Higher Education Act of 1965: Aid, FAFSA, and Repayment

The Higher Education Act of 1965 is the federal law behind almost every dollar of financial aid a college student can receive from the U.S. government. It created the Pell Grant, the Federal Supplemental Educational Opportunity Grant, Federal Work-Study, and the Direct Loan program, and it set the rules that decide who qualifies, how much you can get, and what you have to do to keep it. You reach nearly all of that money through one form: the Free Application for Federal Student Aid (FAFSA).¹

Grants and Work-Study You Don’t Repay

The Federal Pell Grant is the largest of the aid programs and goes to undergraduates with exceptional financial need. It doesn’t have to be repaid.² For the 2026–2027 award year, the maximum award is $7,395 and the minimum is $740. Eligibility runs off your Student Aid Index (SAI), calculated from what you report on the FAFSA. If your SAI reaches $14,790 or higher, you generally won’t qualify for a Pell that year.³

The Federal Supplemental Educational Opportunity Grant (FSEOG) adds another layer for students with the lowest financial resources. Each participating school gets a limited FSEOG allocation and awards between $100 and $4,000 per year, with Pell recipients prioritized first.⁴ When the school’s FSEOG money is gone, that’s it for the year. Filing early matters.

Federal Work-Study offers part-time jobs to students with financial need, ideally in positions connected to your academic or career goals. At least 7% of each school’s Work-Study allocation goes to community service positions.⁵ You’re paid directly, and you can spend the earnings on any educational expense.

Federal Student Loans

When grants and work-study don’t cover the bill, the William D. Ford Federal Direct Loan Program lets you borrow. Every dollar has to be repaid with interest. Three loan types exist:

Direct Subsidized Loans are available only to undergraduates with financial need. The government pays the interest while you’re enrolled at least half-time, during the six-month grace period after you leave school, and during approved deferment.
Direct Unsubsidized Loans are open to undergraduates and graduate students regardless of need. Interest starts accruing at disbursement, so the balance grows in school unless you make payments.
Direct PLUS Loans go to parents of dependent undergraduates and to graduate or professional students. They require a credit check and carry a higher rate, but they can cover costs left over after other aid.

Rates are fixed for the life of each loan and reset yearly for new borrowers. For loans first disbursed between July 1, 2025, and June 30, 2026, the rates are 6.39% for undergraduate Direct Loans, 7.94% for graduate Direct Unsubsidized Loans, and 8.94% for PLUS Loans.⁶ Rates for 2026–2027 will be set after the spring Treasury auction. Annual limits depend on your year in school and whether you’re dependent or independent, and aggregate caps limit your total borrowing across all years.

Before your first Direct Loan disbursement, your school must confirm you’ve completed entrance counseling covering loan terms, interest accrual, repayment, and default consequences.⁷ It’s a one-time step for each loan type, not a per-semester chore.

Filing the FAFSA

The FAFSA is the single door to almost all federal grants, loans, and work-study. You file it every year, and the answers you provide produce your Student Aid Index. The SAI replaced the older Expected Family Contribution beginning with the 2024–2025 award year and directly drives how much aid you’re offered.⁸

What You Need Before You Start

Have your Social Security number ready (or Alien Registration number for eligible noncitizens) and a Federal Student Aid (FSA) ID, which is your legal electronic signature. If a parent or spouse contributes information, they need their own FSA ID. Under the FAFSA Simplification Act, federal tax data now transfers directly from the IRS into your application, so you no longer key in tax return line items.⁸ You’ll still report untaxed income and assets, including bank accounts and investments.

Dependent or Independent

Your dependency status decides whose finances count. Dependent students have to include parent income and assets, which usually reduces aid. You’re independent if you meet at least one of these: 24 or older by December 31 of the award year, married, a graduate student, a veteran or active-duty service member, have legal dependents other than a spouse, or were an orphan, ward of the court, or in foster care at age 13 or older. Paying your own bills or working full-time doesn’t make you independent on its own. Financial aid administrators can override your status for documented unusual circumstances such as parental abandonment or human trafficking.⁹

After You Submit

The Department of Education processes your FAFSA and produces a FAFSA Submission Summary, usually available within one to three business days.¹⁰ The summary shows your eligibility overview, the answers you gave, the schools you listed, and next steps. Your data also goes to each school you named so they can build an award package.

Some applications are pulled for verification, essentially an audit. If yours is selected, the financial aid office will ask for documents that back up what you reported. Miss the deadline and your aid can be delayed or blocked, so respond fast.

