How does FAFSA work?

how does fafsa work

The federal government offers students the Free Application for Federal Student Aid, also known as the FAFSA. The FAFSA helps connect students in financial need to federal loans and grants based on their eligibility criteria. It is an online form that usually takes a few hours to complete and asks for information about you, your finances, your residency status, and the school you plan to attend. 

Are you looking to attend college or university and unsure how you are going to pay for everything? Private loans such as personal loans which can be secured loans or unsecured loans, are available. But are there other options? Thankfully, the U.S. Department of Education may be able to help you pay for college. 

Here, you’ll learn everything you need to know about the FAFSA, the difference between subsidized and unsubsidized loans, and more! 

What You Need To Know About the Free Application for Federal Student Aid (FAFSA)

Most community colleges, universities, and other institutions of higher education accept the FAFSA. Many of them may require FAFSA documents before they will consider a student for any other type of financial aid or scholarship, it’s a good idea to fill out the FAFSA application regardless of your financial status. 

Usually, awards for FAFSA are distributed on a first-served basis, so the sooner you complete your FAFSA application, the better. 

It’s also important to keep in mind that the FAFSA does not always grant students free money. While there are grants and scholarships that don’t need to be repaid, other loans do. The largest federal grant program available to undergraduate students is the Federal Pell Grant program.1

The amount of financial aid awards students receive after they complete the FAFSA form will depend on financial circumstances like: 

  • Income of both the student and their family. 
  • How many children or dependents are in the student’s immediate family. 
  • The cost of attendance at the college or university the student plans to attend.
  • Any outstanding financial circumstances the student deems necessary to explain on their FAFSA student aid report, such as homelessness. 

It might be helpful to know that 36.7% of undergraduates each receive an average of $8,285 in federal loans annually while 42.0% of undergraduates each receive an average of $5,179 in federal grants.2

Qualification for Federal Financial Aid 

How do students qualify for a financial aid package? Most students will need to meet the following basic requirements to be eligible for federal financial aid:

  • Since the FAFSA is used to help students pay for higher education at a college or university, applicants will need to have a high school diploma or equivalent. Completing a high school education under the guidelines of the student’s state homeschooling programs is also acceptable. 
  • The applying student must also have received acceptance to a college or university that accepts the FAFSA form. The student may be enrolled in a regular undergraduate program or an eligible degree or certificate program. 
  • The student must also have a valid Social Security number, unless that student is from the Republic of Marshall Islands, Federated States of Micronesia, or the Republic of Palau. 
  • In some circumstances, students may also have to maintain satisfactory academic progress in order to hold onto any federal or state-based financial aid they may receive. 

What Determines Eligibility to Receive Federal Student Aid?

How does a student loan work? The amount of financial aid awarded to a student will depend on factors like their Expected Family Contribution (EFC), Cost of Attendance (COA) which determines school-based aid, as well as their general financial situation. The financial aid office will ultimately determine a student’s eligibility for financial assistance. 

  • To finalize how much financial aid a student will receive on their award letter, the office of financial assistance will take the COA and subtract the EFC. This comparison will help the financial aid department determine the federal need-based grants, loans, and/or scholarships a student may be eligible for. 
  • Next, a counselor will then take the COA again and subtract the amount of need-based aid awarded. This comparison will determine if the student is eligible for any non-need-based aid. 

If you are unhappy with the amount of financial support you are granted, you can always try talking with them to negotiate your student loan debt

Parent and Student Income Explained

The first piece of financial information required on FAFSA forms is the income of both the applying student as well as the family’s income. Generally, low-income families are eligible for more financial assistance than students from higher-income families. 

Usually, the federal government will expect at least 20% of a student’s income to contribute to their higher education. For parents and guardians, they are expected to contribute approximately 5.64% of their total income.

How Many Children Are in Your Immediate Family/Household 

When you fill out your financial help form, there will be a space to mark how many children are in your family. This information will help determine what is called your Expected Family Contribution, also known as your EFC. 

While this name may sound misleading, your EFC is not how much your family is expected to contribute towards your education expenses but rather how much money the government may grant you based on how many dependent students or individuals are in your immediate family or household. 

To clarify the name, the EFC will be changed to the Student Aid Index as of July 2023. 

Cost of Attendance (COA) Explained 

The cost of attendance will help determine how much school-based financial aid a student will receive. Factors that contribute to a student’s COA are: 

Expense TypeDescription
General Tuition ExpensesCosts associated with tuition and academic fees.
Room and Board or Living ExpensesExpenses for students not using campus housing.
Education SuppliesCosts for books, supplies, transportation, and more.
Childcare AllowanceAdditional allowance for students with dependents.
Disability-Related CostsExpenses related to pre-existing disabilities.
Study-Abroad Program CostsReasonable costs for qualifying study-abroad programs.

