I know what you are probably thinking, “why would a site devoted to helping students find scholarships and avoiding student debt want to even mention the possibility of filling out the Free Application for Federal Student Aid (FAFSA),” an application that forms the basis for the student loan programs offered by the Department of Education. In addition to qualifying you for federal loan programs, filling out the FAFSA is important for two additional reasons. First, based on your financial situation, you may qualify for a Federal Grant. Second, you may need to submit a copy of your Student Aid Report to a potential scholarship opportunity. Since using the FAFSA for loan purposes is always a last resort option, I will discuss Federal Grants and the Student Aid Report (SAR) prior to student loans.
While I tend to focus on scholarships as a means to pay for school without incurring student loan debt, Federal Grants are just as helpful, providing a sum of money that does not have to be repaid. Contrary to scholarships, which have a variety of factors that play into the decision making process, grants are needs-based awards. There are multiple grant options, but all of them are predicated on your submission of the FAFSA. Once you submit your FAFSA and obtain your SAR, you can work directly with your school’s Financial Aid Office to determine your eligibility and the amount of your award. While you may not qualify for a grant, a second reason to complete your FAFSA is so that you can obtain a copy of your SAR.
I have not had to fill out a FAFSA since my senior year of college, all the way back in 2001. For the past eight years, I have attended an institution that does not participate in the federal loan program. This means that I am unable to apply for a loan or a grant through the Federal Student Aid Office. Yet, in 2014, I filled out the FAFSA because a potential scholarship requested a copy of my Student Aid Report (SAR), a report that is generated based on the answers from the FAFSA. So, even if you know that you do not qualify for grants based on your income, it is good to complete the FAFSA so that you have your SAR handy in the event a scholarship opportunity requires it. Unfortunately, most students are not submitting the FAFSA with the expectation of being awarded a grant, or the potential need for the SAR, but because they are looking to fund part of their education through student loans.
While I wish that student loans were unnecessary because every student could find a way to fund their degree debt-free, it is not the case. For this reason, student loans may be a component of your overall payment system. Notice that I said component. What I mean is that it can be one of the myriad of ways (along with grants, scholarships, parental contributions, employment) by which you pay for your education. I firmly believe that student loan debt should not be relied upon for the totality of your educational expenses and should be avoided if at all possible. If a loan is necessary, all other funding options should be exhausted prior to taking a loan. Moreover, when a loan is taken, the minimum amount needed to pay for your educational expenses should be borrowed. Just because there is a maximum amount allowed does not mean that you need withdraw it. In addition to being a component of your payment system, it can also be a stop-gap as you await other funding opportunities.
There are times when a tuition bill is due prior to a funding source’s distribution. In such an instance, a federal student loan would be more beneficial than using your credit card or taking out a private loan. Once the funds are received, you can use those funds to pay off your loan balance. This is preferable due to the difference in interest rates between a federal loan and that of a private loan or credit card.
In next week’s post, I am going to discuss the difficult topic of funding decisions. I hope to demonstrate that the funding options you choose matter and may create severe financial implications in the short and long term.
For more information on the Free Application for Federal Student Aid, check out the government’s website at: www.fafsa.ed.gov