Federal Student Aid: FAFSA, Pell Grants, Loans, and Forgiveness
Key takeaways
- Federal student aid starts with the FAFSA, a free form that opens around October 1 each year and determines eligibility for grants, loans, and work-study.
- About 7.6 million low-income students receive Pell Grants of up to 7,395 dollars a year, which do not have to be repaid.
- About 43 million borrowers owe roughly 1.7 trillion dollars in federal student loans, and about 9 million were in default in 2026.
- Starting July 1, 2026, new Grad PLUS loans ended, graduate and parent borrowing was capped, and a new Repayment Assistance Plan began.
- Public Service Loan Forgiveness has canceled loans for more than a million government and nonprofit workers.
- The Education Department cut its staff sharply in 2025, and loan management began moving to the Treasury.
The federal government is the largest source of college aid, providing more than 100 billion dollars a year in grants and loans. Most of it flows through the Education Department's Federal Student Aid office, though the department's future is now in question.
This guide explains how to apply, what aid is available, how loans are repaid, and the major changes taking effect in 2026. Official details are at studentaid.gov.
In 2025 the Education Department cut about half its staff and began moving programs to other agencies, including student loans to the Treasury, as part of a plan to wind down the department, steps challenged in court. Supporters say borrowing limits and the new plan will hold down tuition and protect taxpayers. Critics say the changes push students toward costlier private loans, raise payments, and disrupt aid. Debates also continue over college costs, for-profit colleges, and who should bear the risk of student debt.
Every federal aid program starts with the Free Application for Federal Student Aid, which opens around October 1 for the next school year and draws income data directly from the IRS. It produces a Student Aid Index that colleges use to build aid offers. A 2020 law cut the form to fewer than 50 questions, but the redesigned form's late and error-filled launch for 2024-25 delayed aid for months. Many eligible students never file, leaving aid unclaimed.
The government lends directly to students and parents through the Direct Loan program, with fixed interest rates set each year. About 43 million borrowers owe roughly 1.7 trillion dollars. Starting July 1, 2026, new Grad PLUS loans ended, and the 2025 budget law capped graduate borrowing at 100,000 dollars, or 200,000 for professional degrees, and parent borrowing at 65,000 dollars per student.
Pell Grants go to about 7.6 million undergraduates with financial need, up to 7,395 dollars a year, and starting July 1, 2026, Workforce Pell covers short job-training programs. Pell once covered most costs at a public four-year college but now covers about a quarter, and the Congressional Budget Office projected funding shortfalls of 11.5 billion dollars in fiscal 2027. Smaller programs include supplemental grants and federal work-study.
Borrowers can repay over 10 years or choose plans tied to income. The new Repayment Assistance Plan, launched July 1, 2026, sets payments at 1 to 10 percent of income, and most older income-driven plans will close by 2028. The Supreme Court struck down broad cancellation in 2023, and the SAVE plan ended after court rulings. Public Service Loan Forgiveness cancels remaining debt after 10 years of payments in public service, and collections on about 9 million defaulted borrowers resumed in 2025.
Federal student aid includes grants, which do not have to be repaid, loans, which do, and work-study jobs. Most of it is authorized by the Higher Education Act of 1965 and run by the Education Department's Federal Student Aid office, the largest lender to students in the country. Colleges must be accredited and approved to receive federal aid, and states and colleges add their own grants and scholarships.
See how schools are governed in who runs your schools, aid for veterans in veterans benefits, or the budget picture in where your tax dollars go.