Need-based financial aid: It’s one of these mystifying terms that admission offices throw around when you visit colleges. I can vouch for that — I worked in college admissions for 12 years.
There are many ways you can take care of college costs. You can pay for it all out of pocket; your child might earn a scholarship because of her violin-playing talents or other skills. Or your child might get need-based financial aid.
What is need based financial aid, exactly? It’s exactly like it sounds — it’s aid you receive based on your family’s financial situation. Or, in rare cases, it’s based on your financial situation if you are an independent student. Your grades, test scores or extracurricular achievements don’t factor in.
Key Takeaway
Colleges award need-based financial aid, determined by your family’s financial situation, upon filing the Free Application for Federal Student Aid (FAFSA). Colleges assess income-related answers to grant your child a financial aid award, comprising grants, scholarships, work-study and loans. Per the National Center for Education Statistics, over 85% of students receive financial aid, including need-based assistance.
Simple enough, right?
Right!
An Overview of Need-Based Financial Aid
Need based financial aid depends on several factors, such as income, assets and the cost of attendance at a particular institution. Examples of need-based financial aid include grants, scholarships, work-study programs and subsidized loans.
Types of Need-Based Financial Aid
Need-based financial aid comes in various forms, each designed to help students meet those. What qualifies for need based financial aid? Here are some common types:
Grants: Grants are financial awards your child doesn’t have to repay — yay! The government, colleges or private organizations often provide them. Need based grants examples include the Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG) and state-based grants. In other words, always say “yes” to grants if your child receives them on the financial aid award! However, check into the requirements for the grant. For example, your child may stop receiving it if they drop out of school.
Scholarships: Like grants, your child does not need to repay scholarships. (Scholarships should always prompt your family to celebrate!) Now, the tricky thing with scholarships is that your child may receive them due to financial need. Still, they can also earn them for non-scholarship reasons, including due to academic achievement, athletic ability, talents or other criteria. Many colleges and universities offer scholarships to help students afford tuition and other expenses.
Work-study programs: Students can work part-time jobs, called work-study, typically on campus, to earn money to help pay for educational expenses. Many people don’t realize that work-study is need-based, but it is! Your child’s wages earned through work-study are often subsidized, meaning the employer (usually the college or university) pays a portion of your student’s wages. (Note that your child will not receive the work-study money if they don’t sign up to work a job on campus!)
Subsidized loans: Subsidized loans are a type of federal student loan where the government pays the interest. In contrast, the student is in school at least half-time, during the grace period after leaving school and during deferment periods. They differ from unsubsidized loans because unsubsidized loans are not based on need. If you have to choose between subsidized and unsubsidized loans, choose subsidized!
Tuition waivers and discounts: Some colleges and universities offer need-based tuition waivers or discounts to students who demonstrate financial need. These waivers and discounts can significantly reduce the cost of tuition for eligible students.
Fee waivers: Fee waivers may be available for standardized tests such as the SAT or ACT and for college application fees. Students from low-income families may qualify for fee waivers to reduce or eliminate the costs associated with these tests and applications.
These are just a few examples of the types of need-based financial aid available to students. It’s a great idea to research all options and work closely with your child’s college’s financial aid office to determine the best package for their needs.
Need-Based vs. Merit-Based Financial Aid
You may have heard about something called “merit-based aid,” and it’s different from need-based aid, but how?
Merit aid (which can come in the form of scholarships, grants, tuition waivers or other awards) is awarded based on the student’s academic, athletic, artistic or other achievements rather than financial need. The merit aid awarded is determined by the student’s performance in standardized test scores, GPA, extracurricular activities, talents or leadership qualities.
Students may be automatically considered for merit aid based on their application for admission to the college or university, or they may need to submit additional materials or applications to be considered.
Who Qualifies for Need-Based Financial Aid?
Qualifying for need-based aid includes a few important requirements. Your child must demonstrate financial need, be a U.S. citizen or eligible noncitizen, and enroll in an eligible degree or certificate program at a qualified college or career/trade school.
How to Qualify for Need-Based Financial Aid for College
Students typically qualify for need-based aid by completing the FAFSA. However, they may qualify for need-based aid by filing the CSS Profile, another online application colleges and scholarship programs use to award non-federal institutional aid to students.
The FAFSA will ask questions such as:
What is your tax filing status?
What was your adjusted gross income?
How much did you earn from working?
What is the total current balance of your cash, savings and checking accounts?
What is the net worth of your investments?
What is the net worth of your current businesses and/or investment farms?
What were your total tax-deferred pension payments?
How much did you pay to your IRA or Keogh?
How much total child support did you receive?
What was your total tax-exempt interest income?
What were your total untaxed portions of IRA distributions?
What were your total untaxed portions of pensions?
What were your total allowances received?
What were your total veterans noneducation benefits?
What was the total of your other untaxed income or benefits?
What other money has been paid on your behalf?
This is just a short list of questions it asks (and yes, they are kind of a snooze-fest). However, the great news is that it takes less time than it has in the past due to the FAFSA Simplification Act put in place, which overhauled the processes and systems used to award federal student aid, starting with the 2024–25 award year.
This is a common question, by the way: Is FAFSA need based financial aid? The answer is no, it is the tool you use to get need-based financial aid.
How is Need-Based Financial Aid Calculated?
Yep, common question: How is need based aid determined?
Here’s how financial aid works: Submitting the FAFSA collects information about your family’s income and assets (as seen above). The information provided on the FAFSA is used to calculate your Student Aid Index (SAI), which is the amount the federal government believes you as a family can contribute toward education expenses.
What is the SAI?
The FAFSA now uses the SAI to measure your family’s ability to pay for college. It has done a few new things, including removing the number of family members in college from the calculation and allowing a minimum SAI of -1500.
With the introduction of the SAI, allowing a minimum of -1500 means that some students may have a negative SAI, indicating that they have very high financial need and may be eligible for additional financial aid beyond what was previously calculated using the EFC.
The SAI also signals separate eligibility criteria for Federal Pell Grants. The Federal Pell Grant should now reach more students with financial need.
Note: The SAI should have consequences for families with a small business. For the first time, parents who own companies with less than 100 employees will have to count the value of their business toward the financial aid calculation. You can find your child’s SAI on the FAFSA Submission Summary after you complete the form.
How Financial Aid Offices Use the SAI
The financial aid office at each college or university uses your child’s SAI to determine your child’s eligibility for need-based financial aid. They subtract SAI from the total cost of attendance to determine your financial need. The financial aid package includes grants, scholarships, work-study opportunities and federal student loans, all designed to help cover your financial need.
Each college or university may have its policies and procedures for awarding need-based financial aid, so the specific calculation methods and available aid may vary from institution to institution.
Does Your Child Have to Pay Back Need-Based Aid?
You’ll pay back financial aid if it’s a loan, but your child won’t have to repay grants, scholarships or work-study money. (Note that some grants may require repayment if your child doesn’t finish their degree or drops out midway through the semester.)
You don’t have to begin repaying most federal student loans until after you leave college or drop below half-time enrollment.
A repayment schedule will explain when your first payment is due, how many payments you’ll make, the frequency and payment amounts.
You might get a grace period, a set period after you graduate, leave school or go below half-time enrollment. You don’t have to repay your loan until after the grace period. The grace period gives you time to select your repayment plan. Not all federal student loans have a grace period. Interest will build during the grace period in all cases.
