What You Need to Know About the FAFSA


The most common form of financial aid involves the Free Application for Federal Student Aid (commonly referred to as the FAFSA). This determines what assistance a college student is eligible for from the government. This is a form that each college or prospective college must fill out.

The FAFSA is required to be updated each year. Most of the questions are based off of given tax information, but it also takes other factors into consideration. Two sample things it looks at is if the student has a job and how many other college students are in the household.

To fill out the FAFSA there are a few options. The best way is to fill it out on the U.S. Department of Education’s website or get assistance from a FAFSA preparation service. This service does require a nominal fee. On the Department of Education’s website, there are many options to look at. There is a page for both student loans and grants. To get to the FAFSA application, click on loans and the application will be listed as an option. This is the easiest way to get to the FAFSA – and it’s completely free.

When applying for federal aid, it’s important to note that millions of other students are applying for it with you. They’re hoping to get as much as they can from a government loan. People would rather a government loan because the interest rate is generally lower and they’re a little easier to deal with than private loan companies, such as Sallie Mae or Discover.

This being said, it’s recommended that the FAFSA is filled out on January first of each year. This is the first day to fill It out and it’s suggested to do it immediately. Since no taxes are filed, the best way is to complete it by filling in the estimated taxes for the year. The tax estimates can be replaced to match the exact tax amount at a later date, but if the application is completed early, then more money is likely to be given to go towards the student’s education. Student aid is given out on a first come, first serve basis – including any grants that may be offered. As mentioned before, federal aid is very sought after so getting the most most money means filling out the form as early into the year as possible.

It’s not hard to do. You will submit the name your accredited college or university when you fill out the form. If the school is yet to be determined, you can enter a few schools and narrow it down when you decide.

When you fill out the form, it will also ask if you’re willing to be doing a work-study program. This means working an on campus job to help pay for your tuition. It’s a good option to contribute more money to school, but it’s also important to recognize whether you can or cannot handle a job on top of studies. Especially because there are requirements to hold a federal student loan.

For example, criteria to get or maintain a loan include the student being a legal citizen or eligible non-citizen. They must also have a social security number, avoid being in trouble with the law, and they must maintain at least a C average in their college or university. This means a 2.0 out of a 4.0 GPA must be held in order to keep federal aid.

Along with this, each school has a unique Student Academic Progress (SAP) policy, so it’s important to pay attention to the school’s criteria. For instance, if a student withdraws from too many classes, the federal aid may be taken away due to not progressing far enough or fast enough towards their degree. These requirements are important to note in order to keep the loan and renew it each year.

Another thing to look at is the Expected Family Contribution (EFC). The government will be expecting the family to contribute something if the parent or child is making a certain amount of income. They look to see if the parent or student has the ability to contribute money towards the education. Since the FAFSA is updated each year, the EFC is likely to change year by year. If the student or parents are not able to pay the full EFC, the government offers parent loans to parents who cannot afford their EFC or are not able to pay it up.

Overall, the FAFSA is a great place to start at when you’re looking for aid. The government can be considered a great resource. While this most likely will not pay your entire tuition, it provides a stable start.

If you are not satisfied from the financial aid from FAFSA, there are plenty of more options.  Private loans and scholarships are both viable options.  Many of them can be applied to in a short period of time; for instance, no essay scholarships are perfect for high volume applications.  With that being said, start applying to everything you can!  This includes the FAFSA, private lenders, and scholarships.

The Hefty Cost of Interest Rates

interest rates

Interest rates are common with any loan and student loans are no exception. Interest is directed to the lender. All federal loans have an interest rate of some type. The interest rates placed upon student loans are decided upon by congress.

Generally, federal student loans have decreased their interest rates from the 2015-2016 school year to the 2016-2017 school year. There is a declining trend on interest rates, which means that there is less money that will need to be paid off in the end.

The exception is the Perkins Loan. This loan is given to student in more financial need than the average student. Not all schools participate in this loan. While other forms of student loans have decreased their rates over the years, the Perkins Loan remains at a steady 5% interest.

Within the past ten years, federal interest rates have ultimately decreased.

The Direct Subsidized Loans and Direct Unsubsidized Loans are the most common types of federal loans. Direct Subsidized Loans are available to students with financial need, while Unsubsidized Loans are available to every student. The Direct Subsidized Loan is more lenient.

The U.S. Department of Education pays interest while you’re in school. There is also a gap between graduation. After you graduate, you can wait up to six months before the loan needs to begin being paid off. Along with this, you are able to postpone payments with deferments if necessary.

These privileges are not available if it is a Direct Unsubsidized loan. Since financial need is not included, expectations are higher. It is required to start paying the loan directly upon graduation.

The interest rates on both types of loans have gone down over the years. Ten years ago, in 2006, the interest rate on Direct Subsidized and Unsubsidized Loans were 6.8%. Today, at the beginning of the 2016 school year, the interest rate is 3.76% for both of them.

