Five Financial Literacy Questions & Answers For Students

1. In January, college-bound students will begin completing the FAFSA. What does “FAFSA” stand for? What is the website used to complete this application?
Free Application for Federal Student Aid - Fafsa.ed.gov (do NOT use Fafsa.com – this site charges you to complete the FAFSA)

2. The FAFSA generates a number called your “EFC”. What does “EFC” stand for? 
Expected Family Contribution – this is a measure of your family’s financial strength and is calculated according to a formula established by law.

3. What does it mean to default on your student loan? 
To “default” means you failed to make your payments on your student loan as scheduled according to the terms of the binding legal document you signed at the time you took out your loan. If you fail to pay back your loans on time then you will most likely get a negative credit rating which could make it difficult to borrow money in the future for a house or car.

4. What does it mean to defer your loans? 
Deferring on a loan allows you to temporarily postpone making your student loan payments or to temporarily reduce the amount you pay; however, you’ll typically need to pay the accumulating interest on these loans.

5. What is the main difference between a subsidized and unsubsidized loan? 
The main difference between subsidized loans and unsubsidized loans is that the federal government pays the interest on subsidized loans during periods of authorized deferment, such as the in-school and economic hardship deferments, while the interest remains the responsibility of the borrower on an unsubsidized loan. This makes subsidized loans a less-expensive option for students.