Paying for college or graduate school can be burdensome and anxiety-inducing, but the federal government makes it easy for you to afford your education.
After all, the government wants to produce educated citizens of the world, and the best way to do this is by enabling everyone to get a college education.
This article covers the most basic information about the FAFSA and financial aid, but will give you a good sense of what you’ll be getting into if you choose to go this route.
What is the FAFSA?
FAFSA stands for Free Application for Federal Student Aid. It’s basically just an online application that you complete if you want to apply for any financial aid from the federal government. Even if you don’t end up accepting loan money, it won’t hurt you to fill out a new FAFSA each academic year. You never know what financial situation might befall you unexpectedly, so it’s better to be prepared. Without completing a FAFSA each year, you won’t be eligible for any aid.
Filling out the FAFSA: When and How
The deadline for the FAFSA each year is June 30th prior to the fall you want to receive aid for. If you start a program in fall of 2014, you’ll need to complete your FAFSA by June 30, 2014. If you start a program in spring of 2015 (January), you’ll also need to complete your FAFSA by June 30, 2014. Any corrections to your FAFSA (income information, address, etc.) must be made by mid-September.
The FAFSA is fairly easy to complete online. You’ll be issued a PIN with the Department of Education that you’ll need to reuse each time you log into your account. The application is comprehensive and requests tax information from the previous year, personal information (birth date, social security number, etc.), and even optional information about your parents’ income. You can stop at any point, save your progress, and come back with the pin and password that is particular to that FAFSA.
The first time completing the FAFSA takes the longest. Once you have one on file, you can come back each year and do a simple renewal. You’ll need to confirm information about you and your educational institution as well as provide updated tax/income information from the year before. You won’t need to start over again, which is a definite perk.
Types and Amounts of Government Loans
There are two primary types of government loans that you need to know about: subsidized loans and unsubsidized loans. If possible, take out all subsidized loans. Subsidized loans won’t accrue interest until you start repaying them. The government subsidizes or covers the interest while you’re still in school. Subsidized loans are usually granted to students who can demonstrate financial need for a subsidy.
Unsubsidized loans, on the other hand, accrue interest from the moment they are dispersed to your college or university. If you spend years pursuing your degree, interest will start to pile up and you’ll end up paying back much more than what the original loan was for.
If you’re taking out direct loans (which require no demonstration of financial need), undergraduate students can take out as much as $12,500 per year and graduate students can take out as much as $20,500 per year. Due to a recent change to the federal loan system, graduate students are no longer eligible for direct subsidized loans, which means any graduate loans will accrue interest from the moment they are dispersed. Undergraduate students can still apply for and receive subsidized direct loans.
There are other types of loans available as well, such as Perkins loans, which are granted to undergraduate and graduate students that demonstrate significant financial need. These loans are subsidized. If you are a graduate student, you can also take out a PLUS loan at a higher interest rate to cover any expenses beyond the $20,500 per year cap.
Financial Aid Advisors
Every reputable higher level education institution employs financial advisors to help students complete their FAFSA, obtain their loan money, and start repaying their loans once they’ve completed their program. See if your institution has one of these who can help you through the process.
Repaying Your Loans
Federal loans remain in deferment for as long as you demonstrate at least half time status as a student. Once you drop below the half time status mark (which is usually 3 classes at the undergraduate level and 2 classes at the graduate level), you’ll be required to start paying your loans back 6 months from the date you dropped below half time status. For example, if you graduate with your degree in May and don’t plan to continue on into another educational program, you’ll have to make your first loan repayment in November. This is called a grace period.
Before repaying your loans, you’ll be required to complete exit counseling. Exit counseling insures that you understand what is expected of you during the loan repayment process. You’ll then be put on a repayment plan. The standard plan is a 10 year repayment plan with the same payment each month.
The government offers multiple repayment plans outside of this standard plan, however, like plans that accommodate your income. Under this type of graduated repayment plan, your payments start lower and then increase as time goes by. There are also a handful of repayment plans that allow you up to 25 years to pay back all of your loans. Keep in mind that interest will continue to accrue while you’re repaying your loans, so the longer it takes you to pay them off, the more you’ll end up paying.
Loan Forgiveness Programs
If you serve the public good after the completion of your degree, the government offers a loan forgiveness program that will eliminate your repayment amounts after you’ve successfully made 120 payments toward your loan(s). You must apply for and qualify for this program; it’s not automatic.
Private Loan Options
If you need more money than the federal government is able to lend you or you are somehow able to negotiate a lower interest rate, private loans are another way to pay for your education. Most of them don’t provide the options like a repayment grace period, deferment for continuing education, or loan forgiveness programs. Private loans can be a good option, but be aware of which institution you’re accepting a loan from, all of the loan’s conditions, and just how much the loan will end up costing you in the end.
The best resources out there to give you up to date information about the FAFSA and federal loans (like current interest rates) are federally sponsored websites. These end in “.gov” and will provide the most accurate information. The FAFSA has its own website (fafsa.ed.gov) and can guide you further. Make sure that you access your FAFSA from this site and not from any other site, for security reasons.