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FAFSA – How Does Financial Aid Work?

Ben Reckelhoff

Financial Aid Definition

According to Wikipedia, student financial aid in the United States is funding that is available exclusively to students attending a post-secondary educational institution in the United States.

The Office of Federal Student Aid provides more than $120 BILLION in aid each year to help pay for college or trade school. This aid can come from a variety of sources, however, there is only one way to access these funds – by using the Free Application for Federal Student Aid (FAFSA). 

When to Apply for FAFSA

The FAFSA filing timeframe always begins October 1st the year BEFORE you plan to attend school. So if you plan to attend college in fall of 2021, you can file as early as October 1st, 2020. Typically applications continue to be accepted through June 30th the year you plan to attend. 

PRO TIP: You’ll want to make sure to file as early as possible, because many states and some colleges award financial aid on a first come first served basis. 

To make things easy, here’s some upcoming filing deadlines. Go ahead and put these in your calendar:

What are the Types of Federal Student Aid?

Student aid is not always “free money” – in fact usually it’s not! It’s important to understand the differences between aid types and, more importantly, how they impact your pre and post education finances.

Grants

These are the only types of federal student aid that don’t need to be repaid – so pay attention to these. Within this category, there are 4 different types of grants. Maybe you’ve heard of a few of these:

  1. Pell Grant – The average amount is $4,271 (these figures are usually given on a ‘per year’ basis) and is primarily for undergraduates who have the greatest “financial need”.

PRO TIP: You’re going to see the words “financial need” appear a lot in the student aid requirements. If you’re wondering what that means, the department of education defines this as:

Financial need is simply defined as the difference between the student’s cost of attendance (COA) and the family’s ability to pay these costs. Note that the student’s financial need will be reduced by aid that is awarded to the student.

  1. Supplemental Education Opportunity Grant (FSEOG) – This is often awarded in addition to the Pell Grant, so if you qualify for one, you’re a priority for the other. For this reason, the amount is smaller – around $599 per year.
  2. Teacher Education Assistance (TEACH) Grant – It makes sense that educators would lobby to award aid to future educators. This is the purpose of the TEACH grant – focused exclusively to high need students in teaching programs, especially elementary or secondary school levels.
  3. Iraq and Afghanistan Service Grant – Awarded to students whose parent or guardian was a member of the armed forces and died as a result of performing military service in Iraq, Afghanistan, or on 9/11.

Loans

If you are just graduating high school, are looking at college, and you don’t have extraordinary “financial need” but also don’t have $35,000, then chances are you probably don’t have much of a credit history either. At least not enough to secure a traditional loan for $35,000 (that’s the average cost of a 4-year degree by the way). Banks would normally never loan this much to a person with little to no financial history.

This is the main reason for the government-created William D. Ford Federal Direct Loan program. Using this program, you can borrow money directly from the U.S. Department of Education rather than a bank. Like federal grants, there are also 4 different types of federal loans – but unlike grants, these will need to be repaid with interest:

  1. Direct Subsidized – These loans are made available to undergraduate students that can demonstrate “financial need”.

PRO TIP: “Subsidized” means having part of the cost paid to keep your cost low.

  1. Direct Unsubsidized – These loans are made available to students who don’t need to demonstrate “financial need” to be eligible.
  2. Direct PLUS Loans – If you don’t qualify for other types of federal student aid, you probably still qualify for this type of loan program. This is primarily for students and parents of students, who may have some credit history.
  3. Direct Consolidation Loans –  Most students require multiple sources of financing to afford college. This program allows you to roll all of your loans together under one servicer, and sometimes at a reduced interest rate.

PRO TIP:  On a standard 10-year repayment plan, a borrower  will pay $6,405 in interest or about $641 per year. Pay attention to interest rates! Source

Work-Study

Just like the name implies, a federal work-study job is there to help you earn your way through school. These are primarily community service related and possibly even something related to your field of study (it depends on your school). These jobs are always part-time and only offered while you’re enrolled.

Your FAFSA Application

Now that you know what types of college financial aid you can expect, it’s time to take the first step and visit the FAFSA Website where you will begin your application. Here’s a quick overview of the steps involved:

  1. Create a FSA ID, Username, and Password (and keep this somewhere safe).
  2. Gather Documents
    1. SSN
    2. Parent’s SSN (if you’re a dependent)
    3. Driver’s License Number
    4. Alien Registration Number (if applicable)
    5. Tax Info, such as tax returns and W-2.
    6. Income information for both you and you’re parents.
    7. Info on how much cash & savings you have.
  3. Use the documents to fill out the application
    1. Online at https://studentaid.gov/h/apply-for-aid/fafsa.
    2. On your phone using the myStudentAid mobile app.
    3. On paper by printing/mailing the FAFSA PDF.
  4. List the colleges and schools you’re interested in.
  5. Report Parents’ Info (if you’re a dependent student)

PRO TIP: You’re going to be asked a number of times if you are a dependent or independent student. If you aren’t sure, you can look this up here.

  1. Provide Your Financial Info
  2. Sign & Submit

FAFSA Customer Service

Here are all the contacts to get help with filling out your applications:

Student Aid Report (SAR)

Next, you’ll receive a report that details your eligibility for aid and is typically sent within 3-10 days, depending on how you submitted it (longer if you filled out the paper version). The SAR will NOT tell you how much money you will need to pay for college nor will it tell you how much aid you will receive. The name is misleading, but this report is mainly something you’ll want to check for accuracy, because it is used in calculations to determine those things.

Financial Aid Award Letters

Now for the fun part! 

Award letters come from the colleges that you applied to, and usually become available 1-3 months after you submitted your application. This will explain the total amount of money a school will offer you. They won’t all come at once, but you should start getting these shortly after your acceptance letters.

Here’s the order in which you should be accepting aid:

  1. Free Money (Grants)
  2. Earned Money (Work-Study)
  3. Federal Student Loans
  4. State/School-specific Loans
  5. Private Loans

The award letter will detail next steps for how to accept aid. Keep in mind that the timeline for receiving the money varies widely depending on the type of aid. Work-Study for example, will only pay after your first week on the job, which is usually AFTER you have started classes.

In Conclusion

This process is time-consuming, confusing, and often frustrating. However, it’s important to keep in mind that the benefits of both your education and the aid you receive for that education, more than compensate for your efforts. For many students, this will be one of the first steps into adulthood. You can do this – we believe in you!

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