What is the Federal Student Aid?

 

If you want to go to college or graduate school, but cannot afford the tuitions or associated living expenses, the Federal Student Aid provided by the US Department of Education is a great source of funding. 

This article will walk you through some basics about the Federal Student Aid. We will cover 1. eligibility(who can apply), 2. different aid categories, 3. how-to-apply (where to apply, what materials/information are needed), and 4. what-to-expect after the application. The only source of information for this article is the Federal Student Aid’s official website.

 

 

1. Eligibility

 

The coverage of the Federal Student Aid is broad. It is provided to both undergraduate and graduate students at eligible colleges and professional schools, as well as students at eligible career schools. Both current and incoming students can apply. 

 

However, there are some citizenship restrictions: the applicant needs to be a US citizen, a US national, or an eligible noncitizen (such as permanent resident).

 

This link provides a succinct summary of the eligibility requirements. This link provides some additional information, especially for students with special needs or immigration status.

 

 

  2. Types of Aids

 

The federal government provides three types of aids: grants, loans, and work-study jobs.

 

Grants are money that the federal government gives to you. You do not need to pay it back. However, there are certain situations where you need to repay the grants, such as when you withdraw early from school. Click here for details on grants repayment. 

 

The federal government offers four major grant programs. Click here for their eligibility details and annual awarded amounts. For instance, the Pell Grant is only offered to undergraduate students who have not yet earned a bachelor’s or higher degree (some exceptions apply, see here). The maximum Pell Grant award is $6,895 for the 2022-2023 award year, and $7,395 for the 2023-2024 award year. Sometimes, a student may receive up to 150% of their scheduled Pell Grant award for an award year (“year-round Pell”). You can receive the Pell Grant for no more than 12 terms (roughly 6 years) in your lifetime.

 

Loans are money that the federal government lends to you. You must pay it back with interest in the future. There are several types of federal loans; and depending on the types, they can be offered to either students or parents of dependent undergrads. Federal loans offer many benefits that private loans do not have, such as lower, fixed interest rates and deferred repayment (you only need to start repaying the loans after you graduate). As repaying federal loans constitutes a legal responsibility, before you can receive the loan money, you must complete a course (for first-time student borrowers) and sign on the relevant legal document. 

 

Since repaying student loans can be challenging, the loan simulator is designed to help you find out the best borrowing and repayment strategies, as well as solve relevant financial crises. Also, click here for a comprehensive guidance on loan repayment at different stages (when you just graduated, are in repayment, are falling behind, etc.).

 

While repaying student loans can be stressful, a new repayment plan (known as the SAVE Plan) that took effect in summer 2023 has the potential to significantly reduce your repayment burden. For more information on SAVE, please refer to Section 6.

 

Work-study jobs are paid part-time work you do while you are in school. The job content is usually related to your field of study. Your employer can either be your school or some outside entity such as a private nonprofit organization. You can earn at least the minimum wage, but keep in mind that there are caps on both your salary (it cannot exceed your financial needs) and your work hours (your work cannot interfere with your study).

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   3. How to Apply

 

Despite the variety of the financial aids the federal government offers; to apply for any of them, you just need to submit one single form – FAFSA! It takes roughly 10 - 30 minutes to fill out.

 

As the federal student aid is offered on a yearly basis, to continue receiving it, you would need to resubmitFAFSA every year. For example, if you submit FAFSA now, you are only applying for financial aids for the 2023-2024 award year (July 1st, 2023 – June 30th, 2024).

 

Keep in mind that there are three deadlines for FAFSA: the federal deadline, your home state’s deadline, and the school deadline. For your application to be considered by your school (or a school you are applying to), you must submit FAFSA before all the three deadlines. You can find the federal and state deadlines here. To find the deadline for a specific school, you can either visit the school website or contact its financial aid office.

 

Below is a list of the information you need to have at hand before you start filling out FAFSA:

 

• Your social security number (SSN) – You will need it for creating an applicant’s account. If you do not have an SSN, please apply for one first.

• Your alien registration number (if you are an eligible noncitizen).

• Your driver’s license number (if you have a driver’s license).

• If you are a prospective student applying to schools for the next academic year, you will be asked to select up to ten schools you plan to apply to. Each of them will receive your FAFSA application and make independent decision on your financial aid offer (if you get admitted).

• If you are a dependent student, you will need to fill in your parents’ demographics information (SSNs, marriage month/year, etc.) and their tax return/financial information from the previous year (such as Form 1040).

• Your (or, if you are married, your household’s) tax return/financial information from the previous year.

 

One nice thing about FAFSA is that it allows you to directly retrieve tax return information from the IRS’s official website. You can use this tool to fill in both your and your parents’ tax return information.

 

Click here for more details on how to fill out FAFSA.

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   4. What to Expect After Your Application

 

• What will you receive?