How Does Need-Based Aid Affect College Affordability?
Need-based aid is crucial in making college more affordable for students from lower-income families and those with demonstrated financial need. Here’s how it affects college affordability:
Reduce costs: Need-based aid, such as federal Pell Grants and institutional grants, can significantly reduce out-of-pocket college costs. This can make higher education more accessible to students who might otherwise struggle to afford it.
Expand options: With need-based aid, your child has more options when it comes to choosing which colleges to attend. They are not limited solely to schools with lower tuition fees but can consider a broader range of institutions that may offer the programs and environment they desire.
Minimizing debt: By providing financial assistance upfront, need-based aid helps students avoid excessive student loan debt. This is particularly important for students from lower-income backgrounds who may be more vulnerable to financial challenges after graduation.
Early financial stability: Need-based aid enables students to focus more on their studies and less on financial concerns. Always a great bonus for parents, right? By minimizing the financial burden of attending college, students can start their careers on a more stable footing and work toward achieving other financial goals, such as homeownership, at an earlier stage in life.
Universal application: You must apply for financial aid, regardless of your perceived income level. Need-based aid programs often have eligibility criteria that extend beyond poverty lines. Many factors beyond income are considered when determining financial need.
How to Get the Most Need-Based Financial Aid Possible
Filing the FAFSA is the best way to get the most need-based aid possible. Be sure you know how much need-based financial aid you’re taking out and plan to pay it back when you’re through school.
Be intentional: Make less during the preceding years you know you’ll be filing the FAFSA
Don’t realize capital gains or take retirement distributions
Defer work bonuses
Decrease reportable assets
What to Do if Need-Based Financial Aid Isn’t Enough
Did you know you can get your child’s financial aid awards reevaluated if need based aid isn’t enough?
The process for requesting a reevaluation of aid packages varies among institutions but typically involves submitting a formal appeal letter to the financial aid office.
This letter should clearly outline the changes in financial circumstances and provide supporting documentation. You should:
Adhere to the institution’s deadlines and procedures for appeals, as missing deadlines could result in missed opportunities for additional aid.
Some schools may also require students to complete specific forms or participate in interviews as part of the appeal process.
Your child should follow up with the financial aid office to ensure their appeal is processed and to inquire about the expected timeline for a decision.
Documenting special circumstances is a critical aspect of the appeal process. It involves gathering relevant documentation to support the claims of financial hardship or unusual circumstances.
This documentation may include tax returns, pay stubs, medical records, statements from employers or any other paperwork that provides evidence of the changes in financial circumstances.
Students and their families should thoroughly document their situation and be prepared to provide additional information or clarification if requested by the financial aid office. Clear and comprehensive documentation strengthens the appeal and the likelihood of a favorable outcome.
Your Child Can Get Need-Based Financial Aid — Just Apply!
Now that you understand the need based financial aid meaning, do you intend to apply for need-based financial aid or are you asking, “Should I apply for need based financial aid?”
Yes, you absolutely should.
Even if you don’t think you’ll demonstrate financial need or meet the qualifications for need based financial aid, you should file the FAFSA anyway.
Though it’s financial aid based on income, you may be surprised at how the institutional aid equation comes through for your child. If you’re “just on the bubble” from one aid category to another, it is possible to benefit.
FAQs
Still have questions? Take a look at these questions and answers.
What is the difference between financial aid and need-based aid?
Financial aid encompasses all types of financial assistance available to students to help cover the cost of education, including scholarships, grants, loans and work-study programs.
Need-based aid refers to financial assistance awarded based on a student’s demonstrated financial need, including income, assets and the cost of attendance at a particular institution. While financial aid encompasses a broader range of assistance, need-based aid is specifically awarded based on financial need.
For example, merit-based aid is also financial aid but isn’t need-based. Need-based aid typically comes from filing the FAFSA, while you can get other types of need-based aid without filing the FAFSA.
What is a need-based financial aid example?
A subsidized loan is an excellent example of need-based financial aid because it is awarded to students based on financial need, as the FAFSA determines. Unlike unsubsidized loans where interest accrues while the student is in school, the government pays the interest on subsidized loans. In contrast, the student is enrolled at least half-time, during the grace period after leaving school and during periods of deferment.
Should I put “Yes” for need-based financial aid?
When you receive your child’s financial aid award, it’s up to you and your child whether you choose to “accept” need-based financial aid. You may have a hard policy of not taking loans, while you accept grants and scholarships. However, you may need subsidized loans to get through your child’s school years. Talk about it together.
When your child applies for financial aid through the Free Application for Federal Student Aid (FAFSA), they may experience a gap between the cost of the school and the financial aid they actually receive. A private student loan, which may come from an online lender, credit union, bank or other lender, may help cover the gaps that financial aid doesn’t cover.
We reviewed the best private student loans based on research on interest rates, repayment terms, other benefits and more. We’ll also go over the basics of private student loans, including how they work, the pros and cons between private and federal student loans, how students can maximize both federal and private student loans and more.
Best Private Student Loan Lenders
We compared dozens of private loan providers and chose the top five to feature here. According to our research, the best private student loans for students include:
Rating
Minimum credit score
APR (both fixed and variable)
Check rate
College Ave
5/5 stars
Mid-600s
3.99% –14.96%
SoFi
4.5/5 stars
Mid-600s
4.49% – 14.75%
College Finance
3/5 stars
Sallie Mae
4/5 stars
Mid-600s
4.50% – 15.33%
Earnest
4.5/5 stars
650
4.49% – 13.95%
How Do Private Student Loans Work?
Private student loans differ from federal student loans because they do not come from the government. Your child’s school may also be a direct loan institution, which means that the school may offer loans directly to borrowers. Ask your child’s school if it offers loans directly.
You can submit applications through lender websites and must include the following:
Information about your child’s degree or program
The school your child plans to attend
The amount of money you need to borrow (your child must have qualified higher education expenses at an eligible institution)
Personal and financial information
Cosigner information, if applicable
Your child may have to be the age of majority in your state of residence (if not, your child may need a cosigner) and be a U.S. citizen, permanent resident or non-permanent resident alien. Your child may also have to be enrolled at least half time in a degree-granting program.
Your child can borrow up to their school’s cost of attendance in private loans, minus other financial aid earned. Individual lenders may have limits for the amount of money your child can borrow.
Your child will face limits on federal student loan amounts. For example, dependent students may not qualify for more than $5,500 in their first year and no more than $3,500 of this amount may be in subsidized loans. Dependent undergraduate students run into an aggregate loan limit of $31,000; your child cannot get more than $23,000 of this amount in subsidized loans.
In contrast, the application process differs for private student loans versus federal student loans. You or your student must file the Free Application for Federal Student Aid (FAFSA) to qualify for federal student loans. Federal student loans come from the U.S. Department of Education through the William D. Ford Federal Direct Loan (Direct Loan) Program. Direct loans include Direct Subsidized loans, Direct Unsubsidized loans and Direct PLUS loans:
Direct Subsidized loans: Undergraduate students who demonstrate financial need may receive the Direct Subsidized Loan to help pay for college or career school. The federal government pays the interest on Direct Subsidized loans while you’re in school.
Direct Unsubsidized loans: Graduate and undergraduate students can tap into unsubsidized loans, which means that the government does not take care of the interest while you’re in school.
