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If you’re not sure whether you’re eligible for financial aid to help pay for college, there’s an easy answer: Yes, you are.
“Everybody is eligible, regardless of income,” says Brad Yeckley, assistant director of the Family Financial and Life Skills Center at Penn State University. What varies is the type of aid you’ll get and whether you’ll have to pay it back.
» MORE: Your guide to financial aid
Here’s how your eligibility for financial aid is established.
How financial aid is determined
To get federal, state and school financial aid — and even some private scholarships — you must fill out the Free Application for Federal Student Aid, known as the FAFSA. It’s used to calculate your financial need.
Some forms of financial aid are available on a first-come, first-served basis, and schools and states often have their own FAFSA deadlines. Apply for financial aid as soon as possible once the FAFSA process opens. You can fill out the 2021-22 FAFSA as of Oct. 1, 2020.
What is the Expected Family Contribution?
Based on the financial information you enter on the FAFSA, the government uses a formula to decide how much you can pay for college out of pocket. That number is your Expected Family Contribution, or EFC. A college will subtract your EFC from its annual cost of attendance (which includes tuition, living expenses, books, supplies and transportation) to figure out your financial need.
» MORE: What is the Student Aid Report?
The EFC formula takes into account more than just your family’s income. Family size and how many children are in college at the same time matter, too. Plus, your parents’ income won’t be considered if you’re an independent student and don’t receive financial support from them.
“It is a misconception that family income is the only or the largest indicator of what your aid award could be,” Yeckley says.
Colleges give need-based aid first
Schools start by granting any need-based aid you qualify for. This could include need-based grants — from the government or the school — and direct subsidized loans.
Direct loans are the most common types of federal student loans. Subsidized loans are more beneficial than their unsubsidized counterparts because they don’t accrue interest while you’re in school or during the six-month grace period after you leave school.
Grants and scholarships, often referred to as “gift aid,” don’t need to be paid back, and they’re usually awarded before other types of aid.
“We want to give out all the gift aid first, and we would use loans as a last resort,” says Carrie Pratt, senior manager for financial aid at the Dallas County Community College District in Texas.
Each need-based grant or loan has an annual maximum. For instance, the maximum Pell Grant amount you can get in the 2020-21 academic year is $6,345. There’s also an order in which schools distribute need-based aid, and Pell Grants are usually first, Pratt says.
Colleges offer loans to fill payment gaps
If you don’t receive enough need-based aid to cover your cost of attendance or didn’t qualify for any aid, the school will then offer federal direct unsubsidized loans or PLUS loans, which are available to graduate students and parents of undergrads.
These loans are less desirable than the direct subsidized ones because they accrue interest while you’re in school and during your grace period after you graduate. PLUS loans, in particular, carry high interest rates, and those taken by parents are eligible for fewer repayment plans.
But because you don’t have to demonstrate need, direct unsubsidized and PLUS loans are easier to qualify for than direct subsidized loans.
“If Bill Gates filled out a FAFSA, he would be given an unsubsidized student loan, I’m sure,” Yeckley says.
Colleges might also include private student loans in your award letter, which can help if you need additional funds to meet the cost of attendance beyond the federal loan maximum. But private loans don’t come with the same protections that federal loans do, including loan forgiveness and flexible repayment plans. Their interest rates are often higher, as well.
Borrowing? Have a plan
It’s smart to understand your financial aid options before you apply to schools so that you can make a plan to graduate with as little student loan debt as possible. Borrowing less now means owing less later, when you graduate and want to save for things such as a vacation, a house or retirement.
“You can live like a student while you’re in college,” says Yeckley. “Or you can live like a student for the rest of your life.”