Skip to content

The financial aid award letter can be confusing for many first-time FAFSA filers. Here’s how it works. After you submit your FAFSA (Free Application for Federal Student Aid), it is sent to the college(s) you listed on the application. Depending on the results of the FAFSA, the college will determine what types of aid you are eligible to receive and will notify you via an award letter. It will detail the types and amounts of financial aid available to help you pay for college.

What are the types of financial aid?

There are four types of financial aid available to students:

  • Scholarships – do not have to be repaid and some are renewable if you maintain certain criteria such as grade point average.
  • Grants – are also not repaid. They are awarded based on the family’s financial need as determined by the FAFSA.
  • Work-study – is a job on campus. You will be paid as you perform the job; the money will not be available upfront like other types of financial aid.
  • Student Loans –will have to be repaid. Since loans can make a family nervous and prompt more questions, let’s take a deeper dive into this subject.

What types of federal loans are available to pay for college?

Take a look at this loan chart to help you visualize the types and amounts of loans that are offered to college students and parents.  Direct Subsidized Loans are interest-free while the student is enrolled at least part-time in college. Direct Unsubsidized Loans accrue interest while you are in school.  Parent PLUS loans and Grad PLUS loans are also accruing interest while the student is enrolled in college.

How much can I borrow each year?

Students are limited on the amount of federal loans they can borrow each year – as well as over their lifetime.  First-year undergraduate students are offered a maximum of $5,500, sophomores will be offered $6,500, and juniors and seniors are offered $7,500 each academic year.  Parent PLUS loans are determined by taking the Cost of Education minus all aid being offered to the student.  If there is still “unmet need,” then the parents will be offered a Parent PLUS loan for that amount.

Do I have to borrow loans offered to me?

Absolutely not! You are not required to borrow the full amount offered in loans. You can reduce or specify how much you would like to borrow, or you may decline the loans being offered altogether.  A word of caution to you as a borrower; only borrow what you need!  Eventually, the loan dollars you borrow will have to be paid back with interest.  A rule of thumb: Your total debt at graduation should be less than your starting annual salary at an anticipated job in your field.

What are the advantages of borrowing Federal Student Loans?

Federal student loans should be your first priority.  They offer relatively low, fixed interest rates, do not require a co-signer, have favorable terms and conditions, require no payment while you are enrolled in college at least part-time, and have flexible repayment options.

Obviously, scholarships and grants are the most ideal forms of financial aid, but it’s not the end of the world if you have to borrow money to help pay for college. Do your research and be in the right mindset; think of it as an investment in your future!