Direct PLUS loans: Parents of undergraduate students can help pay for cosmetology students’ education with a Direct PLUS loan. Parents will have to undergo a credit check.
Private student lenders may require you to make payments while you are still in school and can have variable or fixed interest rates. Federal interest rates are always fixed. This means that federal student loans may be more predictable when your child repays them.
Federal student loans typically carry lower interest rates than private student loans and private loans also cause you to lose out on income-driven repayment plans and other perks such as public service loan forgiveness, which means you do not have to pay your student loans after a certain period of time.
Federal vs. Private Student Loans
One of the best ways to compare federal and private student loans involves looking at the pros and cons of both. So, what are the pros and cons of federal vs. private student loans? Let’s take a quick look.
Pros of Federal Student Loans
Let’s take a quick look at a few benefits of federal student loans first.
Fixed interest rates: Federal student loans offer fixed interest rates. This means that when your child repays their loans, they know what interest rate to expect. Fixed interest rates never change, while variable interest rates change.
Payments not due while in school: Federal student loan repayment doesn’t begin until after you graduate, leave school or enroll in school below half-time.
Lower interest rates: Your student will typically pay lower interest rates for federal student loans compared to private student loans. However, it’s a good idea to compare several options to check on the costs.
Subsidized options: You can qualify for subsidized federal student loans, which means that the government will pay the interest while your child attends school.
Tax deductible interest: Interest may be tax deductible on a federal student loan.
Repayment plans: You may choose from several repayment plans for federal student loans, including income-driven repayment plans. Also note that if your child decides to pay off a student loan early, they won’t pay a prepayment penalty.
Loan forgiveness and consolidation: Your child will have many federal loan perks, including forgiveness (in which they may not have to pay back loans, such as if they choose to work in public service) and consolidation, which means combining at least two loans into one loan and getting a new interest rate.
Cons of Federal Student Loans
What are the downsides of federal student loans? You may have heard that you should take out federal student loans before private student loans, but you should still consider all angles of federal student loans before you borrow.
Borrower limits: Your child cannot borrow an unlimited amount with federal student loans. As your child becomes a first-year through fourth-year college student, they can borrow progressively more. They will face an aggregate loan limit that they cannot go over for both undergraduate and graduate school.
No subsidized loans for graduate students: Graduate students cannot tap into Direct Subsidized loans, which means the government will not pay the interest while your student is in school. Graduate students must also pay a higher interest rate for their federal student loans.
Not all institutions participate: Not all educational institutions that distribute Title IV student aid funds, which means that your child’s school may not offer federal student loans.
Hard to discharge: It is extremely difficult to discharge federal student loans. If your child defaults or cannot repay federal loans will not get away from them through bankruptcy. In short, it’s really hard to discharge student loans, including through Chapter 13 or Chapter 7 bankruptcy.
Pros of Private Student Loans
The benefits of private student loans include the following:
Fills in the gaps: Private student loans can fill in the gaps between the sticker price of a college, financial aid your child receives and federal student loans. When your child has unmet need, private loans can take care of the rest.
Unlimited borrowing: Generally, you can borrow up to the cost of attendance in private student loans, minus financial aid.
Tax-deductible interest: Interest may also be tax deductible on private student loans.
May have lower interest rates: You may find that certain private loans have lower interest rates than graduate and parent loans, particularly with regard to graduate and parent loans through the Department of Education.
Cons of Private Student Loans
The downsides to private student loans include:
No access to federal protections: Your child will not have access to federal income-driven repayment or loan forgiveness options with private student loans. They also wouldn’t be subject to orders from the federal government to cancel student debt.
Based on creditworthiness: Qualifications for private student loans are based on creditworthiness, which means that you or your student must undergo a credit check. Lower credit scores combined with lower income can result in a higher interest rate. Your credit score is a three-digit number that ranges from 300 – 850 and summarizes how well you have paid back debt in the past.
No federal subsidies: The federal government will not pay the interest on a private student loan like the federal government does with a subsidized student loan.
How Are Private Student Loan Interest Rates Determined?
If you take out a private student loan, you must repay it with interest. Private student loan interest rates are based in part on your credit score (as a cosigner) or your child’s credit score. The higher your credit score, the lower your interest rate may be.
Your child may have the option for a fixed or variable private loan interest rate. A fixed interest rate stays the same throughout the life of the loan, while a variable interest rate changes depending on an underlying benchmark index rate. Variable interest rates are usually based on the Secured Overnight Financing Rate (SOFR) index rate. As the interest rate changes, your monthly debt payment could go up and/or down due to the changes in the index rate. Interest rates typically include the base rate, the lender’s policies and you or your child’s credit history. To break it down even more, they are based on fixed margin, or the lender’s decision about your ability to repay the loan — this part of your loan doesn’t change. The variable part of the interest rate changes, and that part is based on the interest rate index.
Ask private lenders about the total cost of the variable interest rate you’ll pay and also compare these rates to current federal student loan interest rates, currently first disbursed on or after July 1, 2022 and before July 1, 2023.
Loan Type
Borrower Type
Fixed Interest Rate
Direct Subsidized loans and Direct Unsubsidized loans
Undergraduate students
4.99%
Direct Unsubsidized loans
Graduate or professional students
6.54%
Direct PLUS loans
Parents and graduate or professional students
7.54%
Note that private student loans list an annual percentage rate (APR), the annual cost of a loan to a borrower, including fees like loan origination fees. The interest rate doesn’t include these fees. You should always look at the APR of private loans, not just the interest rate.
How Can Students Maximize Both Federal and Private Loans?
Students can take advantage of both federal and private student loans by filing the FAFSA online at fafsa.gov or complete a FAFSA PDF and mailing it in. You can also apply for private student loans on a lender’s website.
Students can generally borrow up to the cost of attendance for private student loans, minus financial aid. The first step involves filing the FAFSA, which you can do in a few simple steps (you can do it for your student or your student can do it by themselves):
First, create an account with a username and password, called an FSA ID, and have the following information handy:
Social Security numbers for you and your dependent student
You can save time by using the IRS direct retrieval tool (DRT), which automatically transfers tax information onto the FAFSA. Note that you can’t see the exact data for security purposes; you’ll see the words “transferred from the IRS” in the appropriate fields.
Maximizing both federal and private loan options also involves understanding the annual loan limits for federal student loans.
Loan Types
Maximum Annual Limits
Undergraduate students
Direct Subsidized loans and Direct Unsubsidized loans
Between $5,500 and $12,500, depending on year in school and dependency status
Graduate/professional students
Direct Unsubsidized loans (graduate students are not eligible for Direct Subsidized loans)
Up to $20,500 each academic year
You can add up the federal loans your child receives, as well as the work-study, scholarships and grants that make up their financial aid award. What is the gap between the amount of aid received and the amount still owed to the college?
Let’s use some fictitious numbers to illustrate the point. Let’s say your child receives the following:
$5,500: Federal loans
$9,500: Scholarships
$2,500: Work-study
$1,100: Grants
In this case, aid would amount to $18,600 in total. Let’s say that the cost of college is $25,000 (another fictitious figure). The gap between the cost and the award amount is $6,400, which means your child could then apply for a private loan to cover the rest of the costs.
Is a Private Student Loan a Good Option?
A private student loan can offer a wonderful opportunity to allow your child to achieve a college degree and their career ambitions.
