded? Will the aid continue beyond your freshman year? Or is this a one-year-only deal?
- How much of this aid is in the form of grants and how much is in student loans? The key difference: grants do not need to be repaid. College loans will be the responsibility of the borrower (student/parent) and need to be repaid. Packages with a higher proportion of grants are generally preferable.
- What are the interest rates and terms on all these loans? And how does that impact your ability to repay them?
- Will outside scholarships affect what you receive? Some schools reduce their institutional award by an equal amount if you receive another award from a third party.
As you review your financial aid award, consider how a private student loan could offer better interest rates and the loans provided or cover remaining expenses after you've taken advantage of free financial aid options. When you send your commitment to a school, you are also accepting the free financial aid options they offered. However, this does not mean you need to accept the student loan suggestions. Compare interest rates and terms to find the school loans that will work best for you.
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