Federal Student Aid Q & A
By: Financial Hotline
Winter 2025 (Vol. 42, No. 4)
Q: My son will be entering college in the fall. What’s the first steps for finding federal loans and student aid?
A: Your first order of business is to go to www.StudentAid. gov and complete your Free Application for Federal Student Aid (FAFSA). This application can help you determine your eligibility for aid including federal grants, work study funds and loans. In addition, many states and colleges use your FAFSA information to determine your eligibility for state and school aid. Use the Federal Aid Estimator and Loan Simulator tools to get a better idea of what your aid package will look like. Submit your FAFSA application as early as possible as aid opportunities can run out of funds if you wait too late. The StudentAid.gov site is also the best resource for information on federal loans and grants. The site can help you determine what aid you are eligible for and offers counseling for different types of loans.
Q: What is the difference between Direct Subsidized Loans and Direct Unsubsidized Loans?
A: Both are federal student loans offered by the U.S. Department of Education (ED) to help eligible students cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school.
In short, Direct Subsidized Loans have slightly better terms and are available to help out undergraduate students who demonstrate financial need. Your school determines the amount you can borrow, and the amount may not exceed your financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you’re in school at least half-time, for the first six months after you leave school (referred to as a grace period*), and during a period of deferment (a postponement of loan payments).
By contrast, Direct Unsubsidized Loans are available to both undergraduate and graduate students and there is no requirement to prove financial need. Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive, and you don’t get any help with the interest payments. You are responsible for paying the interest on a on your loans during all periods.
During periods of time when you are not required to make payments—such as while you are in school, in a deferment, or in a forbearance—your interest will accrue (accumulate) and it will in certain instances be capitalized (which means that your interest will be added to the principal amount of your loan). Whether your unpaid interest capitalizes or not, you are still responsible for paying the interest that accrues. You can always choose to pay the interest that accrues even when you are not required to make a payment.
Your school determines the loan type(s), if any, and the actual loan amount you are eligible to receive each academic year. However, there are limits on the amount in subsidized and unsubsidized loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits). The actual loan amount you are eligible to receive each academic year may be less than the annual loan limit.
These limits vary depending on what year you are in school and whether you are a dependent or independent student. For example, if you are a dependent student whose parents are not eligible for a Direct PLUS Loan, you may be able to receive additional Direct Unsubsidized Loan funds.
Q: How is a grant different from a loan?
A: Federal Grants do not have to be repaid (except under certain circumstances) Currently the Federal Pell Grant is typically awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree. Additionally, you may be eligible to receive a Federal Pell Grant if you are confined or incarcerated and enrolled in an approved Prison Education Program, or are subject to an involuntary civil commitment upon completion of a period of incarceration for a forcible or nonforcible sexual offense. You can only receive Federal Pell Grant funds one school at a time.
The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program provides grant funds to students enrolled in an eligible program of study at a participating school. TEACH Grant recipients must teach full time for at least four years in a high-need field at a low-income school or educational service agency.