However, it’s a good idea to consider all the angles of a private student loan, including the interest rate, loan limits, fees repayment penalty (the amount your child may have to pay if they pay off the loan before it’s due) and even customer service that the private lender may provide.
Consider encouraging your student to exhaust their federal student loan options first due to the federal protections they get with their federal loans, such as consolidation and loan forgiveness.
Your child can also drive down their interest rate with private student loans when they have access to a reliable cosigner with excellent credit. This could make federal student loans a great option.
How to Find the Right Private Student Loan
First and foremost, carefully compare options between private loan lenders, including repayment terms. You can help your child take the following steps to find the best student loans for college.
Step 1: Put together a lender list.
Help your child put together a lender list. Look at reputable companies known to support borrowers during repayment. You can eliminate any lenders that don’t line up with the eligibility requirements for your child’s particular situation.
Don’t forget to check with the financial aid office of the school your child plans to attend for a preferred list of lenders. Many institutions are direct lending institutions for college loans.
Step 2: Check the loan terms.
Loan terms tell you how long your lender expects you to pay back your debt. Unlike federal student loans, you do not get a standard repayment schedule for private student loans. Many private student loans give students 120 months (10 years) to repay their loans, but some private lenders allow a 25-year repayment term.
Also, find out what happens if you can’t make your payments. Private lenders don’t have forbearance programs if your child loses a job in the future, though the best loan providers for students may help out in a sticky situation.
Step 3: Get quotes and compare offers.
Prequalify with a lender next. Lenders will do a soft credit inquiry when they check your credit for prequalification, which doesn’t hurt your credit quite as much as a hard credit inquiry.
Next, compare offers to determine the lowest rate, best repayment term for your child’s situation, borrower protections and other benefits.
Step 4: Choose a lender.
Finally, choose a lender and complete an application using the lender’s process. Each lender will offer different instructions on how to get a student loan. Have items handy such as Social Security number, address, enrollment information in school, employment information, financial information, loan amount requested and financial aid information.
Every provider will have a different process on how to get a student loan. Most lenders will tell you the results quickly, but read the fine print before you make a final decision. Your child should have about 30 days to accept the loan offer and your lender should release the funds within weeks or months.
Can My Child Get a Private Student Loan without a Cosigner?
Eligibility requirements for a private student loan vary depending on your student’s lender and the loan you want to take out, but generally, your child will face limited options if they can’t get a co-signer.
How to Get Private Student Loans with Bad Credit
How might you help your student get student loans, even if you have bad credit? Naturally, you want to raise your credit score to increase your chances of cosigning a private student loan with your child. A couple tactics include paying off debt, making all payments on time and keeping your credit utilization low. Let’s take a quick look at all of these options.
Pay off debt: Having a lot of unpaid debt can affect your credit score. Paying off your debt may help raise your credit score and help you cosign a private loan with your child. You can benefit from paying off any debt you have, whether from your own student loans, credit cards, personal loans and more.
Make payments on time: Making payments on time can also increase your credit score for any loan you owe on. Setting up autopay on all bills can help you raise your credit score.
Keep credit utilization low: Your credit utilization ratio compares the amount of credit you use versus the amount of credit you have available. For example, if you have a credit card limit of $5,000 and use $1,000, in this particular instance, your credit utilization limit is 20%: $5,000/$1,000 = 0.20 x 100 = 20%. Try keeping this number below 30%.
You can’t pinpoint an exact time that your credit score will take an upswing, it’s always worth trying to make it happen so you can become a cosigner for your child.
FAQs
Let’s take a look at a few frequently asked questions about private loans for college.
What are the eligibility requirements for a private student loan?
Lenders each have their own eligibility requirements. In general, your child must be a U.S. citizen or permanent resident, attend school at least half time and qualify with a cosigner. Understand the risks before you become a cosigner, because you’ll need to make monthly payments on your child’s loan if they default on their loans. Getting a loan without a cosigner can cause your child to pay more in interest over time.
How do you find the best private student loan?
What is the best student loan? Shop around to find the best private loan. Check on interest rates, fees, customer service, ratings among current customers, repayment options, including repayment flexibility and more. The private loans that have the lowest interest rate and most favorable customer service options, fees and repayment options should catch your interest. However, consider having your child take advantage of federal student loans first, which usually offer more repayment perks and lower interest rates.
Do private student loans have fees?
Private student loans can come with fees, such as the origination fee (the amount your child pays to to take out a loan, which is the percentage of the loan fee), the application fee (the fee charged to process your application), late payment fee (the fee your child pays if they don’t make on-time payments) and prepayment penalty (the fee for paying off the loan early). Make sure your child can pay the loan off whenever they want.
Methodology
Here’s how College Money Tips chose the best private student loan lenders: We reviewed interest rates, repayment options, loan amount options, cosigner details, fees, Better Business Bureau (BBB) rating, customer service and other benefits. We aggregated the data based on all of these factors and made decisions based on top scores in each category.
Private student loans are a type of loan that undergraduate and graduate students can use to pay for college. Unlike federal student loans, which come from the federal government (the Department of Education, to be specific), private student loans come from private lenders.
It may seem like a daunting task to understand the concept of private vs federal student loans, especially for 18-year-old high school students. In this piece, we’ll do just that. We’ll walk through the definition of a private student loan, help you get a sense of who can get a private student loan, how much you can borrow, interest rates on private student loans and more.
Let’s get started so you and your student have a better answer to “What is considered a private student loan?”
Private Student Loan Definition
What’s a private student loan? Private student loans come from a private lender such as a bank, credit union or online lender — not the federal government. The private lender sets its own terms and conditions for the private student loan. The application process also looks different for private student loans compared to federal student loans. You don’t file the Free Application for Federal Student Aid (FAFSA) to get a private loan — you fill out an application on the lender’s page.
So, what exactly are the differences between private loans and federal student loans? It’s a great question. The federal government sets forth the terms and conditions of federal student loans and often come with more federal protections, such as in federal income-driven repayment plans. You do not get federal protections with private student loans, though private student loan lenders may consider your situation if you’re having trouble making payments.
In another example of additional perks, in the case of Direct Subsidized loans, the government pays the interest while you’re in college, a feature that private lenders don’t offer.
What are private loans and federal loan similarities and differences? Let’s take a quick look at federal and private loans definition and compare private vs federal student loans side by side below.
Feature
Federal Student Loans
Private Student Loans
Repayment
Not due until after you graduate
May require payments when you are in school, but most allow you to wait until you are no longer in school.
Interest rates
Fixed interest rate (stays the same); may be lower than private loans
Variable (changing) or fixed; which may be higher or lower than federal student loans
Required credit check
No
Yes, in most cases
Postponement options
May be able to temporarily postpone or lower your payments using federal protections
May be able to arrange postponement or lowered payments through your lender
Repayment plans
Repayment plans available, including income-driven repayment plans and standard 10-year repayment plans
May offer more flexible repayment plans; check with your lender
Prepayment penalties
No prepayment penalty
There may be a prepayment penalty; check with your lender
Loan forgiveness
Loan forgiveness programs available through the federal student loan program
Many private lenders do not offer loan forgiveness
Who Can Get a Private Student Loan?
Students and parents can both qualify for private student loans. For example, if you want to help your child pay for college, you can co-sign a private student loan. Typically, undergraduate students will need a cosigner to get a private loan. As a cosigner, private lenders may require you to get your credit score checked to prove your creditworthiness and verify that you have regular income coming in.