 

• For current students, your school will decide whether to make you a financial aid offer. The offer will come in the form of a package that combines various types of aids from different sources (federal, state, school, private). Federal student aids may or may not be part of it.

 

• For prospective students, each of the schools that you have included in your FAFSA application and that have made you admission offers will make independent decision on whether to make you a financial aid offer, and what the offer package includes.

 

• How will your financial aid amount be determined?

 

• The school’s financial aid office is responsible for determining your total financial aid amount. When making this decision, it generally refers to the following formula:

 

your financial aid about = COA - EFC

 

COA stands for “cost of attendance.” It is your expected cost of attending the school, including tuitions, living expenses, cost of study materials, etc. EFC stands for “expected family contribution.” It is calculated based on factors such as your family income, the size of your family, and the number of school attendees in your family in the next academic year. You can use the simple aid estimator to gauge whether you will be considered in need of federal aid, and how much aid amount you will be qualified for approximately.

 

• Choosing the right school

 

• When choosing which school to attend, it is important to factor in the schools’ financial aid offers. For each school you get an admission offer from, make sure to have a good estimate of how much you need to pay out of your own pocket to attend it. Generally, you can refer to the formula below to figure out your expenses: 

 

your expenses = COA - your financial aid amount

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Click here for more information on how to compare the costs of attending different schools.

 

• How will you be paid?

 

• Grants and loans will be applied to your tuitions and on-campus living expenses first. Any left amount will then be paid to you directly. Work-study job salaries are paid to you directly. Click here for more information.

 

• How to maintain your eligibility to receive federal aids for the years to come?

 

• Remember, the federal student aids are distributed on a yearly basis. So, receiving an aid offer this year doesn’t necessarily mean you will be eligible to continue receiving it in the future. To maintain your eligibility, you must

     i. continue to meet the basic eligibility criteria (see Section 1),

     ii. maintain satisfactory academic progress as defined by your school,

     iii. resubmit FAFSA every year.

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Click here for more information.

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   5. Other Things to Notice

 

• Applying for colleges can be a long, challenging process. As college admission is generally very competitive, people typically spend years to prepare before they apply. You also want to be ahead of the game! Click here for some checklists on how you could better prepare for future college application at different stages (elementary school, middle school, high school, etc.).

 

• Your school’s (or, for prospective students, your dream school’s) financial aid office is always a good resource of information. If you have any questions about any financial aid program (your eligibility, how to apply, timeline, etc.), please reach out to them.

 

• This article is dedicated to introducing the Federal Student Aid, but keep in mind that this is not the only source of financial aid. It is highly recommended that you remain open-minded and always keep an eye out for other opportunities. If you don’t know where to find them, again, start by asking your school’s financial aid office. 

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   6. New Federal Student Loan Repayment Plan & its Benefits

 

This chapter introduces a new federal student loan repayment plan under the Biden Administration that went into effect in summer 2023 – the Saving on a Valuable Education (SAVE) Plan. We will cover its function and benefits.

 

SAVE is an income-driven repayment (IDR) plan; that is, it calculates a loan borrower’s monthly repayment amount solely based on their income and family size. After certain number of years (repayment term) has passed during which the borrower regularly submits monthly repayments, the loan will be forgiven, and any remaining balance will be cancelled.

 

SAVE supersedes the Revised Pay As You Earn (REPAYE) Plan, and all individuals previously enrolled in REPAYE are now automatically transferred to SAVE. Compared to REPAYE, it offers lower monthly repayment amount (for any income group), shorter repayment term (for borrowers with a small loan balance), as well as a benefit on monthly interest. Below, we discuss each of these benefits in detail.

 

• SAVE lowers your monthly repayment amount compared to REPAYE. See here for a table of estimated monthly repayment amounts by income and family size, as well as a detailed example of why SAVE saves you money. Besides, SAVE sets a higher bar for the $0 monthly repayment group. For example, if your family size is one, this bar is $32,800, which means you do not need to submit any monthly repayment when your annual income is below $32,800.

 

• Starting in February 2024, under SAVE, individuals who borrowed $12,000 face a repayment term as short as 10 years (previously it was 20 or 25 years). After $12,000, each additional $1,000 of the loan adds 1 year to the repayment term until the repayment term cap is reached. The cap for undergraduate loans is 20 years, and for graduate loans (or a mix of graduate and undergraduate loans), it is 25 years. See below for two tables of repayment terms by loan balance: one for undergraduate loans and one for graduate loans.

 

• Under SAVE, the portion of the monthly interest not coverable by your monthly repayment is completely forgiven. For example, if your monthly repayment amount is $44, and your interest each month is $64, you only need to pay $44 per month, and the rest of the interest ($64 - $44 = $20) is covered by the government. This means there is no interest accrual at all now.

 

• More benefits are to take effect in July 2024 that will further lower payments for undergraduate loan borrowers. Please watch out for an update version of this article then.

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