Hi, I'm new here and wasn't sure where to post this so I'm adding it to the education and finance categories. I'm a high school senior who is getting ready for college. I received my financial aid package in December and it shown that I had $3,500 in subsidized loans and $2,000 in unsubsidized loans. Along with other grants and scholarships I had at the time, I was left with $510 to pay out of pocket for the academic year. I'm also employed at my local McDonald's which allows me to receive $2,500 in financial aid from them. With that extra money, I had the idea of removing my unsub loans and $500 of the $510 I owe out of pocket. When I requested to have my unsub loans removed, I was told that with the extra grant money, my sub loan eligibility decreased and whatever was taken from my sub loans were added to my unsub loans. I contacted them with the same question as I have now, and I wanted to get insight from other people to see if anyone knew if it's true that external financial aid like from McDonald's lowers subsidized loan eligibility.
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Yes, sometimes the school is required to do this because of federal regulations that determine how much need-based aid you can receive. When creating financial aid packages, the school subtracts your FAFSA EFC (Expected Family Contribution) from its Cost of Attendance (COA). The resulting number is called your unmet financial need. You can only receive need-based financial aid up to this amount. There is a particular order that schools are required to use when applying aid (i.e Pell grants first, then other grant or scholarship aid, then subsidized loans). When you received your original package, you apparently still had unmet need after all of your grant aid was applied, so you were offered a subsidized loan. However, when you received the scholarship, the school had to recalculate your aid to account for the additional aid. In your particular case, when they applied the new scholarship, you didn't have enough unmet need left to qualify for a full subsidized loan, so it had to be reduced and replaced with unsubsidized loan funds. For example, say your COA was $20,000 and your EFC was $10,000. After subtracting the EFC from the COA, you have $10,000 in unmet need. So, the school awards you a $4000 grant, a $2500 scholarship, and a $3500 subsidized loan. However, later on you receive a $2500 scholarship from McDonalds. But now you have received more need-based aid than your unmet need. (Unmet need =$10,000, but now your need based aid =$12,500). So, the school has to reduce the subsidized loan by $2500 so yo won't exceed that limit. You still get that $2500, but you get it as an increase to your unsubsidized loan instead of as a subsidized loan.
Subsidized loans are based on financial need, while unsubsidized are not. So when you receive additional money in the form of scholarships or grants, then that reduces your need and your subsidized loans are the ones that will be affected by that.