If your student is a graduate student, a private lender may grant them a private student loan in their own name. As a graduate student, a private lender may be looking at your student’s credentials, such as income and credit score.
Parents may even be able to get a lower interest rate on private student loans compared to the Parent PLUS loan, a type of federal student loan that parents can borrow to help pay for a child’s education. They come with origination fees that add to the total loan amount, which could potentially cost more over time.
How Much Can You Borrow in Private Student Loans?
Your student can’t borrow as much as they want with federal student loans. However, private lenders allow your child to borrow up to the full cost of attendance (tuition, room, board and fees) as well as other expenses such as books, computers, transportation and living expenses such as rent for an apartment. They do need to meet all lender borrowing requirements, however.
In comparison, undergraduate students may only take out $57,500 in federal student loans (and students can use no more than $23,000 in subsidized loans). Graduate and professional students can only take out a max aggregate amount of $138,500 for graduate or professional studies (with no more than $65,500 of this amount in subsidized loans), which includes all funds from undergraduate studies as well.
If the full cost of an undergraduate institution costs $63,000 per year, you can see how federal student loans might have their limitations and require you to take out private student loans to fill in the gaps.
What Are Interest Rates on Private Loans?
What exactly does “interest rate” mean? The interest rate is the amount the lender charges a borrower for the privilege of borrowing from them. The lender charges an interest rate as a percentage of the amount borrowed.
Unfortunately, there’s no “one rate” that categorizes private loans — they range considerably, from just over 3% to 12% and more. It’s important to consider the interest rates on private loans among various lenders.
Private loans may be higher or lower federal loan interest rates, depending on credentials. You can get a private student loan interest rate lower than federal interest rates.
Unlike federal student loan interest rates, which stay the same (called a fixed rate), private lenders often offer both fixed and variable interest rates. A variable interest rate means that the interest rate changes throughout the life of the loan.
How to Consider Private Student Loans
We’re going beyond the answer to “what are private student loans?” in this section! How do you consider all of the above factors and choose the right route? Let’s chat about it.
Step 1: Understand financial aid awards.
Instead of comparing and contrasting loan interest rates, one of the most important things you should do is understand how a financial aid award works. Financial aid awards all look different from school to school, and it’s a good idea to understand what must be repaid versus what doesn’t. In other words:
Does not need to be repaid:
Scholarships
Grants
Must be repaid with interest:
Federal loans
Private loans
Must be earned:
Work-study
Understand the differences between all the components of each line of every financial aid award so you can help your child make a great decision about private versus federal student loans they will take on.
Look into every aspect of every type of loan on the financial aid award. For example, let’s say your child receives $2,000 in Direct Unsubsidized loans and $3,500 in Direct Subsidized loans. What are the loan fees? What is the interest rate? (Currently, loan fees are 1.057% for these loans and interest rates are 4.99% for undergraduates.)
Step 2: Shop around.
In most cases, all the shopping you’ll have to do stops right at your child’s school. They will likely offer a reputable lender list and help you decide on a recommended selection.
Look into a variety of private lenders to compare all the features — interest rate, repayment structure, fees, borrower protections, whether there is a credit check, prepayment penalty — everything! Check with your local bank, look at online lenders, etc. Ask all the questions you can think of and more.
Note that the higher your credit score and income, the more likely you’ll get a lower interest rate. You may be able to snag a lower interest rate than those offered by the federal government through federal student loans.
Look into at least three different lending institutions so you have a healthy comparison.
Step 3: Know the process to get a private student loan.
How do private student loans work? You and your child will apply on the lender’s website at no cost to you, fill out information such as address, Social Security number, enrollment information, requested loan amount, financial information (you will, too, if you’re a cosigner), employment history and choose interest rate type and repayment preferences.
The lender will review you/your child’s credit, approve the application and choose the interest rate and repayment option. You and/or your child will accept the loan terms and sign. Once completed, your lender will check into your eligibility, including eligibility for enrollment and the full cost of the school.
Step 4: Consider refinancing for later.
Remember that if you and your student can’t get a great interest rate on a private loan now, you can always refinance down the road and get a lower rate. Refinancing means replacing one or all of your loans with a new loan with a private lender. It’s worth reminding your student again (when the time comes) that she will lose the federal protections and federal repayment options of federal student loans when she refinances.
You cannot refinance a federal loan into a federal loan. You can only refinance from a federal student loan into a private student loan. Note that your child will also have to offer proof of regular income and a higher credit score in order to refinance.
How Long Does it Take to Pay Off a Private Student Loan?
Unlike federal student loans, private student lenders do not offer a standard repayment schedule. However, many private lenders offer the same repayment schedule — 120 months (10 years) to repay. Some private lenders will allow you to extend your payments, potentially up to 25 years.
Understand Private Loans Ahead of Time
It’s a good idea to compare and contrast all the benefits of private loans for your child’s situation and all the various ways you can get college paid for. Get a feel for how private loans can offer your child the best benefits. Will they fill in the gaps that scholarships, grants and loans can’t cover? Will you try to fill in some gaps as well?
Paying for college can seem like a giant puzzle, but it’s important to figure out how each piece fits into the picture.
FAQs
Let’s take a look at a couple of frequently asked questions that digs deeper into answering the question, “What is a private loan?”
How do you know if loans are private?
You’ll know if loans are private if they don’t come from the federal government. Once you and your child file the FAFSA, they will show up on the financial aid award at every school your child applies to in the form of a “Direct Loan.” Private loans will not show up on financial aid awards, which means that you and your child can work with the school’s financial aid office to choose the right private loan.
Is FAFSA a private student loan?
No, the Free Application for Federal Student Aid (FAFSA) is a free application that you fill out that enables your child to qualify for federal financial aid, including grants, loans and work-study.
Have you ever gone to bed worrying about college money? Paralyzed, gripped by the all-consuming question: “How will I pay for this?”
I can help you.
What you might not realize is that the ways to get college paid for doesn’t just involve one approach.
Often, paying for college is like a puzzle. Or a pizza.
You pay for college using lots of different sources — need-based aid, merit-based aid, outside scholarships, etc.
Well. Let’s not list it all out here. Let’s dive in and go over the puzzle pieces, one by one.
1. File the FAFSA.
The Free Application for Federal Student Aid (FAFSA) gives you major access to scholarships and aid. You can file the FAFSA starting on October 1 of your child’s senior year. The first thing you need to do is get an FSA ID for both you and your student.
You can choose any of these methods to file a FAFSA form:
Get a print-out of the FAFSA PDF by calling us at 1-800-4-FED-AID (1-800-433-3243) or 334-523-2691 (TTY for the deaf or hard of hearing 1-800-730-8913). You can mail it in instead.
The FAFSA qualifies you for not only federal student aid, the FAFSA is used to determine your eligibility for certain state and college and university financial aid. Your FAFSA information is shared with the colleges and/or career schools you list on the FAFSA.
2. File the CSS Profile.
What’s the CSS Profile?
It’s one of the best ways you can get aid for college. The College Scholarship Service (CSS) Profile is a private independent survey you fill out through a nonprofit organization, the College Board. Nearly 400 universities rely on the CSS Profile to award your kid scholarships and other non-federal financial aid.
What does your child get from filing the CSS Profile? The application could help your child secure institutional scholarships as well as grants or student loans from the federal government.
What colleges accept the CSS Profile?
