The process of receiving federal financial aid follows the three simple steps shown in the following illustration.
Technology: Skill Reflect |
One of the best places to learn about federal financial aid and the FAFSA application is the Federal Student Aid website.
To complete the FAFSA form, you will generally need to supply the following:
Students receiving federal financial aid awards may be awarded all three types of financial aid, or they may only receive one form of financial aid, such as access to federal student loans. Awards are based on the financial status of the student and his or her family. Keep in mind that federal work-study and grants tend to be awarded to financially needy families because they do not need to be repaid. Federal student loans, however, are another matter and require more attention and planning.
Borrowing money for education directly from the federal government, rather than from private lenders, has several benefits. These advantages are shown in the following illustration.
For financially needy students, the federal government will pay the interest on a loan while you’re in school. In addition, federal student loans can be forgiven in some situations (which we will discuss in detail later).
Once you have used your technology skills to review the Federal Student Aid website and student loan options, it is time to look at those options more closely. You will need to compare the loans to each other and review what repayment will look like.
Eligibility | Interest Rate | Start of Interest | Start of Payments | |
---|---|---|---|---|
Federal subsidized loan | Undergraduate student with need | 4.45% | 6 months after graduation as long as enrolled half-time | 6 months after graduation or student drops to less than half-time |
Federal unsubsidized loan | Any undergraduate, graduate, or professional student | 4.45% for undergraduates; 6% for graduate/professional students | Immediately | 6 months after graduation or student drops to less than half-time |
PLUS loan | Graduate and professional students and parents of undergraduate students | 7% | Immediately | Immediately for parents 6 months after graduation or student drops to less than half-time |
Private loan | Any student or parent | Varies, but typically higher than federal or PLUS loans | Immediately | Immediately |
Repayment Plan | Eligible Loans | Monthly Payment | Eligibility |
---|---|---|---|
Standard Plan | All loans, including consolidation loans |
|
All student borrowers |
Graduated Repayment Plan | All loans, including consolidation loans |
|
All student borrowers |
Extended Repayment Plan | All loans, including consolidation loans |
|
Must have more than $30,000 in direct loans |
Revised Pay As You Earn (REPAYE) Plan |
|
|
All student borrowers |
Pay As You Earn (PAYE) Plan |
|
|
All student borrowers whose monthly payment using the PAYE plan would be less than the 10-year standard plan |
Income-Based Repayment (IBR) Plan |
|
|
All student borrowers whose monthly payment using the IBR plan would be less than the 10-year standard plan |
Income-Contingent Repayment (ICR) Plan | All loans, including consolidation loans |
|
All student borrowers |
Income-Sensitive Repayment Plan | Subsidized and unsubsidized loans |
|
|
Notes:
|
When considering the many types of federal loans available, keep in mind that it’s best if you don’t have to borrow money to complete your schooling. Grants and work-study programs, as well as scholarships, provide the best source of school funding. If you do need to borrow to complete your schooling, start with direct subsidized loans and then, if necessary, consider direct unsubsidized loans. For students needing additional financial aid, direct PLUS loans can be used to add borrowing capacity.
Strong problem solving skills can help you decide if loans are the best option for you. It is critical that you take the time to look at alternatives to loans before you sign on any dotted line to borrow money.
Source: This content has been adapted from Chapter 6.3 of Introduction to Personal Finance: Beginning Your Financial Journey. Copyright © 2019 John Wiley & Sons, Inc. All rights reserved. Used by arrangement with John Wiley & Sons, Inc.
Wiley and the Wiley logo are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries.