Is FAFSA Free Money or a Loan? How Financial Aid Works

The Free Application for Federal Student Aid (FAFSA) is a crucial resource for students looking to fund their higher education. However, many people are confused about how FAFSA works and whether it provides free money or loans.

FAFSA is not free money, but it does determine your eligibility for financial aid programs that include free money, such as grants and scholarships. FAFSA also helps you qualify for loans and work-study programs.

What Is FAFSA?

FAFSA stands for the Free Application for Federal Student Aid, a form that students must fill out to determine their eligibility for federal financial aid. The application is used by the U.S. Department of Education to assess a student's financial need based on their household income, assets, and other factors.

FAFSA is the first step in accessing federal aid for college or vocational school, and it also helps students qualify for state and institutional aid.

Filling out the FAFSA is free, and you can submit it online through the official FAFSA website. The information you provide will be used to calculate your Expected Family Contribution (EFC), which helps determine how much financial aid you qualify for.

Types of Financial Aid Through FAFSA

Let's break down the different types of financial aid you can access through FAFSA.

1. Grants: Free Money

Federal grants are a form of financial aid that does not need to be repaid, making them the most sought-after type of aid for students. Grants are typically awarded based on financial need and are essentially free money to help you pay for college.

Below, we list some of the most common types of federal grants available through FAFSA.

• Federal Pell Grant: awarded to undergraduate students who demonstrate significant financial need. For the 2024-2025 academic year, the maximum award is $7,395.
• Federal Supplemental Educational Opportunity Grant (FSEOG): for students with exceptional financial need. FSEOG awards range from $100 to $4,000 per year, but not all schools participate in this program.
• TEACH Grant: provides funding for students who plan to become teachers in high-need fields and agree to work in low-income schools for at least four years. The maximum TEACH Grant award is $4,000 per year.

Grants are need-based, and the amount you receive depends on factors like your family's income, the cost of attendance at your school, and your enrollment status (full-time or part-time).

2. Scholarships: Free Money

While scholarships are not directly awarded through FAFSA, completing the FAFSA can help determine your eligibility for scholarships offered by your state or college. Scholarships are merit-based, need-based, or a combination of both. Like grants, they do not need to be repaid.

It's important to search for additional scholarships outside of your FAFSA application, as many private organizations offer funds for students who meet specific criteria.

3. Work-Study: Earned Money

The Federal Work-Study Program provides part-time jobs for students with financial need. This program allows students to earn money while attending school, which can help cover educational expenses.

Work-study is considered financial aid, but it differs from grants and scholarships because the money must be earned through a job, typically on campus or with a partner organization. While this is not ''free'' money, it is a way to reduce student debt by working during your college years.

4. Loans: Repaid With Interest

Loans are a form of financial aid that must be repaid with interest. While FAFSA helps determine your eligibility for federal loans, it is important to remember that loans are not free money.

Borrowing through federal loans can help you cover the cost of tuition, housing, and other expenses, but they come with a repayment obligation after graduation. There are several types of federal student loans available through FAFSA:

• Direct subsidized loans: available to undergraduate students with financial need. The federal government pays the interest on the loan while you're in school at least half-time and during the grace period (usually six months after you leave school).
• Direct unsubsidized loans: available to undergraduate, graduate, and professional students, regardless of financial need. Interest begins accruing as soon as the loan is disbursed, and you are responsible for paying all the interest.
• Direct PLUS loans: available to graduate students and parents of dependent undergraduate students. PLUS loans can help cover any remaining educational expenses not covered by other financial aid.

While loans can be an important part of paying for college, it's essential to borrow wisely. Only take out what you need, and be mindful of the interest rates and repayment terms.

How Does FAFSA Determine How Much Aid You Receive?

The amount of financial aid you receive is determined by a variety of factors, including your family's income, assets, and the cost of attendance at your chosen school. After you submit the FAFSA, you will receive a Student Aid Report (SAR), which outlines your Expected Family Contribution (EFC) and eligibility for federal aid.

Your school's financial aid office will use the information from your FAFSA to create a financial aid package, which may include a combination of grants, scholarships, work-study, and loans.

The goal is to bridge the gap between your EFC and the cost of attendance, but the amount of aid you receive can vary widely depending on your individual circumstances.

The Benefits of Completing FAFSA

Even if you think you won't qualify for need-based aid, it's still a good idea to fill out the FAFSA. Many colleges and states use FAFSA information to award merit-based scholarships and other aid, so submitting the form increases your chances of receiving some form of assistance.

Additionally, federal student loans offer lower interest rates and better repayment options than private loans, so completing FAFSA is important even if you plan to borrow money.