Most college applicants have heard of the FAFSA (Free Application for Federal Student Aid). This application form is essential to receive government financial aid, including non-refundable federal grants, access to the work study program, and federal loans. The FAFSA is also used to apply for states financial aid and grants at most universities and colleges.
Completing the FAFSA is one of the most important steps students and their families can take to pay for their college education. In recent years, some states have even made obtaining the FAFSA a requirement for high school graduation.
According to the latest annual report on federal student aid, the US Department of Education provides approximately $115.6 billion in grants, loans, and co-op funds. The agency reports that federal funds are helping some 10.8 million students complete their education. This article is aimed at helping you with understanding FAFSA loans so you can make informed decisions.
FAFSA Loans Explained
What is a FAFSA loan?
The FAFSA is the free government student aid application. Students submit the FAFSA to apply for college financial aid from state and federal governments as well as most universities and colleges. About 20 million students file the FAFSA each year. Student funding includes grants, scholarships, student internships and student loans. As the name suggests, the FAFSA form is free. There is no need to pay anyone to help you complete the FAFSA.
Types of FAFSA Loans
The FAFSA helps you get federal financial aid, but it’s also essential for accessing non-federal aid opportunities, like state and school aid. It could take the following form.
Grants
Federal scholarships are awarded to students who demonstrate financial need or meet other requirements, such as Armed Forces Membership. The most common grant you can get through the FAFSA is a Pell grant.
State governments also review your FAFSA to determine if you qualify for grants and other government financial assistance programs.
Non-profit and private grants may also request a copy of your FAFSA forms to determine if you qualify.
Work-Study Jobs
What will the FAFSA do about work-study jobs? The Federal Work-Study Program is a school-run program that provides part-time employment to part-time and full-time students. Work-study jobs can be on or off campus and are usually focused on employment related to your studies or civics.
Federal Student Loans
There are three types of student loans you can get from the federal government.
- Direct Unsubsidized Loans (also known as Unsubsidized Stafford Loans)
- Direct Subsidized Loans (also known as Subsidized Stafford Loans)
- Direct Plus Loans
Merit Aid and Scholarships
Although the FAFSA itself does not qualify you for federal scholarships, some colleges require you to complete the FAFSA before you are considered for merit aid from your college. Private and nonprofit scholarships may also request your FAFSA as part of their process.
How Does a FAFSA Loan Work?
Now that you know what the FAFSA is and some of the programs that require you to fill out the form, you might be wondering how does FAFSA loans work.
The primary purpose of the FAFSA is to determine the amount of financial aid a student is eligible for, including non-need-based and need-based aid. It determines eligibility for need-based federal grants, including and Federal Supplemental Educational Opportunity Grants (FSEOG) and Pell Grants; need-based federal student loans; unsubsidized federal student loans, which most students qualify for, regardless of need; federal work-study jobs; government financial assistance, including loans, scholarships, and grants; school-based financial aid, including need-based scholarships and grants, and academic achievement-based aid (as many schools require FAFSA registration before grants are awarded).
To determine a family’s financial needs, the FAFSA asks a series of questions about the assets and income of students and parents, as well as other factors such as the number of children in the family. It then proposes an expected family contribution (EFC). The FAFSA is the official form that students or their families use to apply for federal government financial aid for college. States, individual colleges and universities as well as private scholarship programs also depend on the information in the application.
FAFSA Loan Eligibility
For FAFSA loan eligibility, applicants must be United States citizens, nationals, lawful permanent residents, and those holding United States Citizenship and Immigration Services entry and exit records with certain designations, including refugees, are eligible to apply for federal student aid. Students must be enrolled in an eligible Title IV program; one that can receive federal grants in order to be eligible.
The FAFSA asks for information on wealth, income, and demographic factors such as household size and the number of children enrolled in college at one time. From this information, the expected family contribution is calculated, which decides on the entitlement for federal student aid. For example, if the EFC is zero, the student most likely qualifies for the maximum Pell Grant, a state award based on financial need.
Families earning $27,000 or less per year are automatically calculated as zero for SCF in the 2022-23 award year. But families with higher incomes are also entitled to financial aid. There is no explicit income limit. And different types of aid have different eligibility criteria. For example, students who are not eligible for a federal scholarship may still be eligible for federal or work-study student loans, which generally have lower interest rates than private educational loans.
