Which of the following is TRUE about the Free Application for Federal Student Aid (FAFSA)?

Which of the following is TRUE about the Free Application for Federal Student Aid (FAFSA)?

A. Schools use it to determine a student’s eligibility for private loans.

B. Schools use it to determine a student’s eligibility for subsidized loans.

C. Schools use it to determine a student’s eligibility for unsubsidized loans.

D. Schools use it to determine a student’s eligibility for merit-based scholarships.

Answer: B. Schools use it to determine a student’s eligibility for subsidized loans.

The Free Application for Federal Student Aid (FAFSA) is one of the significant papers used by colleges or universities in examining a student’s qualification for different federal aid such as subsidized loans. Federal direct loans are of two types namely subsidized loans the government pays the interest on the loans for the duration when the learner is in school, during the grace period as well as the deferment period.

The FAFSA form once completed by a student contains; personal and financial details about the student and his/her family. Schools apply this data to compute the student’s EFC and their financial situation. Subsidized loans are dependent on the student’s economic ability to repay the loans hence they are granted to those with the highest ‘needs.

For instance, if a student deems his/her cost of attending an institution to be $20,000 then his/her EFC is $5,000 then his/her financial need is $15,000. The school may then opt to give a subsidized student loan as one of the things to be given when awarding financial aid in an attempt to meet this need.

However, it is also relevant to point out that the FAFSA serves as the basis to assess eligibility for unsubsidized loans (option C); although these loans are offered to all students who apply for them because they do not depend on the applicant’s financial needs. The FAFSA is applied to federal loans but not to private loans, which go to option A or merit-based scholarship, which is normally given depending on performance and other factors and not financial need, which we find in option D.

The FAFSA primarily determines the amount of subsidized loans which is very important to many students since such loans have a lower interest rate than most other loans.