The situation for PLUS Loans are the same. PLUS Loans are meant for parents of undergraduate students or graduate students in need. They are in addition to what a child may receive from their Direct Subsidized and Unsubsidized Loans. If it is a graduate student, the Direct PLUS Loan is similar to an undergraduate’s Direct Loans. The PLUS Loan was created to give additional help to students unable to afford the education without it.

This being said, in 2006, the federal interest rate for the Direct Plus Loan was 7.9%. In the beginning of the 2016-2017 school year, the rate is down to 6.31%. That is still a hefty interest rate, but that 1.59% difference is a big change. It means out of every 1,000 dollars spent, $15.90 dollars is saved.

The last option is for graduate students. There is a Direct Unsubsidized Loan available to graduate students with the same terms and conditions of undergraduate students. The difference is, the interest rate is higher for graduate students. The current interest rate is 5.31% for graduate Unsubsidized Loans (compared to 3.76% for undergraduate students). However, compared to ten years ago it was 6.8%, so there is a declining trend.

There are also fees that come with the loans, and those have increased by a pinch. Last school year, 2015-2016, there was a 1.068% fee on the amount borrowed from the federal government. This means that if there was a loan of 1000 dollars, you would need to pay $10.68. This would be in addition to the loan. Today, there is a 1.069% fee. This is a slight increase from prior years. These fees are in addition to the interest paid, not in place of it.

For Direct PLUS Loans, there is also a small increase. The previous fee for the 2015 school year was 4.272% of the total loan. The new fee is 4.276% of the loan. This is also minor, but considering the big numbers borrowed (usually in the multi-thousands) it is a significant shift.

The fees that come with getting a loan should always be checked out. There is a lot written in the fine print, so it’s critical to know exactly what the interest rates and fees are. By keeping track of that, you can know exactly how much is needed to be paid at the end.

Parent Loans as a Second Option

parent loan

Sometimes, FAFSA doesn’t pay the whole college tuition. It’s always heartbreaking to be a student fresh out of high school and excited to go to college, only to realize that they can’t afford it. This is where the Direct PLUS Loan comes in. The PLUS Loan, which used to be referred to as Parent Loan for Undergraduate Students, is a loan that parents can take out to contribute to their child’s tuition.

To receive a PLUS Loan, the FAFSA must be completed. After that’s completed, the instructions to request a Direct PLUS Loan will be given by a financial aid office. The majority of schools hope to have the Direct PLUS Loans filled out at the government website. To find out if your school is involved with the site, you can visit the webpage and search for your school from a list. If the school is not on the list, the site will tell you to check into the desired school to figure out how to receive a PLUS Loan.

To be eligible to receive a PLUS Loan, the receiving end must be a parent of an undergraduate student (it can also be given to a graduate student, but for the purpose of this article, it’s for parents). This student must be enrolled at least half time in order to receive aid. The typical requirements pertain to the PLUS Loan, as to the FAFSA. The student must maintain a ‘C’ average, stay out of crime, be a legal citizen or a permitted non-citizen, and have a valid social security number. If any of these requirements are broken it results in the loss of the PLUS loan.

Another factor that is hard to get around, is needing a decent credit history. If there is a less than desirable credit history it becomes harder to obtain a Direct PLUS Loan. In order to get a PLUS Loan with adverse credit, there must be someone to endorse the loan to provide that they will pay the money back if the parent cannot. This cosigner can be anyone with good or average credit.

One other option is submitting to the U.S. Department of Education that there’s a reason for the credit history not being sufficient. If the department approves of these extenuating circumstances, then a parent is eligible to proceed without a cosigner. In order to do this, the parent must also participate in a credit counseling course.

There is a limit on how much can be borrowed. The absolute maximum aid available is found by the amount of financial aid already being received, subtracted from the total cost of tuition or attendance. There is also a fee. The current fee for the loan can be found on their website. Right now, the fee is a little less than 5% of the total loan amount.

As for how the loan is given out, the money will go directly to the school. From there, it will be used to pay the needed expenses to put the child through school. If there is a little left over, it’s expected that it will be put to other education expenses.

Unlike the student’s loans, if it is a parent’s Direct PLUS Loan, it is usually required for the parent to pay as soon as the loan is disbursed. There is a way to push off paying for the loan by requesting to defer the loan. This can be done by talking to the loan servicer (or going to the government website if that is how the PLUS Loan is being paid out). Another way to receive a deferment is going to the school directly and requesting it.

It’s important to note that even when there’s no need to pay the loan, interest is still being established. Deferment is not a time stamp on accruing interest, so it’s crucial to factor in interest and decide if this method is the necessary route. In the long run, it may be cheaper to pay the loan faster and avoid the extra money that will come with interest rates.  Parenting is hard, so don’t make paying for college any harder!

parent loans