FAFSA Loan Requirements
There is a list of documents required to complete the FAFSA. Students will need their social security number, ID card number or driver’s license, alien registration number for non-US citizens, untaxed income, tax information, their recent bank statements and investments, if applicable, and a list of the schools they are interested in studying at. Parents will need their tax information, untaxed income statements, investment and asset information, as well as current bank statements.
Before completing the FAFSA, it is a good idea to create your FSA ID, a username and password that will allow you to electronically sign your FAFSA and give you access to various student government-related websites.
And here is an important tip:
If your relative provides information about their FAFSA, they will need their own FSA ID. Visit StudentAid.gov/fsaid for more information. Your FAFSA can be completed online at fafsa.gov and you will receive assistance throughout the online application process. You must complete the FAFSA each school year as your financial situation may change. Also, you may be able to automatically submit your IRS tax information, making the application even faster to complete. Each state and college or career school sets its own FAFSA deadline, so it’s best to do this early. As some of the funds are available on a first come, first served basis, don’t miss out.
How to Get FAFSA Loan?
If you are interested in college or career school financial aid, you must complete the Free Application for Federal Student Aid (FAFSA). It takes most people about 30 minutes to complete online and the best part is that it’s 100 percent free. Before completing the FAFSA, it is a good idea to create your FSA ID, username and password that will allow you to electronically sign your FAFSA and access various federal student aid related websites.
How to Accept FAFSA Loan?
Congratulations on receiving an offer of financial aid. This will help you worry less about money and focus on your college studies. Now you might want to know how to accept FAFSA loan. Follow the instructions on your FAFSA loan acceptance offer. You can accept an offer of help online or by mail.
Typical Processes for Accepting Federal Student Aid
Procedures for accepting grants vary depending on who is issuing them. It is important to read and follow the instructions that accompany your offer of financial aid. In the digital age, you often accept their offer of help by filling out an online form. In many cases, you will use your student ID to log into your school’s website and accept aid through your online student account. Be sure to enter the correct amount of financial aid before agreeing to the terms and submitting your online form.
Some providers still prefer physical forms sent by post. If your offer of financial aid arrives in the mail, you will often need to sign the paperwork and then send the completed form to your school. Allow enough time to ensure your acceptance arrives before the deadline.
How to Accept an Offer of Financial Aid with a Loan
Some aid offers involve loans that must be repaid, usually with interest. The processes for accepting these offers of help differ depending on the type of loan. However, you can expect the process to involve a few extra steps.
You will often be asked to sign a promissory note to confirm that you will repay the student loan and accrued interest on it. The promissory note contains the terms of the loan, so read it carefully. Your school’s financial aid officer can guide you through the process and answer any questions you may have. You can sign a promissory note on paper or complete it online.
Do I Have to Accept the Full Loan Amount?
You are not obliged to accept the full amount of the loan offered in your financial package. You may have decided to stay home so that your living expenses are not as high as the school estimates, for example. You can request a lower loan amount or decline the loan altogether. Talk to your school’s tax office to find out how to adjust your loan amount.
Financial aid can ease your financial worries during your studies. It is important that you read the instructions that accompany your offer of support and follow them carefully in order to successfully accept support.
Do FAFSA Loans Have Interest
Yes, and FAFSA loan interest rates are set by Congress and are subject to change each year. For the 2021/2022 academic year, interest rates on Federal Direct Loans will increase. Federal student loan interest is calculated annually based on the 10-year Treasury bill interest rate.
Here are the rates for the 2021-2022 academic year:
- Loans with direct subsidy: 3.73%
- Unsubsidized direct loans (for undergraduate students): 3.73%
- Direct unsubsidized loans (for university graduates and professionals): 5.28%
- Direct PLUS Loans: 6.28%
While these rates are higher than last year, they are lower than the rates for the 2019-2020 academic year.
FAFSA Loan Deadline
Students can submit the FAFSA beginning October 1 of the calendar year prior to the academic year of enrollment. For example, to apply for financial aid for 2022-2023, students can submit the FAFSA beginning October 1, 2021.
The FAFSA Loan Deadline is June 30th of the academic year or the last day of enrollment, whichever comes first. For example, the FAFSA 2020-2021 can be submitted no later than June 30, 2021. Therefore, there is an 8-month period during which the FAFSA can be filed.