Types of Federal Student Loans and Grants

Based on the information filled out on your federal student aid form, you may be eligible for one or more federal financial aid packages. Below is more information on some of the financial aid programs and federal grants you may be eligible for after filling out the FAFSA form. 

Need-based Financial Aid

The first type of federal student aid distributed is need-based financial aid. 

Federal Pell Grant

One of the most sought-after types of financial aid is the Federal Pell Grant. This federal grant does not need to be repaid, making it a very alluring option for most students. Pell Federal Grants are designated for students with “exceptional financial need,” meaning they either come from extremely low-income families or are dealing with extreme circumstances that make paying for college difficult or impossible. 

Furthermore, the Pell Grant is typically awarded to students looking to earn their undergraduate degree. 

Federal Supplemental Educational Opportunity Grants 

Similar to the Federal Pell Grant, a Federal Supplemental Educational Opportunity Grant also does not need to be repaid and is meant for students with “exceptional financial need.” However, this specific grant type is only available at certain colleges and universities. 

Subsidized Federal Student Loans 

A subsidized loan means the student does not have to pay interest on the loan while they are in school. Also, there is a grace period after graduation that exempts former students from having to pay back interest on their federal student aid. But, after that grace period ends after graduating, the student will have to start making payments on their loan. 

Subsidized loans may range anywhere from $3,400 – $12,500 a year depending on factors like: 

  • If you are an independent or dependent student. 
  • Your COA. 
  • Your EFC. 
  • Income. 

Subsidized student loans are only for undergraduate students, and they are not available for students going to graduate school. 

Federal Work-Study 

Another type of need-based federal student aid is the Work-Study program. Under this program, students may get a job on campus where their earnings can go directly towards their tuition costs. Some Work-Study programs even allow students to keep a portion of their wages and have the rest go straight to the school for tuition payments. 

Non-need-Based Federal Student Loans

After students have been awarded their need-based financial aid package, financial aid offices will then decide how much non-need-based funding students are eligible for. 

Unsubsidized Federal Student Loans 

Unsubsidized loans are loans students have to pay interest on while they are in school. While this may seem like a bit of an inconvenience, unsubsidized loans may have a lower interest rate than subsidized loans, making them a slightly more affordable option. 

Federal PLUS Loan

Federal PLUS loans are meant for parents going back to school or graduate students. This type of loan is not subsidized, so interest accrues while the parent or graduate student is in school. Students can either choose to have the interest added to their principal or pay it off while in school. 

Teacher Education Access for College and Higher Education (TEACH) Grants 

The Teacher Education Access for College and Higher Education Grant is designed for students who are working toward becoming a teacher. To qualify for this aid, students must be enrolled in certain classes and have worked for at least four years in an elementary or secondary school or educational service agency geared toward lower-income students and families. 

If these requirements are fulfilled, the TEACH grant does not need to be repaid. If a student fails to meet the requirements of a TEACH grant, their funding will be converted to a direct unsubsidized loan. 

Actually Filling Out the Fafsa Application Form

Now that you know more about FAFSA itself, here we will now talk to you about actually filling out the FAFSA form. The form itself is pretty simple it will ask about:

  1. Your personal and financial information
  2. Information on the school you plan to attend (your application will go to the school’s financial aid office)
  3. Questions about your residency status for financial aid eligibility 

If it’s your first time filling out an application, it may be a little daunting, because getting things correct is extremely important! It is highly recommended that you create an account, as it will allow you to do things electronically and can help prevent mistakes. If you need help filling out a form, online resources are available! 

If you have previously filled out a FAFSA form and made an account, you will be able to access that information, which can make the process faster and easier. 

Create an FSA ID 

To create an ID you will need to have your social security number, birthdate, name, and other personal information. When you go to fill out or check on your FAFSA application, you can use this ID or use your personal information to login as well. 

Gathering The Required Documents

You’ll need some documents with you when you are ready to start filling out an application. Here is what is recommended that you should have with you:

  • Your social security number—ensure that you enter it exactly how it is on your card. 
  • If you are a dependent student, then you will also need to have your parent’s social security number. 
  • If you have one, your driver’s license number.
  • If you are not a U.S Citizen, then you will need your Alien Registration Number (it should be on your permeate resident card/green card),
  • Federal tax information, tax documents, or tax returns, including IRS W-2 information, for you (and your spouse, if you are married), and for your parents if you are a dependent student:
  • IRS Form 1040
  • Foreign tax return or IRS Form 1040-NR
  • Tax return for Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federated States of Micronesia, or Palau
  • Documentation of your non-taxable earnings, including child support received, interest earnings, and benefits for veterans unrelated to education, for both you and your parents if you’re a student reliant on them.
  • Information about your money, such as savings, investments, real estate, etc. 

