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Need Based Student Loans

Once you enter all your information into the Free Application for Federal Student Aid (FAFSA), what exactly happens to determine what you may be eligible for? Where do the amounts come from?

Many students have this question from the time of initially completing their FAFSA, which calculates an Estimated Family Contribution (EFC).

The EFC will then determine each student’s remaining need, and therefore, their eligibility for need-based loans.

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What is an Estimated Family Contribution?

The EFC is a number that is supposed to represent the amount that the family would be able to contribute for the education. The EFC is subtracted from the student’s cost of attendance – the amount remaining is considered the student’s need.

***Cost of Attendance (COA): The cost of attendance is a calculation of a student’s estimated cost of being enrolled.

The COA includes both direct costs and indirect educational expenses. Direct costs would include tuition, books, lab fees, and activity fees. Indirect costs would include transportation costs, housing, and other living expenses. The cost of attendance can be calculated using estimated costs based on averages, or on actual charges per the individual student.


Cost of Attendance

– Estimated Family Contribution

= Remaining Need

To use an EFC Calculator visit https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator.

There are two ways in which the EFC can be used to determine eligibility, the federal methodology and the institutional methodology.

Federal Methodology

Federal methodology determines what federal eligibility you may have based on your expected family contribution.

Institutional Methodology

Institutional methodology determines what additional institutional eligibility you may have based on your expected family contribution.

What if you feel that your Estimated Family Contribution does not accurately depict your financial situation?

Contact the financial aid office at your institution to find out if your situation might be able to be submitted for a review of special circumstances.

Need-Based Loans

After determining any possible federal or institutional grants and scholarships, the remaining need in the formula above can be filled by need-based student loans for those who qualify.

Two types of need-based federal loans are the Federal Perkins Loan and the Federal Subsidized Stafford Loan.

Federal Perkins Loan

The Federal Perkins Loan program is a campus-based aid program, intended for students with high financial need. That means not every school will be eligible for the Perkins loan program, and that the institution will have some discretion in the awarding of the Perkins loan, including the amount.

It also means that students who are Federal Pell Grant eligible will be given the first priority to become recipients of a Federal Perkins loan as well.

The Perkins loan is subsidized, meaning that no interest is charged to the borrower while they are in school at least half-time, in a grace period, or in-deferment status.

Undergraduate students, who are pursuing their education and eligible for a Perkins loan, can be eligible up to a maximum of $5,500 per year. The grace period is 9 months after graduation (or after the student is no longer enrolled at least half time) until the Perkins loan goes into repayment, with a maximum of ten years to repay the loan and a minimum payment of $40 per month. The interest rate for a Federal Perkins Loan is 5%.

Federal Subsidized Stafford Loan

The Federal Subsidized Stafford Loan program is a need-based program where students are not responsible for paying the interest that accrues while they are in school. The government subsidizes that interest on behalf of the student (thus, subsidized loan). The grace period for the Federal Subsidized Stafford Loan is 6 months after graduation (or after the student is no longer enrolled at least half time).

Standard repayment for the Federal Stafford Subsidized Loan is a ten year repayment plan with a minimum payment of $50 per month.

For the 2015-2016 FAFSA award year (from July 1, 2015 to June 31, 2016), the interest rate for Federal Subsidized Stafford Loan is 4.29%  for undergraduate students and 5.84% for graduate and professional students.

Non-Need Based Loans

Non-need based loans, such as the Federal Unsubsidized Stafford Loan, Federal Plus Loan and Private Loans, are options to be considered as well, once all need-based eligibility has been exhausted.


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