An Introduction to Student Loans and the FAFSA

In the United States the federal government acts as a central point in accessing financial aid for education. Therefore, for almost any type of financial aid (loans, grants, work-study or even parental loans) you must
fill out a Free Application for Federal Student Aid (FAFSA), which you can do online right here.

TUTORIAL: Student Loans: Introduction

You must also fill out an FAFSA form if you wish to apply for most state and school funded programs including college loans, state-funded grants and tuition assistance initiatives. The U.S. Department of Education has established guidelines that are used to determine your eligibility for financial aid. There are many factors that they consider, including (but not limited to):

• Your income
• Your parents' income
• Your net assets
• The number of siblings in your household
• Your family expenses
• The number of siblings attending college at the same time

Even if you think you won't qualify it is important to fill out an FAFSA form. You may be surprised and you wouldn't want to miss an opportunity to access cheap funding options. There are even some forms of federal funding aid that are not dependent upon financial need, such as Direct Unsubsidized Loans and PLUS loans.

Submit your FAFSA form as early in the New Year as possible as many awards are granted on a first come, first served basis. Your filing date also determines your place in the queue for school, state and federal programs. Remember that you must submit a new form for each year that you are applying for aid.

What You Need to Fill Out the FAFSA

It is a good idea to fill out the form online; however, if you don't have access, you can use a paper copy and snail mail. With the online form you will receive your Student Aid Report (SAR) quickly and you will also be able to check to make sure the form is filled out completely before submitting. This is a good idea as you don't want to be rejected because of a missed question. You can also download a worksheet to help you with the application process. (For more, see Pay For College Without Selling A Kidney.)

You will need the following information to complete the worksheet and actual application:

• Your driver's license
• Your Social Security Number
• Your Income Tax return (Form 1040)
• Your W-2 forms and any other record of income earned. This includes Social Security, child support, welfare, pensions, veterans benefits, etc.
• Your parents Income Tax return (if you are a dependent)
• Your bank and mortgage statements
• Your record of investments (stocks, bonds, mutual funds, certificates of deposit, etc)
• Your citizenship status (if not a U.S. citizen)

Since not everyone has their tax information done in January you can estimate these numbers on your FAFSA form. Remember to go back and correct the information later once your taxes are complete. (For more, see Your Kid's College Loan: Who Should Foot The Bill?)

It usually only takes one to three days to get your PIN for the application, which will be supplied online, or seven to 10 days via snail mail. With a PIN, the process to submit the FAFSA for one or more schools is very quick, usually just a few days. Be sure to list the schools that you are applying to with the nearest deadline first.

Upon processing you will receive your SAR which you need to make corrections or changes to your FAFSA. This SAR will also be available to your chosen schools and processing there can take much longer (two to six weeks typically). Call your school's financial aid department for confirmation. Any funding that you are approved for is usually not available until the first week of the semester in which you are enrolled. 

Tips for Filling Out the Form

• Do not leave any blank spaces. Enter NA (Not Applicable) or 0 (zero).
• Round all numbers to the nearest dollar, do not use commas or decimal places.
• Be sure you and your parents sign the papers before submitting.
• Read all instructions carefully. Be sure you understand the questions that differentiate between you and your parents' information.
• Doublecheck your answers before submitting.
• If filling out the paper form, be sure your answers are neat and easy to read.
• If filling out the form online, be sure to print out your copy and save if a safe place.
• Deadlines differ for each state (and sometimes for each college or university). Be sure to check when your deadline is at the Department of Education site.

Types of Loans Available

Federal Direct Loans: Direct Subsidized Loan and Direct Unsubsidized Loan
These loans are available directly from the U.S. Department of Education and are either subsidized or unsubsidized (based on financial need). The money from these loans can be used to pay for higher education at a degree-granting institution, trade, career, technical school or even a community college, as long as the school is accredited to accept federal loan money. Click here to see whether the school you are considering is approved. If you are eligible for a subsidized loan you will not have to pay any interest on the loan while in school (at least half time) or during any grace or deferment periods. If you qualify for the unsubsidized loan, then you will have to pay interest starting from the first day you receive your funding. You do not have to pay back the principal of the loan until after graduation. For details on how much you can borrow, see Federal Direct Loans and Federal Direct Loan Limits.

Direct PLUS Loans
PLUS stands for "Parent Loans for Undergraduate Students." Just as it sounds, this program, offered by the U.S. Department of Education, is for the parents of prospective students to enable them to cover any shortfall in funding their child's education. The maximum amount that can be borrowed is the actual expenses minus any other financial aid the student has received. The parent will have to pass a credit check. If they do not have a good credit score, they may still be eligible for funding if they can find someone to co-sign the loan. (For related reading, see Fund Your Schooling with PLUS Loans.)

Federal Perkins Loans
These loans are available to undergraduate or graduate students and the funds are provided by the school, although the loans are guaranteed by the federal government. Eligibility for these loans is determined by financial need, and you can receive up to a maximum of $60,000 to attend grad school. The loan must be paid back within 10 years. For details on what you can borrow, see Federal Perkins Loan vs. Federal Direct Loan.

Direct Consolidation Loans
You can avail yourself of this option if you need relief from the monthly payments of your student loans. You combine all your student loans and extend the amortization period up to 30 years. This simplifies your payments (just one per month) and reduces your monthly payouts. However, before you consolidate your student loans, you need to calculate the cost. By extending the period of your loan you will greatly increase the amount of interest you will have to pay. You may also forfeit any loan forgiveness that you may be eligible for with your original student loans. (For related reading, see Student Loan Debt: Is Consolidation The Answer? and Debt Forgiveness: How to Get Out of Paying Your Student Loans.)

The Bottom Line

For any type of school-related financial aid, you need to fill out the FAFSA form. Hopefully the information provided will help you fill out your application and make it easier to get some government loans to help fund your education. (For related reading, see Student Borrowing: University Payment Plans vs. Federal Student Loans and College Loans: Private vs. Federal )

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