Can I Use The FAFSA For Student Loan Money?

Completing the Free Application for Federal Student Aid (FAFSA) is an important step for most college students looking to fund their education. The FAFSA is simple, yet versatile as a tool for financial aid—although it isn’t a loan itself. Before you complete the form, understand how the process works and how you can use it for your tuition.

Is the FAFSA a Loan?

The FAFSA is a free form that college students and parents submit as the first step in funding a college education. While the FAFSA isn’t a loan itself, completing it is necessary to acquire one.

However, completing the FAFSA doesn’t automatically result in loan approval. Once you complete the application, you’ll have to go through a few more steps to receive a federal loan.

How Does the FAFSA Work?

After you submit the FAFSA, the Central Processing System (CPS) will calculate your Expected Family Contribution (EFC), representing how much your family could contribute to your tuition. Generally, the higher the EFC amount, the less financial aid you qualify for.

The schools you applied to will receive your EFC and use them to determine your total financial aid package. You will receive a financial aid award letter detailing the exact type of financial aid you’ll receive.

What Aid Does the FAFSA Offer?

The FAFSA allows you to access various forms of federal aid including federal student loans, work-study, grants and scholarships. Before you fill out the form, review each type of aid to determine what fits your needs.

Federal Student Loans

Qualifying applicants who submit the FAFSA on time will be eligible for federal student loans. There are three federal student loans:

• Direct unsubsidized loans. You don’t have to demonstrate financial need to receive this loan. However, you are responsible for repaying all interest accrued during your loan term.
• Direct subsidized loans. The government partially covers interest charges for this loan type if you are enrolled at least half time in school.
• Direct PLUS loans. Graduate students, professional students and parents of dependent students are eligible for this loan type; however, you must complete a separate application to qualify.

Only graduate students and parents can take out direct PLUS Loans, while only undergraduate students can take out direct subsidized loans. Both undergraduate and graduate students can take out direct unsubsidized loans.

Interest accrues during enrollment and all deferment periods for direct unsubsidized loans and direct PLUS loans. However, interest won’t accrue on direct subsidized loans. Only undergraduate students with demonstrated financial need qualify for direct subsidized loans.

The annual amount available for undergraduate federal loans ranges from $5,500 to $12,500, depending on several factors.

Related: Forbes Guide To Subsidized And Unsubsidized Federal Student Loans

Work-Study

Work-study is given to students with demonstrated financial need. Students can work part-time with an on-campus department or off-campus organization for up to 20 hours weekly.

Schools have a limited number of work-study positions, so you should complete the FAFSA immediately to maximize your chances. Students will be paid regularly and can use those funds for any purpose.

Grants

Filling out the FAFSA allows access to federal grants that don’t have to be repaid. Most grants are only given to students with demonstrated financial need.

The Pell Grant is the most common federal grant given to undergraduate students. The award can reach up to $7,395, and students may use the Pell Grant for 12 semesters in total.

Many states also offer grants to in-state students with a completed FAFSA.

Scholarships

Some colleges only provide scholarships to students who complete the FAFSA. If you don’t complete the FAFSA, you could miss out on thousands of dollars in free funding.

You may also have to fill out a separate scholarship application form. Before you apply for a scholarship, contact your school’s financial aid office to determine the best way to maximize your FAFSA for scholarship assistance.

Other Forms of Financial Aid

If you aren’t eligible for federal aid or find that you have expenses left over after you receive your funds, there are several other options available to cover your expenses. Carefully consider each option before you move forward.

Private Student Loans

Students do not need to fill out the FAFSA to apply for a private student loan. Instead, private student lenders have separate applications. They will ask for your personal information, Social Security number, contact details and more.

Private student loan companies use your credit score and income to determine eligibility. Most students will need to add a co-signer, who is a parent or another relative, to take legal and financial responsibility if they default on the loan.

These loans also have fewer repayment options and higher interest rates than federal student loans. They are also not eligible for loan forgiveness options.

Students should only use private loans if they don’t qualify for federal loans, or have maxed out all other financial aid options. If you do use private student loans, borrow the least amount possible. Also, consider refinancing those loans to a lower interest rate after graduating and landing a full-time job.

Income-Share Agreement

An income-share agreement (ISA) is an income-based repayment option for students. Payments are based on your income after leaving school and are generally a fixed percentage.

Some colleges offer ISAs directly, but students can also use a third-party provider to take one ou. The main downside of an ISA is that you cannot refinance them. It’s also hard to compare the total payments because they vary based on your income.

However, relying on ISAs may be worse than using a private student loan, because it’s impossible to know how much you’ll pay over the life of the loan. You may wind up paying a higher total interest amount than if you chose private loans.