Every college-bound student and their parents should know how the Free Application for Federal Student Aid (FAFSA) process works. It makes sense for all families with a college-bound person to fill out the FAFSA Form.

Regardless of your household income, you can be eligible for some type of financial aid like:

  • State financial aid
  • Federal financial aid
  • Merit-based scholarships
  • School-based financial aid

  Fast Facts:

      • Many families are eligible for some kind of federal financial aid for college.
      • A student with exceptional financial needs may qualify for need-based financial aid like subsidized loans and federal grants.
      • Other students can qualify for non-need-based financial aid like unsubsidized federal loans.

How Does The FAFSA Work?

“The FAFSA is a form that students or their families use to apply for financial aid for college from the federal government.”

Individual colleges, private scholarship programs, universities, and states rely on the information provided in the FAFSA application. The main purpose of the FAFSA is to evaluate how much financial aid a student qualifies for, which includes:

  • Need-based financial aid
  • Non-need-based financial aid

The information you provide in the application determines whether you are eligible for need-based financial aid, non-need-based financial aid, or both. The FAFSA determines your eligibility for:

  • Federal work-study
  • School-based merit aid
  • Subsidized federal student loan, which is need-based financial aid
  • State-based financial aid, which includes loans, grants, and scholarships
  • Unsubsidized federal student loan, which is non-need-based financial aid
  • School-based financial aid, which includes need-based grants and scholarships
  • Federal need-based grants, including Federal Supplemental Educational Opportunity Grants and Pell Grant

FAFSA asks questions about the student’s and parent’s income, assets, and other factors to determine a family’s financial need. It is accompanied by an Expected Family Contribution, which indicates how much of the college’s cost the family should pay with its own resources.

The Expected Family Contribution (EFC) will be renamed the Student Aid Index (SAI) in July 2023 to clarify its meaning. EFC doesn’t indicate how much the student will have to pay for college. Colleges use it to determine how much student aid the applicant can receive.

FAFSA estimates that 5.64% of the parents’ assets and 20% of the student’s assets will be available for spending in one college year when it comes to assets. These assets include investments and bank accounts. But, they exclude any equity in the family house. They also exclude:

  • Annuities
  • Life insurance policies 
  • Value of retirement accounts

Filling out the FAFSA Form will be easier from July 2023 for the 2023-2024 academic year. The FAFSA has been trimmed from 108 questions to about three dozen.

Need-Based Financial Aid Vs. Non-Need-Based Financial Aid

Need-Based Financial Aid Non-Need-Based Financial Aid
  • Federal Pell Grants
  • Federal Work-Study
  • Federal Direct Subsidized Loans
  • Federal Supplemental Educational Opportunity Grants
  • Federal Plus Loans
  • Direct Unsubsidized Loans
  • TEACH (Teacher Education Access For College And Higher Education) Grants

Need-Based Financial Aid

1. Federal Work-Study

The Federal Work-Study program makes paid part-time jobs available for students through participating universities and colleges.

Both graduate and undergraduate students can qualify for it. Federal loans (subsidized or unsubsidized) offer more flexible repayment options and are less expensive than private loans.

2. Federal Pell Grants

Grants do not have to be repaid. Pell Grants are mainly awarded to undergraduates. However, some teacher certification programs are also eligible. They are meant for students with exceptional financial needs.

For the 2020-2021 academic year, the maximum award is $6,345. A university or college’s financial aid office evaluates how much money students can receive based on their:

  • Family’s EFC
  • School’s Cost of Attendance (COA)

3. Federal Direct Subsidized Loans

The government subsidizes these loans. It means that you don’t have to pay interest on them while you’re in school or during a six-month grace period after you graduate. 

The Federal Direct Subsidized Loans are not available for graduate study. Loan amounts that can be subsidized range between $3,500 and $12,500 per year, depending on:

  • Your year in school
  • Whether you’re considered a dependent or independent student

4. Federal Supplemental Educational Opportunity Grants

The Federal Supplemental Educational Opportunity Grants (FSEOG) also don’t have to be repaid. But, they are only available at specific schools. 

The amount of these grants range from $100 to $4,000 per year. These supplemental grants are intended for students with few financial resources.

Non-Need-Based Financial Aid

1. Federal PLUS Loans

The Federal PLUS Loans are meant for parents or graduate students. The government doesn’t subsidize these loans.

So, the interest accrued over the college years will be added to the principal if the student doesn’t pay it while they are in school.

2. Direct Unsubsidized Loans

Unsubsidized loans are similar to subsidized loans, with one exception. The exception is that the government doesn’t pay interest on the loans while the student is in school or during a six-month grace period afterward.

If the students or their parents don’t pay the loan interest during this period, it’ll be added to the principal of the loan. Regardless of the family’s financial situation, schools may offer these loans as a part of a financial aid package.

Dependent students can be eligible for a maximum of $31,000 in unsubsidized loans during their undergraduate years unless their parents are not eligible for Federal PLUS loans. In this case, the limit may be higher.

3. Teacher Education Access For College And Higher Education (TEACH) Grants

As of 2020-2021, students training to become teachers can qualify for TEACH grants up to $4,000 per year. They can be eligible even if they don’t meet the criteria of need-based financial aid.

To qualify, the student within eight years of graduation must have worked for at least four years in:

  • An elementary or secondary school
  • Educational service agency that serves low-income families 

The student must also take specific classes to qualify. TEACH grants don’t need to be repaid unless the student doesn’t fulfill the requirements. In this case, the grant will be converted into a direct unsubsidized loan.


Many families, regardless of their income or assets, will find it helpful to fill out FAFSA. If you’re ineligible for free money in the form of scholarships or grants, you’ll still qualify for non-need-based financial aid. Generally, federal student loans offer various flexible repayment options and have more favorable terms than loans from private lenders.