Signing, Submission, and Next Steps 

Once you fill out your Fafsa form, you will have to sign and submit it. Using your FSA ID to sign will usually ensure the fastest process. Although you can sign electronically, you also have the option to print it out, sign it, and mail it. 

Once this part of the process is done, you should see a confirmation page, if you gave an email address on your form, a confirmation should also be emailed to you. You can check on the status of your application once you submit things, at Usually a Fafsa application takes about three to five days to process when submitted electronically and can take seven to 10 days when mailed in.  

There are some next steps that you should be aware of with your federal student aid. You’ll have a few possibilities with status, some of them may require further steps from you. Here are the possibilities you’ll be able to see for your application’s status:

  • Processing — This means that your application is still being processed, you won’t need to do anything else just yet. 
  • Processed Successfully — This means that your application was processed successfully and you do not need to take any further actions. 
  • Missing Signatures — This means that you forgot to sign, and you will need to go back into your application and do so. 
  • Action Required — If you get this as your status, you will have to contact your school to resolve the issue.

Receiving and Reviewing the SAR (Student Aid Report)

The SAR is a summary of the information you submitted in your FAFSA report. You should receive this report within three days up to three weeks after submitting your FAFSA. It is extremely important that you review the SAR to check for any mistakes on your application. You can correct any mistakes on your SAR by going online. 

Keep in mind that the SAR will not provide you with the amount you will receive on your FAFSA or anything else of that sort, to reiterate, it is simply a summary of the information that you submitted on your FAFSA application. 

Your SAR will also let you know about whether you need further verification. If so, all you have to do is provide the documentation that the school asks for.

FAQS: How Does FAFSA Work? 

What is the difference between the FAFSA and the SAR?

The FAFSA is the application form that students fill out to apply for federal financial aid. Once submitted, the information from the FAFSA is processed, and students receive the SAR, which is a summary of the data they provided on the FAFSA.

When is the soonest date I can fill out the FAFSA and what is the deadline to submit my application?

Generally, applications open on October 1st and close on June 30th.

If I didn’t qualify for college financial aid one year, is it worth applying again the next year?

Yes, financial situations can change, and eligibility criteria might differ from one year to the next. It’s always recommended to apply annually to see if you qualify.

What happens if I miss the FAFSA deadline?

Missing the federal deadline might make you ineligible for federal aid for that academic year. However, states and colleges have their own deadlines, and you might still be eligible for non-federal aid.

Are there any alternatives to FAFSA for financial aid?

While FAFSA is the primary application for federal student aid, students can also explore scholarships, state-specific financial aid programs, and private loans as alternatives or supplements to FAFSA-based aid.

What distinguishes Federal Direct Subsidized Loans from other student loans?

A Federal Direct Subsidized Loan is a need-based loan where the U.S. Department of Education pays the interest while the student is in school at least half-time, during the grace period (typically the first six months after leaving school), and during any deferment periods. 

This makes it different from unsubsidized loans, where the student is responsible for all the interest that accrues from the time the loan is disbursed. The “subsidized” aspect of the loan is designed to help students with financial need afford higher education.

How does school-based merit aid differ from the federal loans or help provided through FAFSA?

School-based merit aid is awarded by individual colleges or universities based on a student’s academic, artistic, or athletic achievements, rather than financial need. 

The Bottom Line With CreditNinja: Federal Aid 

To get the best student loans—which are federal loans, it’s essential to fill out your FAFSA before the financial aid deadlines, regardless of whether you are a dependent or independent student. If you don’t, you may have to wait until the following academic year until you can utilize this government funding. 

Remember, you can always refinance your student loan debt should you find it too difficult to handle in the future. Also it’s important to educate yourself on student loan forgiveness and student loan forgiveness scams. To learn more about student loans, parent PLUS loans, other ways to finance your education, or finances in general, check out CreditNinja’s blogs! 


  1. Fast Facts: Financial aid | NCES
  2. Fin. Aid Stat |
  3. An Ultimate Guide to Understanding College Financial Aid | U.S. News
  4. Types of Financial Aid: Loans, Grants, and Work-Study Programs | The U.S. Department of Education
  5. The US Department of Education offers low-interest loans | The U.S. Department of Education
  6. Eligibility for Federal Student Aid | The U.S. Department of Education
  7. What are the deadlines for filling out the FAFSA ® form? | The U.S. Department of Education
  8. Federal Work-Study jobs help students earn money to pay for college or career school | The U.S. Department of Education
  9. Federal Student Aid Estimator | The U.S. Department of Education
  10. What is the net worth of your investments? | The U.S. Department of Education
  11. Wondering how the amount of your federal student aid is determined? | The U.S. Department of Education
  12. The FAFSA Simplification Act | U.S. Congress
  13. How to Review and Correct Your FAFSA® Form | Federal Student Aid
  14. Filling Out the FAFSA® Form | Federal Student Aid

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