With the cost of higher education continuing to increase, student loans have become a vital tool for millions of students in the USA. Federal Student Loans are available to students who qualify by completing the Free Application for Federal Student Aid, or FAFSA, through the U.S. Department of Education (ED). But FAFSA, federal student loans and repayment and potential loan forgiveness programs can help students make smart financial decisions about their education.
What is FAFSA?
FAFSA, the Free Application for Federal Student Aid, is the key to access to federal financial aid, including student loans, grants and work-study programs. It is managed by the U.S. Department of Education and used by colleges and universities to establish a student’s eligibility for financial aid.
Why is FAFSA Important?
(1) The FAFSA is essential for students hoping to receive financial aid because it:
- Eligibility for federal student loans and grants
- Assists students in finding state and institutional financial aid programs
- Helps to calculate the Expected Family Contribution (EFC) which determines how much aid a participant will receive
- Gives access to work-study opportunities, letting students earn money while they study
The FAFSA is submitted every year; the application process usually starts Oct. 1 for the following academic year. It is important to submit the application as early as possible in order to received the maximum amount of aid a student is eligible for.
fafsa Federal Student Loan Types
The Department of Education issues a variety of federal student loans through the Direct Loan Program. Terms, interest rates and eligibility requirements vary for each type of loan.
Direct Subsidized Loans
These loans are offered to undergraduate students with demonstrated financial need. The federal government pays the interest when the student is enrolled at least half-time, during the grace period, and during deferment periods.
Direct Unsubsidized Loans
Direct Unsubsidized Loans, which do not require proof of financial need and are available to undergraduate and graduate students. But interest begins accruing the moment the loan funds are disbursed, and continues accumulating until the loan is paid off.
Direct PLUS Loans
Graduate or professional students and parents of dependent undergraduate students can apply for PLUS Loans. Borrowers are subject to a credit check, and loan amounts are usually higher, covering the full cost for attendance.
fafsa Direct Consolidation Loans
With this loan package, borrowers can consolidate multiple federal student loans into a single loan to simplify repayment and potentially decrease the monthly payment amount by reducing payments.
Federal Student Loans Eligibility and Application Process
Students must meet certain eligibility criteria to qualify for federal student loans. These include:
- So being a U.S. citizen or eligible non citizen
- Be in possession of a valid Social Security number
- You are enrolled in an qualified degree or certificate program
- Formal proceedings before the Board of Graduate Studies and Research for dismissal from a graduate program or revocation of admission based on failure to maintain satisfactory academic progress
- Having filed the FAFSA form each year
Steps to Apply for FAFSA
- Create an FSA ID – Students and parents (if applicable) are required to create an FSA ID before completing the FAFSA, which allows them to sign the FAFSA electronically.
- Collect All Required Documentation – Gathering Social Security numbers, tax returns, W-2s, bank statements, and other financial accounts.
- You will be able to fill out the FAFSA online at studentaid. gov, requiring students to provide personal and financial data.
- Check the SAR – After FAFSA is submitted, students will receive a Student Aid Report (SAR), which summarizes the information they submitted and gives them a sense of their eligibility.
- They Send Financial Aid Award Letter – After reviewing FAFSA data, colleges decide how much aid an applicant can receive, and send an award letter informing the student about the financial aid package offered.
Federal Student Loan Repayment Plans
Federal student loans come with a range of repayment plans through the Department of Education so you can find one that suits your finances.
Standard Repayment Plan
- 12 years with certain fixed monthly payments
- Usually means paying less interest over the course of the loan
Graduated Repayment Plan
- Over the course of a loan, payments begin low and rise every other year
- Loan repaid in under 10 years
- A bonus for borrowers who anticipate future income growth
fafsa Income Based Repayment Plans (IDR)
- Income and family size-based monthly payments
- After making qualifying payments for 20–25 years, you might be eligible for loan forgiveness
- Four IDR plans include:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- REPAYE (Revised Pay As You Earn)
- Income-Contingent Repayment Plans (ICR)
Extended Repayment Plan
- Fixed or graduated payments over 25 years
- Higher monthly payments yet less interest over the years
How to Leave Loan Forgiveness and Discharge Programs
FREE BOOK: Here is what you need to know about the student loan forgiveness programs offered by the Department of Education that could cut, or potentially eliminate, your student loan debt.
Public Service Loan Forgiveness (PSLF)
Under PSLF, borrowers who make 120 qualifying payments while working full-time for a government or nonprofit organization will get their remaining student loan balance forgiven.
Teacher Loan Forgiveness
Teachers in low-income schools can be eligible for as much as $17,500 in forgiveness after five years on the job.
Total and Permanent Disability Discharge
Federal student loans can be discharged for borrowers who become permanently disabled.
fafsa Closed School Discharge
Students whose schools close while they are enrolled, or soon after they withdraw, may be eligible for loan discharge.
Student Loan RepaymentEducating Yourself on Student Loans
Student loans can play a vital role in giving students access to education, but borrowing responsibly can help prevent students from graduating with too much debt. Here are few tips that can help you effectively manage students loans —
- Take only what you need – Only borrow enough to cover tuition and your basic needs.
- Know Your Loan Terms – Interest rates, repayment options and possible loan forgiveness programs
- Pay Interest Accruals Early – Make interest payments that occur while in school, if possible, to prevent debts from racking up.
- Do Follow the Updates Over Repayment Plans – Try income-driven repayment plans if a standard payer is intolerable
- Organize Loan Servicer Information — Maintain communication with loan servicers and make sure to notify them of any changes to contact or financial information.
Conclusion
FAFSA: A Critical Tool for Students Seeking Financial Aid for Higher Education Knowing about the various kinds of federal student loans as well as repayment plans and loan forgiveness programs can help students take control of their financial future. Completing the FAFSA as early as possible and looking at available federal aid can help students reach their educational goals with little long-term debt. No matter whether a student is beginning college or nearing time to start paying off loans, being proactive and informed about federal student loans is vital in managing the costs of higher education.