Great question. Check out the list of participating colleges and universities. The list includes colleges and universities that use CSS Profile as part of their financial aid processes for some or all of their financial aid applicants. Check schools’ websites or contact the institution’s financial aid office for more information.
Unlike the FAFSA, which is free, It costs $25 for the application and one report to a school. You’ll pay $16 for each additional report.
The CSS Profile gathers information about your family’s annual income as well as medical expenses and anything else that could affect your ability to pay for college — it takes a deeper dive into families’ finances than the FAFSA.
Note: Divorced parents must complete the CSS profile separately.
3. Explore your options for merit aid.
You’ll run into a lot of myths about aid. Let’s take a machete to these harmful myths:
My kid has to be a genius to get money from a college or university.
Students must be incredible athletes to receive money.
It takes an exhaustive search of scholarships don’t have to look any further than the college or university your child is looking into.
Did you know that there’s unlimited merit aid from schools around the country? Merit-based aid is aid not based on financial need. Instead, it’s based on items like grade point average, test scores and specific talents.
Let’s look at one school for an example. I’m going to adopt my cousin’s alma mater, St. Olaf, for a second, and show you the merit-based scholarships available there:
The Buntrock Scholarship (a renewable award of $25,000 per year) recognizes students with outstanding academic accomplishment and exemplary achievement across many facets of the high school experience.
The Presidential Scholarship (a renewable award of $23,000 per year) recognizes salutary academic achievement.
The Dean’s Scholarship (a renewable award of $21,000 per year) recognizes a strong and sustained academic achievement.
The Faculty Scholarship (a renewable award of $19,000 per year) recognizes a balanced record of consistent academic achievement.
The St. Olaf Scholarship (a renewable award of $17,000 per year) recognizes academic achievement.
What would your child have to do to get these scholarships? Fill out the Common Application and include test scores, high school transcripts and letters of recommendation.
Simple.
As you can imagine, the highest scholarship amounts get offered to top students, but the lower-tier GPA and scores still get merit scholarships. As you can see, the “lower” tier totals $17,000 per year for four years.
That’s still a whopping $68,000 over four years for the lower-tier scholarships.
My point? Find out what your child can get for merit-based aid. Merit-based aid is also awarded to students who qualify for need-based financial aid.
4. Apply for outside scholarships.
Outside scholarships include private scholarships and cash awards. Encourage your child to go for those $100 scholarships — they add up.
Ask area high schools for graduation programs dating back up to four years ago. You can find the names of scholarships, Google them and ta-dah! Your kid’s got an abundance of choices.
Contact various civic organizations. Is your next-door neighbor a Kiwanis member? Your co-worker’s husband on the zoo board?
Talk to the company you work for. What types of scholarships does your company offer? Your partner’s? Your sister’s?
Scour emails from the guidance office. Gone are the days when a printed-out list of scholarships came from the guidance office. Unfortunately, it’s much more fleeting than that. Your child could see it on an email — then, blip — it’s gone. Ask for an email copy of these announcements, if possible.
Check social media. Social media is a great place to search for scholarships. You might join any number of Facebook groups or other social media groups that post scholarships. You can do a simple search and find scholarship groups.
Look at scholarship search engines. (I know, groan. When I was an admission counselor and offered this idea to parents, they always groaned, “There’s so many, they’re all competitive, they’re all national scholarships open to thousands of kids.”)
Don’t hastily dismiss! I suggest Googling “scholarships for writers,” for example. Use keywords to your advantage! And if your child doesn’t look like a match for a specific scholarship, reach out to the scholarship committee and ask if your child can apply anyway. Maybe he’s just missing one tiny requirement.
Also, encourage your child to continue to apply for outside scholarships throughout college. You can find so many scholarships even while your student’s knee-deep in scholarships.
5. Ask department heads about scholarships.
Yes! Don’t shy away from asking academic departments at schools about scholarships. Here’s how this can work:
“Dr. Fletcher, you’ve been a biology professor here at X College since 1975. You’ve got to know about some excellent scholarships in your department.”
“Why, as a matter of fact, we have three options for incoming freshmen.”
“One that would apply to my child’s deepening interest in European water voles?”
“Yes! How marvelous is this? My graduate research dabbled in voles.”
“What can we do to apply?”
“Here’s what you need to do…”
So, how can you do this if you’re not able to meet with professors in person?
Email is splendid. Communicate with these people! Build relationships! Do your best to communicate with these influential individuals ahead of time so you start to build relationships.
6. Pay for it on your own.
Remember how I mentioned that paying for college is a giant jigsaw puzzle? It’s also a subtraction problem.
Take the total cost and subtract small bits at a time to get your out-of-pocket cost at the end. It could look like this. (Note: these numbers are completely made up and geared more toward private college costs):
Total cost: $60,000
Merit-based Scholarships: $20,000
Grants: $2,000
Work-study: $2,000
Federal subsidized loan: $3,500
Federal unsubsidized loan: $2,000
Total out-of-pocket cost: $30,500
Outside scholarships: $10,000
New out-of-pocket cost: $20,500
See how we subtracted, subtracted, subtracted from that total cost to arrive at an out-of-pocket cost?
Check out the next part to see how you can further take that $20,500 and break it down.
7. Use a tuition payment plan.
Many people underestimate a tuition payment plan — or don’t know about it in the first place. You pay for college using your own money, but break it up into monthly payments.
Let’s take that $20,500 from above and break it into a 10-month payment plan.
Breaking it into a 10-month payment plan means you’ll pay $2,050 per month.
Check out the beauty of the next section!
8. Get creative.
Next, how can you get creative to pay for that $2,050 per month? Can you ask other people to pitch in — both sets of grandparents, your child (think work-study, summer earnings) and maybe an aunt or uncle want to help.
See, what usually happens is most people fixate on the $20,050 and can’t get beyond it. (Trust me, I saw it happen all the time in the admission office.)
Or, figure out what one person will pay you to do for $10. Then, do that 10 more times.
Am I advocating for a side hustle? Maybe! But this really could be an idea for more than a side hustle. It could be your full-time job, if that’s your passion. Save for college by making more money (it’s how I save for my own kids’ 529 plans). Ask yourself this question: What would someone pay you $10 to do?
What do you do better than everyone else? Cook fried chicken? Babysit? Walk chihuahuas? Write goofy ad copy?
Enhancing your skill set through online platforms can open up new avenues for funding your child’s education. Discover a variety of skills to learn online that can help you stand out in the crowd or enable you to start a profitable side hustle.
Do that one thing for that person, then do it 10 more times. Then do it again 10 more times. Maybe you’ll need to get help from others to help you! To be honest, it doesn’t matter what it is as long as it generates recurring income.
In general, it’s a simple way to think about how you could leverage your passions and talents to save for college. Then stuff the money you make into an ESA, 529 or custodial account.
Instead, take the break-it-down approach!
9. Have your child take out loans.
Okay, this may not be what you had in mind when you Googled “ways to get college paid for”… but you know what? It’s still a way to pay for college.
Loans have their place, and while you probably don’t want your child to take out loans for the full cost of his entire four (or more!) years of college, you can still strategize to figure out how loans fit into the jigsaw puzzle of the full financial aid picture.
In other words, if your child must take out loans, do it as conservatively as possible, in this order:
Take out federal loans.
Round out as much as you can with your own money.
Take out private loans as necessary.
