Guide to Financial Aid – What is the College Financial Aid Process?

College Financial Aid GuideWhat is the College Financial Aid Process?

Written by: Steve Wynne of Credit Union Student Choice

When it comes to college, and especially paying for college, it can be hard to know where to start. There are so many different programs and different titles floating around, it can make anyone’s head spin. I can’t tell you how many times someone has asked me to explain the federal loan program to them. So don’t worry, you’re not alone! Here’s a little information about how the financial aid process works that (hopefully) helps stop your head from spinning.

The first thing to know is that there are many different loans available to help pay for college – federal, parent and private loans for example. For now, we’re going to focus on the federal side. There are a few different loan options to help cover the cost of college available from the federal government.

The federal government’s loan program for students and their families is called the Direct Loan Program which offers these different programs for parents and students.

  • Direct Subsidized Loan
  • Direct Unsubsidized Loan
  • PLUS Loan

Borrowing any of these direct loans can be an easy process if you prepare yourself in advance. Students and parents complete one application, the Free Application for Federal Student Aid (FAFSA). In order for a qualified student [] to get a loan through the federal government – the student must be planning on attending an accredited college that participates in the federal student loan program. You can use the FAFSA’s Federal School Code Search tool to see if your school is eligible.

Once the FAFSA is processed by the federal government, the student will receive their Student Aid Report – a document that gives you basic information about loan eligibility. This report will list the Expected Family Contribution – a dollar amount that guides a family on what they will be expected to cover in order to pay for college. Each student’s FAFSA information is also sent to the financial aid offices of prospective colleges that the student listed on the application.

I know what you’re thinking…this is a long process, but don’t worry, we’re half way there!

When financial aid offices receive your report, they draft an aid package, which will likely include a Direct Loan, and send that information to the student in the form of an Award Letter. Every college has a unique method of determining your family’s ability to pay for education. They will consider the data from your FAFSA and how the federal government calculated your expected family contribution (EFC). Now, when this number comes back, it can look scary, but we’ll help you figure out ways to reduce this number in later posts.

Since each school uses different methods and calculations, students will get different results on each award letter. That’s why it’s important to compare all the options side by side and make sure it’s comparing apples to apples.

After reviewing options, if the student decides to accept the Direct Loan, he or she must sign a loan agreement called a master promissory note. Just remember the financial aid office at the school determines how much a student can borrow based on the school’s cost of attendance– this is called certifying the loan amount. Since borrowing is directly through the federal government, borrowers make loan payments to the Department of Education for the life of their loans.

Now that you know a little bit more about the financial aid process, you can begin researching your options and make an informed decision about paying for college!

Need more info? Your credit union is a great resource for information on scholarships, grants, federal aid and additional resources to cover college costs – including saving in advance to reduce your loans! You can find a participating credit union by using our CU Select tool.


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