Your financial aid guide: What are your options?

Apply for the most favorable student financial aid options first, so you can graduate with the least amount of debt possible.

College can be expensive, so many students include financial aid as part of their college savings plan. Study your options first, and then take a systematic approach when you apply. Here’s what you need to know to guide your financial aid decisions.

Grants and scholarships: Go for the free money first

Grants and scholarships should be your first stop when looking for financial aid because, unlike loans, you don’t have to repay them. These funds can come from federal programs, state agencies, colleges, nonprofits, or private organizations.

While both terms are often used interchangeably, they have distinct differences:

• Grants are usually need-based.
• Scholarships are typically merit-based, focused on academic or extracurricular achievements.

Start by contacting your school’s financial aid office or researching national and local funding opportunities. Applying early and often is key, as many awards are distributed on a first-come, first-served basis.

Federal student loans: A flexible second option

If grants and scholarships come up short,federal student loans can help fill the gap. These loans offer:

• Lower interest rates compared to private loans.
• Flexible repayment terms.
• Potential deferment options.

One important detail to keep in mind is that most federal loans start accruing interest upon disbursement—even if payments are deferred until after graduation. For example, if you take out a $20,000 loan at 5% interest, the balance will grow to around $24,300 by the time you graduate from a four-year program. Borrow only what you need to minimize your debt burden later.

Big changes to Federal Aid calculations

As of 2024, the Expected Family Contribution (EFC) has been replaced by the Student Aid Index (SAI). Here’s what you need to know about this new measure:

• The SAI determines your financial need more accurately, particularly for students in high-need households. For some, the SAI may even calculate as a negative number, increasing access to aid.
• Family size and federal poverty levels now play a bigger role in Pell Grant eligibility, making it more inclusive.

FASFA updates you should know

Completing the FAFSA (Free Application for Federal Student Aid) is a critical step toward receiving financial aid. Recent changes have made the FAFSA process simpler and more accessible.

• Streamlined process: Previously, the form required up to 108 questions to be completed, but now, it’s reduced to just 36.
• Direct data import: The FAFSA now imports tax information directly through a secure data exchange with the IRS, saving time and effort.
• New timeline: The 2025-2026 FAFSA will open on or before December 1, 2025, instead of the usual October 1 date. Plan accordingly to avoid delays.

Expanded Pell Grant eligibility 

The Pell Grant, a crucial source of federal aid, has seen notable updates:

• Eligibility restoration: Students impacted by school closures or misleading practices are now eligible for restored Pell Grant access.
• Support for single parents: The new SAI formula offers enhanced support for single-parent households, including a higher Income Protection Allowance.

EUpdates on income-driven repayment plans (IDR)

Significant changes have been made to income-driven repayment plans, offering new considerations for borrowers:

• The SAVE plan (formerly known as REPAYE) received legal challenges, causing some features to temporarily pause. Borrowers currently enrolled in SAVE are in general forbearance status, with interest starting to accrue on August 1, 2025.
• Loan forgiveness pause: Forgiveness under the SAVE, PAYE, and ICR plans is temporarily on hold due to court actions. However, the IBR Plan remains available for forgiveness processing.

Borrowers aiming for Public Service Loan Forgiveness (PSLF) can switch to eligible IDR plans to continue progress or take advantage of the “buy back” credit option. This allows qualifying payments to be retroactively applied for forbearance or deferment periods under specific conditions.

Smart repayment strategies

Repaying student loans is a responsibility that follows you beyond graduation. Setting up a strategy early can make the process manageable:

1. Budget wisely: Create a repayment savings buffer. Consider setting up a designated savings account where automatic transfers align with your payment schedule.
2. Explore forgiveness programs: Federal loans offer pathways to forgiveness for public service workers, teachers, and more. Research eligibility early.
3. Understand your options: Familiarize yourself with different repayment plans, including standard, graduated, and income-driven options.

Bottom line: A college education might be the most important investment you’ll ever make — the one that unlocks your future earning potential — but student loans should be used wisely. Stay informed, start early and leverage new changes in policy and processes to maximize your opportunities. Only borrow as much as you need, and don’t overleverage yourself.

Continue reading to learn more about paying for education.