10. Use life insurance.
This is a slightly more morbid way to handle paying for college because you and your spouse must die in order to get it. I know. I hesitated to stick this in here but today is the second anniversary of my father-in-law’s death and I decided to mention it.
If his kids had been in college when he died, my mother-in-law could have relied on his life insurance to pay for college.
The busy-as-a-squirrel retirement saver in me squeaks just a little bit when I suggest this option. It kind of feels like trying to say something while having my finger smashed in a drawer.
Why?
Because I really, really believe you must take care of your own retirement first before you worry about paying for college.
However, there’s no denying it: You can use your Roth IRA for both retirement and college tuition. You won’t pay withdrawal penalties with IRAs, including Roth IRAs, if the funds are used for qualified educational expenses — tuition, fees, books and room and board.
For most folks who are sending their kids off to college, only the contribution portions of their Roth IRA balances can be withdrawn tax-free. (Any earnings in the account will be taxable for those people under 59, as well as for those over 59½ who haven’t held the Roth for at least five years.)
But Roth IRAs enjoy a somewhat unique tax treatment. Withdrawals are treated as a “return of contribution” first and as earnings second.
Uh… English, please.
No problem. So, what this means is that if you’ve been contributing $4,000 per year for the past five years, you can withdraw $20,000 tax-free (as long as you use the money for tuition, fees, room, board, etc.)
What happens if your withdrawals exceed your total contributions?
They’ll be taxable for those under age 59½.
Just remember, always take care of yourself first. You can always borrow for college but you can’t borrow for retirement. If you’re a little thin on the retirement funds, be a busy squirrel and keep contributing to your Roth IRA!
Ways to Get College Paid for in Action
Don’t limit yourself or your child. So much goes into the process of learning how to pay for college.
Also — one more thing. Don’t stop figuring it out. Ever. This isn’t a process you quit as soon as your child is safely secured in his or her residence hall room on the first day of college. Keep looking for scholarships, keep side hustling, keep finding ways to make college work.
You don’t wanna do it. You’re dreading it. Almost as much as the Q4 proposal project at work. Or cleaning the garage. Or staining your broad-as-a-beach deck.
You. Just. Don’t. Want. To. Do. It.
So, how to make you feel better about the FAFSA? I wrote “Why is the FAFSA important?” the other day, then realized I didn’t dig deep into how you feel about this dreaded experience.
My bad. I spent so much time convincing you that you need to file that I forget everyone has a giant mental block about the thing.
Plus, most of this going-to-college business is so serious that it’s time to put the energy back into the college search.
Let’s try to trick your mind into thinking you’re having tons of fun! Stop saying, “But… it’s not!”
Who says the FAFSA can’t be fun?
1. Tell yourself, “It only takes 55 minutes.”
That’s the amount of time it takes to fill out the FAFSA. Just 55 minutes.
Only 55 minutes. You can do anything for 55 minutes. If you can work out for an hour (and put yourself through that torture daily — (let me tell you how much I dislike exercise!) you can file the FAFSA.
2. Do something enjoyable while you file.
Quick — what can you do while you file? Right off the top of my head:
Watch “Grey’s Anatomy” episodes (gosh, I love that show). Or, obviously, another show you find fun to watch.
Bake something that takes an hour (bread, a pie, etc.) and it’ll be doubly rewarding at the end of 55 minutes.
Self-pamper — glass of wine, mud mask, pedicure, etc. Might as well be relaxed as you sift through your 2019 tax information.
Relax in a lounge chair outside (as long as your papers won’t blow away… I swear, it’s like we live on the edge of a cliff on the edge of a violent ocean or on the top of a mountain, it’s so windy here. I’d never be able to work outside). If you can do it without chasing papers across your backyard, enjoy!
Go somewhere else. If you find it relaxing to go to the library or a coffee shop and remove yourself completely from the chaos at home, go for it.
Eat something enjoyable. Get takeout. A noodle bowl. A container of brownie cookie dough chocolate chip ice cream (that’s the kind my husband brought home the other night).
Obviously, you can’t summit one of Colorado’s fourteeners while you file the FAFSA, but why not watch your favorite movie? Slurp a mudslide?
Make it fun!
3. Get your partner or spouse on board. Or involve your child.
Okayyy, so this might not be the most relaxing idea ever. But at least you’ll have some company while you file, even if your go-to person isn’t that much help. (I keep thinking about all the moms and dads who do the FAFSA all by themselves every year. So sad!)
Make it a FAFSA date night! (LOL!)
4. Get some help.
Don’t even worry about trying to figure it out yourself. If you’ve never done it before, you can find someone at your state planning agency who can help you. (For example, if you live in Nebraska, you can have EducationQuest help you.) These agencies provide programs, tools and resources to help students and parents with all aspects of planning and preparing for the academic, social and financial aspects of life after high school.
5. Think past the gargantuan task of filing the FAFSA.
Focus on the first thing you must do first — turning on the computer, then going to the website and log in. When you start to think about the FAFSA as a whole, that’s when you might feel like you’re choking or not getting enough air.
6. Watch videos to get you geared up.
EducationQuest offers some great videos to show you how to file the FAFSA. They take you step by step through each FAFSA section. Watching them helps you realize the FAFSA is easy-peasy, pumpkin squeezy (something my seven-year-old daughter says).
After you watch the videos, just make sure you actually do the FAFSA next.
7. Think of all the scholarships and other financial aid your child will get.
Is that not motivation enough? Filing the FAFSA is the way to get the most federal money you possibly can.
And if that isn’t enough, check out the Scholarship System’s list of scholarships. It’s an excellent, comprehensive list, and the Scholarship System even has a fantastic list of scholarship websites to boot!
8. Zoom with a friend and do it together.
Chances are, you’ve got a friend who also has a child going off to college. Set up two screens — Zoom on one, FAFSA on the other. Chat happily away as you fill out the FASFA, line by line. Warning: You’ll have so much fun you won’t get done in 55 minutes.
9. Get prepared.
There’s nothing worse than scrambling for documents when you’re trying to fill something out. You’ll need a few things before you get started, including your:
FSA ID: See why it’s a major bonus to get the FSA ID ahead of time so you don’t have to wait when you’re ready to file?
Social Security numbers: You’ll need both your student’s and your own Social Security number to fill out the FAFSA form.
Driver’s license number: Don’t worry about this step if you don’t have a driver’s license number.
2019 tax records: You always work two years backward on the FAFSA. On the 2021–22 FAFSA form, you report your 2019 income information.
Untaxed income records: Gather information about child support, interest income, veterans’ non-education benefits and more. Again, you’ll need your 2019 tax information.
Assets: Gather information about your money — savings and checking account balances, stocks, bonds, secondary real estate and more.
List of schools your child may attend: Add any college (you can list up to 10!) your child is considering, even if your child hasn’t applied for it yet. The FAFSA form will automatically send your FAFSA results electronically to those schools.
10: You can speed it up! (Whew!)
Use the IRS Data Retrieval Tool (DRT) to make the FAFSA a breeze. The DRT allows you to securely transfer original IRS tax return information using the FAFSA’s easy-to-use prompts.
Note: Not everyone is eligible to use the IRS DRT. Furthermore, the IRS DRT does not input all the financial information required on the FAFSA form. Make sure you have your 2019 tax return and 2019 IRS W-2 available as a backup.
How Else Can You Make it More Fun?
Again, do you need to fill out the FAFSA?
