The Free Application for Federal Student Aid, or FAFSA, allows you to get free grant money and student loans to pay for your education. Student aid programs include the Pell Grant, SMART Grant, Academic Competitiveness Grant, the Federal Supplemental Educational Opportunity Grant, Perkins and Direct Stafford Loans. Filling out the FAFSA requires you to report your income and other information to determine how much of your college expenses the federal programs will cover.
Cost of Attendance
The amount of financial aid for which you're eligible is partly based on your school's cost of attendance. Assuming you're enrolled at least half-time, the cost of attendance includes an estimate or actual amount of your school's tuition and fees, the cost of room and board if you're living on-campus, and books, supplies and miscellaneous expenses like the cost for a personal computer. The COA includes an estimate for living expenses if you are housed off-campus, an estimate for dependent care, and costs related to a disability if you're disabled.
Student Aid Eligibility
The amount some federal student aid programs pay depends on your financial need as reported on the FAFSA. When completing the FAFSA, you report your income and--if a dependent--your parent's income. The FAFSA uses a formula to calculate your estimated family contribution, or EFC, the amount of money you're expected to contribute to your education. Financial aid administrators subtract your EFC from the school's cost of attendance to arrive at your financial need. The school then covers this financial need--up to maximum allowable amounts--with FAFSA grants, loans and other state and school aid.
Using Excess Funds
Some federal aid programs, like the unsubsidized federal Stafford loan program, do not require you to demonstrate financial need in order to receive them. In these cases, you can receive more aid than is necessary to cover your school's cost of attendance. When this happens, you receive the excess funds as a direct payment from your school after tuition, fees and other charges are deducted. You can use this money to pay for books, a computer, child care expenses and even rent and other living or personal expenses, depending on the rules of the student aid program of which you're a recipient and if you're required to report where you spent the money.
As a recipient of FAFSA grants, you don't need to repay any part of the money you receive. With federal loans, though, like the Perkins or Stafford loan, you must repay the amount you borrow. You do not have to make payments while attending school and receive a grace period of six months after you graduate before the loan enters its repayment period. For this reason, you want to borrow only the absolute minimum you need for tuition, books and--if living on-campus--room and board.