Keeping Your Aid

Approval is only the start. To keep federal aid year after year, you must maintain satisfactory academic progress (SAP) under your school’s policy. Every school in Title IV must set SAP standards at least as strict as the ones it uses for students not receiving federal aid.¹¹ Three pieces make up SAP:

Grade point average. You need a minimum GPA at each evaluation point. For programs longer than two academic years, you must have at least a C average (or equivalent) by the end of your second year.¹¹
Completion pace. You must successfully complete a minimum percentage of credits attempted. It’s cumulative, so withdrawn or failed classes follow you.
Maximum timeframe. For undergraduate credit-hour programs, you can’t exceed 150% of the published program length. A 120-credit degree caps your Title IV eligibility at 180 attempted credits.¹¹

If you fall below SAP, the school will usually place you on financial aid warning or suspension. Most schools accept appeals for extenuating circumstances such as a medical emergency or family crisis, and a successful appeal typically comes with an academic plan you have to follow to get back on full eligibility.

Withdrawing Before the Term Ends

If you leave school mid-term, a federal calculation called the Return of Title IV Funds kicks in. You earn federal aid in proportion to the time you were enrolled during the payment period. Withdraw after finishing 30% of the term and you’ve earned 30% of your disbursed Title IV funds; the other 70% has to be returned.¹²

The threshold that matters is 60%. Complete more than 60% of the payment period and you’re treated as having earned 100% of your Title IV aid, so nothing has to be returned.¹² The rule covers both grants and loans. The school handles part of the return, but you may owe money directly, and if the calculation shows you received more grant money than you earned, a grant overpayment has to be resolved before you can get any future federal aid.¹³

The calculation also runs when you unofficially withdraw. Stop attending without formally dropping and the school will use your last documented date of academic activity to run the same numbers. The financial hit can be identical.

Repaying Your Loans

Repayment begins after a six-month grace period following graduation, withdrawal, or dropping below half-time enrollment. The plan options have been reshaped recently.

Under a standard plan, you make fixed monthly payments over ten years. Starting July 1, 2026, a new Tiered Standard Plan offers fixed repayment terms of 10, 15, 20, or 25 years based on your total outstanding balance, giving borrowers with larger balances more time without income verification.¹⁴

Income-driven repayment (IDR) caps your monthly payment based on income and family size, forgiving any remaining balance after a set number of years. The Repayment Assistance Plan (RAP), available beginning July 1, 2026, is the new IDR option and replaces the defunct SAVE Plan.¹⁴ If you don’t actively choose a plan within your servicer’s transition window, you’ll be placed automatically in either the Standard Repayment Plan or the Tiered Standard Plan.

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) cancels the remaining balance on your Direct Loans after 120 qualifying monthly payments made while working full-time for a qualifying public service employer. The 120 payments don’t have to be consecutive. Qualifying employers include federal, state, and local government agencies, 501(c)(3) nonprofits, and certain public service roles in fields such as public health, education, law enforcement, and emergency management.¹⁵ Payments under income-driven plans, the ten-year standard plan, and the new RAP all count toward the 120.

A Note on Schools That Can Award Federal Aid

Not every school that calls itself a college can hand out this money. A school has to clear three checks to participate in Title IV: federal certification from the Department of Education, legal authorization from its state, and accreditation from a recognized accrediting agency. The Secretary of Education publishes the official list of recognized accreditors.¹⁶ The Department also evaluates whether an institution meets standards of administrative capability and financial responsibility under the eligibility rules in the Code of Federal Regulations.¹⁷ Before you enroll anywhere expecting federal aid, confirm the school appears on the Department’s accredited institutions database. A school that loses eligibility can’t disburse Title IV funds, no matter what your award letter said.

1
Office of the Law Revision Counsel. 20 USC Chapter 28, Subchapter IV, Part A – Grants to Students in Attendance at Institutions of Higher Education
2
Federal Student Aid. Don’t Miss Out on Federal Pell Grants
3
Federal Student Aid. 2026-27 Federal Pell Grant Maximum and Minimum Award Amounts
4
Federal Student Aid. 2025-2026 Federal Student Aid Handbook – The Federal Supplemental Educational Opportunity Grant Program
5
Federal Student Aid. 2025-2026 Federal Student Aid Handbook – The Federal Work-Study Program
6
Federal Register. Annual Notice of Interest Rates for Fixed-Rate Federal Student Loans Made Under the William D. Ford Federal Direct Loan Program
7
Office of the Law Revision Counsel. 20 USC 1092 – Institutional and Financial Assistance Information for Students
8
U.S. Department of Education. FAFSA Simplification Fact Sheet – Student Aid Index
9
Office of the Law Revision Counsel. 20 USC 1087vv – Definitions
10
Federal Student Aid. FAFSA Submission Summary – What You Need To Know
11
eCFR. 34 CFR 668.34 – Satisfactory Academic Progress
12
eCFR. 34 CFR 668.22 – Treatment of Title IV Funds When a Student Withdraws
13
Federal Student Aid. General Requirements for Withdrawals and the Return of Title IV Funds
14
U.S. Department of Education. U.S. Department of Education Announces Next Steps for Borrowers Enrolled in the Unlawful SAVE Plan
15
Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans
16
U.S. Department of Education. Database of Accredited Postsecondary Institutions and Programs
17
eCFR. 34 CFR Part 600 – Institutional Eligibility Under the Higher Education Act of 1965, as Amended