YES.
There’s no reason it has to be un-fun. Just do it, get it over with, submit it to those schools.
Maybe you’ll come out of the process smelling like lavender with perfectly manicured nails. Or with messy hair — because you file the FAFSA on the beach.
Oooh, friends, the FAFSA opens October 1. The Free Application for Federal Student Aid (FAFSA), used to calculate something called the expected family contribution (EFC), measures a family’s financial strength and eligibility for financial aid.
Once, Mr. Donelson, my student Chris’ dad, swaggered into my office and said, “We don’t file the FAFSA. I make too much money.”
Not one to meekly say, “Okay, it’s your choice,” I took a wild gamble, knowing full well my boss would have a coronary. I said, “Sir, how close are you to retirement?” (It was a gamble because I wasn’t sure if he was actually close to retirement or not.)
“A year, tops.” (Whew.)
“How many kids do you have in college right now?” (I already knew that answer.)
“After Chris, we’ll have four in college all at the same time,” he said proudly.
“Did you know the FAFSA takes those factors, like time to retirement and kids in college, into consideration?” I asked politely.
“Hmmm,” he responded.
He filed the FAFSA and I’m happy to tell you that his son received federal aid, including work-study. He worked in our admission office as a tour guide and was a total rock star.
Why is the FAFSA important? I’m so glad you asked.
1. You’ll find hidden secrets.
Actually, these secrets — not so hidden. But you won’t know unless you file. Everyone should file the FAFSA! Even if you can fill an Olympic-sized pool with all of your $100 bills, you should file the FAFSA. As I shared with Mr. Donelson, there’s more that goes into the expected family contribution, or EFC, than just parent income.
Your family’s taxed and untaxed income, assets and benefits (such as unemployment or Social Security) chips into the formula. Also rolled into it: Family size and the number of family members who will attend college or career school during the year.
2. Your child can qualify for federal aid.
Your child will not get federal aid if you don’t file the FAFSA. Completing this form is the only way to receive state and federal financial aid.
The U.S. Department of Education uses the FAFSA to determine your eligibility for federal student aid. This includes low-cost loans, grants and work-study.
3. You might have to do it for your child to qualify for other aid.
Put federal student aid to the side for a sec. The FAFSA may also determine your student’s eligibility for other forms of financial aid through the state, the college and, sometimes, private scholarships.
By the way, I wholeheartedly recommend checking out the Scholarship System’s free webinar. It is excellent at helping you navigate scholarships!
4. Your child can get work-study.
I mentioned this already but I think it deserves a second mention. Federal work-study is a way you can earn money while your child works a part-time on-campus job. (You may be able to get off-campus jobs as well.) Not every school participates in the Federal Work-Study Program, so ask whether colleges your child wants to attend participate.
Colleges offer a specific amount of funds to each eligible student. Students receive money based on the hours they work, very similar to other hourly jobs.
5. You might have to do it anyway.
Depending on where your child goes to school, completing the FAFSA is a prerequisite for high school graduation. Check with your student’s guidance counselor for more information.
6. Most students qualify for federal loans.
Never, ever, ever, ever EVER take out private student loans before federal loans. Private loans have high interest rates and lack the consumer protections that federal student loans include.
The Institute for College Access and Success reports that 47 percent of private loan borrowers could have used more affordable federal loans. By completing the FAFSA form, you can make sure your student takes advantage of the best student loan options.
7. You don’t have to accept all aid.
Completing the FAFSA does not obligate your child to accept student loans or any other form of financial aid. So, for example, let’s say your child gets:
Scholarships
Federal student loans
State grants
Federal work-study
You and your child can decide you want the scholarships and grants (free money) but don’t want the federal student loans (must be repaid).
Many families think they have to take everything the student gets awarded — but that’s just not true!
8. Your child may leave money on the table.
Take a wild guess at the percentage of high school graduates who completed the FAFSA in 2014.
Only 44 percent.
All that money — unused! It means billions of dollars left on the table.
9. Situations change.
What happens if you experience a change in income? You’ll be glad you filed.
Situations change. Unfortunately, jobs get lost, people pass away, etc. Your financial situations can change. Remember, you can always appeal for more aid every year.
Just because your student doesn’t receive financial aid one year doesn’t mean that he or she can’t get it another year.
10. It’s free.
Note the “Free” in “Free Application for Federal Student Aid.” It costs exactly no money to apply, and more importantly, you don’t have to pay anything to find out whether your child is eligible for federal aid.
11. It’s easy.
It’s no longer the behemoth it once was. (I remember my dad spending hours hunched over the paper version when I was in college.) Now, it takes just 55 minutes to fill it out. That’s less than the time it takes to order and eat a pizza. That’s less than an entire Netflix episode.
12. You can gather just a few materials to fill it out.
What materials should I gather in advance before starting the FAFSA?
Social Security Number for both parents and students.
Both parents and students need this information for the FAFSA form.
Driver’s license number (if you have one).
Your 2019 tax records for the 2021–22 FAFSA form. You report your 2019 income information on this year’s form.
Records of untaxed income, such as child support, interest income, and veterans’ non-education benefits.
Your assets (money) from savings and checking account balances, investments and real estate, though you don’t include your primary residence.
List of the school(s) on your child’s list. Add any college your child’s considering, even if you haven’t applied or been accepted yet. You can list up to 10 schools at a time on the FAFSA.
13. It (could) ensure your child goes to college.
Ninety percent of high school seniors who complete the FAFSA proceed directly to college, versus only 55 percent who don’t complete the FAFSA, according to the National College Access Network (NCAN).
14. You can fill it out early — then relax.
Fill it out as soon as possible! Even if you don’t know which school you plan to attend. You can always add various schools’ FAFSA code to your already-filled out FAFSA as the year progresses. So, let’s say you file the FAFSA on October 1. You add three schools that you want the FAFSA to be sent to, then you become interested in another school in November. You can log back in and have it sent to that school as well.
It’s also okay to add a school to the FAFSA that you decide later on that you won’t apply for.
15. It helps schools that also require the CSS profile to understand your full financial picture.
What’s the diff between the FAFSA and CSS Profile? The FAFSA awards families with federal grants, scholarships and student loans, while the CSS helps schools award non-federal institutional aid.
Filling out the CSS Profile does not take the place of the FAFSA. Rather, it is an additional application for non-federal financial aid.
Schools that require the CSS typically meet 90 to 100 percent of family need and package their financial aid with institutional grant money.
The CSS has some significant differences from the FAFSA, in particular the way it calculates certain assets.
Examples:
The FAFSA considers cash gifts as a part of parents’ total assets.
FAFSA looks strictly at numbers such as income and family size, so families must discuss personal situations and hardships directly with schools.
The CSS counts cash gifts as parental income, which decreases a dependent student’s eligibility for aid.
The CSS takes a closer look at family finances than the FAFSA does.
The CSS evaluates a family’s medical bills and school costs for younger children, among other factors, to determine a family’s expected contribution.
For some students, this could mean more financial aid opportunities are available through the CSS.
You Want the Best Shot Possible
The FAFSA is important, even if you’re not sure what will come of it. File it anyway. You don’t want to be wondering “what could have been.”
The FAFSA gives your child the best possible chance of receiving federal aid. Don’t leave money on the table. Like Mr. Donelson, it might make you wonder why you ever doubted it in the first place.
An Overview of Need-Based Financial Aid