It is best to file the FAFSA as soon as possible after October 1st. Students who submit the FAFSA in the first three months receive, on average, twice as many scholarships as students who submit the FAFSA later.
Remember to submit the FAFSA for each year you attend college. Your circumstances can change and you don’t want to go without financial aid.
More than a dozen states award government grants on a first-come, first-served basis or until funds are exhausted. Other states have FAFSA loan deadlines in December, January, February and March. Some colleges have early terms, sometimes referred to as priority terms, when more institutional financial aid is available. Ask your student finance office about specific deadlines.
Even some federal aid, like campus-based aid, may be phased out. Each college receives a fixed allocation of Federal Supplemental Educational Opportunity Grants (FSEOGs) and Federal Work-Study Funds (FWS). When the money is fully allocated, there is no more money available.
File the FAFSA every year, even if all you got last year was an unsubsidized loan. More than 2 million students who do not apply to FAFSA would have qualified for a Federal Pell Grant, more than a third of non-applicants, and 1.2 million would have qualified for the maximum Federal Pell Grant.
FAFSA Loans FAQ
Is FAFSA a Loan or Grant?
The FAFSA is neither a loan nor a grant. This is an application form. However, you can use the FAFSA to apply for federal student loans and financial aid. The Free Application for Federal Student Aid (FAFSA), is used to apply for various types of financial aid, including scholarships, student internships, and federal student loans. Grants are gift aids that do not have to be repaid.
The FAFSA determines whether or not you can take part in work-study jobs. The work-study allowance must be earned through part-time work and does not have to be repaid. Student loans, on the other hand, usually have to be repaid with interest.
Filing a FAFSA is a requirement for several types of student loans, including:
- Federal direct Stafford loan
- Federal Direct PLUS loans, including Parent PLUS and Grad PLUS loans
The federal government requires you to file a FAFSA before you can get a direct loan to ensure you get all the help you qualify for.
Can You Cancel a FAFSA Loan?
Under certain conditions, you can cancel FAFSA student loans. In certain instances, you can cancel a loan because of serious problems with the school you attended. It’s not a blanket cancellation just because you didn’t like your school. You must meet certain school-related discharge criteria.
Other FAFSA loan cancellations are possible if you work in a public service for a certain period of time. This includes military personnel. Another category is for borrowers who are severely disabled or following the death of a borrower so that the debt does not pass into the borrower’s estate. You need to apply for the loan cancellation with government forms. There is an important exception to this rule for certain borrowers who are eligible for automatic discharges from closed schools.
You can qualify whether your loan is current or in arrears. You are legally entitled to these cancellations, but you must meet certain conditions to benefit from this complete exemption. Upon successful discharge, not only does the loan obligation cease to apply, but in most cases the state must also refund any payments you have made (voluntarily or involuntarily) and help you repay your ready. It’s the most complete relief you can get.
How to Check FAFSA Loan Amount?
An important factor in tracking your student loan payments is knowing where to find all of your student loan information. StudentAid.gov is the United States Department of Education’s comprehensive database of all government student aid information. This is a one-stop-shop for all your federal student loan information.
On StudentAid.gov, you will find:
- Your student loan amounts and balances
- Your loan service provider(s) and their contact information
- Your interest rate
- The current status of your loan (in default, repayment, etc.)
To access StudentAid.gov:
- Go to StudentAid.gov
- Click on “Log In”
- Prepare your FSA ID. This is the same username and password you used to electronically sign your FAFSA. For more information on the FSA ID, visit studentaid.gov.
- If prompted, enter your name, social security number, date of birth, and FSA ID.
- Read the privacy policy. You must agree to these terms to use StudentAid.gov.
- Select “Send”
StudentAid.gov can be a valuable tool for tracking your student loan information. Visiting StudentAid.gov and contacting your loan officer can give you the information you need to get your student loan payments back on track.
How Long Does it Take to Get FAFSA Loan?
Are you wondering how long it takes to get FAFSA Loan? The FAFSA can take 3 days to 3 weeks to process, depending on whether the FAFSA was submitted online or offline, whether the FAFSA was signed with an FSA ID, and whether you provided an email address on the FAFSA . Once the FAFSA has been processed, the student will receive a Student Aid Report (SAR) which includes the Expected Family Contribution (EFC). If the student has provided a valid email address, they will receive an email with a link to the SAR. Otherwise, a paper SAR will be mailed.
