Federal student aid refers to any educational grant or loan sponsored by the government, typically through the Department of Education. Federal student loans and grants are sometimes used interchangeably, but there are substantial differences between the funding types. The main differences between grants and loans are how much money is available and whether you must repay the money.
Educational grants typically provide less money than loans, but the money does not have to be repaid. Some loans can be forgiven. Forgiving federal student loans means you no longer have to make payments on your loan if you meet specific work-related requirements. Federal student loans do not have as many requirements as educational grants. Many federal grants are made specifically for lower income students who would otherwise be unable to afford college tuition. Whether you receive a grant is largely determined by your available income and expected family contribution. There are multiple categories of both grants and loans available.
Whether you want to apply for federal loan services or get an educational grant, you must complete your Free Application for Federal Student Aid (FAFSA). FAFSA can either be completed online or through the mail. The majority of high schools help students fill out their FAFSA application when they are ready to look for colleges. After completing the application, you receive a student aid report, which summarizes your financial information.
Colleges provide information on federal student aid once you are accepted, based on the information in your student aid report. A financial aid award letter lists all of the grants, scholarships and federal direct loans you qualify for. Even if you do not want to apply for federal aid and instead go through a private lender or grant provider, you are typically required to provide your FAFSA to determine eligibility.
Federal loan services require detailed financial information, which is included in your FAFSA. When you complete the application, you must provide your W-2 forms and tax records from the previous year. Your parents must also provide their own forms, along with bank statements and investment records. Every year, you are required to update your information. Your profile is stored online, so instead of completing a new application each year, you can access your existing profile and modify the information.
There are two categories of federal student loans, subsidized and unsubsidized. With a direct subsidized loan, you are not required to make any payments until after you graduate. The government pays off your interest rate while you are in school, so once you graduate, you only pay off the direct amount you borrowed. While subsidized loans are considered the best federal loan service, the loans are only available to students who demonstrate significant financial hardship. This eligibility requirement can change based on economic status, but as of writing your family income must be under $50,000 to qualify.
How much student aid is available from a subsidized loan varies depending on the cost of your college. As of writing, the maximum amount you can borrow in your first year is $5,500. Every subsequent year, the total amount you can borrow increases by $1,000 up to a maximum of $7,500. The most you can receive in all your college years is $31,000. If you are independent and do not have an expected family income, your first-year amount increases to a maximum of $9,500 and continues to increase by $1,000, to a maximum of $12,500.
With a direct unsubsidized loan, your payment plan still begins after you graduate from college. Unlike a subsidized loan, your loan accrues interest while you are in school. These rates are calculated into your payment plan once you graduate. A FAFSA direct unsubsidized loan has a fixed interest rate of 2.75 percent for undergraduate students, or 4.3 percent for graduate students. The maximum amount available for unsubsidized loans is the same as subsidized loans. Your lifetime maximum is different, capping at $20,500. This amount is raised for medical students, who are in school much longer than other students, with a maximum cap of $40,500.
A direct Stafford loan is available to undergraduate and graduate students who demonstrate financial need. The loan is eligible at four-year, community, trade and career colleges, as well as technical schools. Stafford loans are available as both subsidized and unsubsidized loans. As of writing, students can borrow up to $20,500 annually. The interest rate on Stafford loans is variable, but as of writing cannot exceed 8.25 percent. You are always notified in advance when your interest rates will change. The only application requirement for a direct Stafford loan is completing your FAFSA.
Grad plus loans share many similarities with loans from private lenders. Unlike other federal loans, there is no limit to how much you can borrow. When you apply for a grad plus loan, your lender performs a credit check. If you have a low score, you may be rejected or have a strict limit set on how much you can borrow. The biggest advantage plus loans have over private loans is a fixed interest rate, which is 5.3 percent as of writing. To apply, you must complete a direct plus loan application.
The Federal Perkins Loan program is no longer available as of September 30th, 2017. However, if you borrowed money from the loan program before it closed, you are still responsible for paying back the loan. Because the loan is no longer supported by the Department of Education, you must contact your school directly if there are any issues with your payment plan.
Of all the types of federal student aid, the Pell grant is the most common resource used by students. The Pell Grant is available to all students who demonstrate exceptional financial need, but it is most commonly awarded to undergraduate students. Because it is a grant and not a loan, you do not have to repay any of the funds from the Pell grant. How much you receive changes based on the year, with the maximum amount for 2022 being $6,495. Your expected family contribution, the total cost of your school and whether you attend part of full time are the largest eligibility factors to determine whether you qualify, and how much you qualify for. You only need to fill out your FAFSA to be eligible for a Pell Grant. You can get a Pell grant for online classes as well as in-person courses.
