How is federal student aid calculated?

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how is federal student aid calculated, financial aid, FAFSA

As students and graduates are well aware, the cost of higher education is pricey. Many Americans require financial assistance to attend their post-secondary institutions due to tuition, fees, living costs and additional expenses. It’s good that help is available with Federal Student Aid! 

What is the FAFSA?

The FAFSA is the Free Application for Federal Student Aid. Each year, approximately 20 million people fill out this application for valuable financial aid (Forbes). If students or parents are looking to obtain federal and state grants, they need to file the FAFSA. The FAFSA is a form that asks for your family’s financial information to determine how much you qualify for. It will ask for information regarding the size of your household, how many family members attend school, and your household income (The Scholarship System). Without the FAFSA, you will not receive any federal loans, grants or scholarships. The application can be accessed through the U.S. Department of Education’s website

If you want to qualify for an on-campus work-study opportunity, this form needs to be filled out.

4 Types of Federal Direct Loan Programs

Here, the U.S. Department of Education is your lender. For additional information on the types of Federal Loan Programs, click here. This is a quick overview of their programs:

Direct Subsidized Loans: Available for eligible undergrad students demonstrating financial need to cover the costs of college or career school. 

Direct Unsubsidized Loans: Made to eligible undergrad, grad, and professional students. This is not based on financial need.

Direct PLUS Loans: Made to professional or grad students and parents of dependent undergrad students to pay for education expenses that are not covered by any other financial aid. Similar to Direct Unsubsidized Loans, Direct PLUS Loans are not based on financial need. 

Direct Consolidation Loans: Combine all eligible federal student loans into one single loan.

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How Does One Qualify for Federal Student Aid?

To qualify for federal student aid, basic criteria must be met. The applicant must:

  • Be a citizen or eligible noncitizen. 
  • Have a valid Social Security Number.
  • Have a high school diploma or equivalent (i.e. GED).
  • Enroll in an eligible school.
  • Fill out the FAFSA. 
  • Maintain a minimum GPA.
  • Retain a good standing with federal financial aid.
  • Must be at least a part-time student or more.

For more information on qualifying for Federal Student Loans, read How To Get A Student Loan.

How is Federal Student Aid Calculated?

Federal student aid is determined by various levels of qualifications. The information you report on your FAFSA form helps to calculate your Expected Family Contribution, which is then calculated according to a pre-established formula. Your Expected Family Contribution, also known as EFC, is key (The Scholarship System). Your EFC is an index number that is used to calculate the amount of financial aid you are eligible to receive. This number factors your family’s assets, benefits, income (taxed and untaxed), as well as unemployment, employment, social security, and more. 

There is Cost of Attendance, also known as COA, which calculates the cost of enrolling at your school of choice. Your EFC is then subtracted from your COA to determine how much financial aid you require (Federal Student Aid). 

Here is a basic breakdown of money that can be borrowed according to the Official Federal Student Aid page:

Undergraduate Students: The maximum amount that can be borrowed each year ranges from $5,500 – $12,500 based on school and dependency status (Direct Subsidized Loans and Direct Unsubsidized Loans).

Graduate or Professional Student: The maximum amount that can be borrowed each year through Direct Unsubsidized Loans is $20,500. However, Direct PLUS Loans may be used for the remaining college costs.

Parent of Dependent Student: Parents can receive a Direct PLUS Loan to cover the remaining costs of their child’s education (as long as it is not covered by another financial aid).

What is the FAFSA4caster?

If you are concerned – or simply interested – in determining the amount of financial aid you could receive in the future, try the FAFSA4caster. The FAFSA4caster offers a free early estimate of your eligibility. By answering financial questions based on your family’s income (taxed and untaxed), assets, benefits, among other questions, the FAFSA4caster can predict a ballpark amount that you may receive in federal student aid. 

The FAFSA4caster allows families to plan ahead for college and is recommended for use as a high school junior or middle-school student. To learn more about the FAFSA4caster, click here

how is federal student aid calculated, financial aid, FAFSA
how is federal student aid calculated, financial aid, FAFSA

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Carena de Alba

Carena de Alba

Carena de Alba prides herself on her ability to graduate college completely debt free. She loves helping people minimize their student loan debt as much as possible. She is a powerhouse when it comes to personal finance.

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