If you submit the FAFSA online, sign with an FSA ID, and provide a valid email address along with the FAFSA, the SAR will arrive within 3-5 days. If you have not provided a valid email address to the FAFSA, a paper SAR will arrive within 7-10 days. If you file the FAFSA online but do not sign with an FSA ID, it will take 2 weeks for the SAR to arrive after you sign and submit the paper signature page. If you file a FAFSA document, it takes 3 weeks for the SAR to arrive.
If you are eligible for federal student loans offered through your financial aid program and have signed your Master Promissory Note (MPN), you can expect to receive your student loans approximately 10 days before classes begin although this varies depending on several factors. If you have not signed your MPN, it may take several weeks before you receive your government student loans.
When are FAFSA Loans Disbursed?
FAFSA loans, including federal student aid, are disbursed through the college or university’s financial aid office. There may be an automatic 30-day grace period for disbursing FAFSA student loan funds for first-year federal borrowers. The financial aid is initially used for tuition fees and, if the student is staying in a university apartment, for board and room. Credits balances are usually “refunded” to the student within 14 days and can be used to cover other college expenses such as transportation and textbooks.
Are FAFSA Loans Interest Free?
The answer to the question “are FAFSA loans interest free” can vary depending on the type of federal financial aid you qualify for. There are no interest rate for study grants, work-study jobs, and student employment which are basically free money or earned through work. However, the same can’t be said for federal student loans. In fact, federal student loan interest rates are increasing for the 2021-22 school year and apply to loans disbursed between July 1, 2021 and July 1, 2022. From 2.75% in 2020-21, direct, unsubsidized graduate student loan rates are 5.28%, up from 4.30% previously. Rates for PLUS loans, aimed at parents and graduate students, are 6.28%, up from 5.30% previously.
When Do FAFSA Loans Start Accruing Interest?
If you have or are considering a FAFSA student loan, you may be wondering when the interest start accruing. Is it after studying or graduating from college or does it start right away? Student loans start earning interest as soon as the loan is deposited into your bank account. However, the way the interest is charged to the borrower depends on the type of loan you have.
Subsidized Loans
Direct subsidized loans are student loans offered by the federal government to undergraduate students who demonstrate financial need. Interest starts accruing from the day you receive your loan. The federal government pays interest on subsidized loans while you are at least halfway through studying, during the six-month grace period after graduation, and during any loan deferral. Once your grace period is over, you will begin making loan payments, including interest, on your direct subsidized loans.
Unsubsidized Loans
Direct unsubsidized loans are also student loans offered by the federal government and are available to undergraduate and graduate students regardless of their financial needs. Direct PLUS loans, often referred to as Parent PLUS loans or Graduate PLUS loans, are another unsubsidized loan option. Parent PLUS loans are for parents of college students, while Graduate PLUS loans are for working professionals and graduate students.
Interest on Direct Unsubsidized and Direct PLUS Loans begins on the day you receive the funds. However, unlike direct subsidized loans, you are responsible for all interest costs on unsubsidized loans from the time you borrowed the loan until the day you repay it. You don’t have to make monthly payments on direct unsubsidized loans while enrolled at least half the time or during the grace period. PLUS loan recipients also have the option to defer repayments until the loan recipient graduates, are no longer a student at least half-time, or drops out of school.
However, if you pay at least the interest on an unsubsidized loan before you start making monthly loan payments, you can save a lot of money. This is because the accrued interest is “capitalized” or added to your original principal balance once the grace period ends. At this point, your loan will begin earning interest on the new loan amount, which is principal plus capitalized interest.
Do FAFSA Loans Need to be Repaid?
Many people have often asked us whether FAFSA loans need to be repaid. The FAFSA application is not a loan. It’s simply an application that you fill out to determine your eligibility for a federal loan. There are three main types of financial aid that a student may be eligible for after completing a FAFSA application. Some of that money is free money, some has to be earned through work, and some has to be paid back.
Final Thoughts on Understanding FAFSA Loans
Most families, regardless of income or accumulated wealth, will find completing the FAFSA helpful. If it turns out they are not eligible for free money in the form of scholarships or grants, they are likely still eligible for non-need-based financial aid in the form of direct unsubsidized loans from the federal government. Typically, federal student loans have more favorable terms than those from private lenders and provide a wide range of flexible repayment options.
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