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For many students, financial aid is the only reason they can afford to go to college. Unfortunately, getting approved for aid (which may include scholarships and federal loans), isn’t a guarantee that you will have it throughout all your years in college. Schools can suspend — or even cut-off — financial aid for a number of different reasons, including poor academic performance.

Fortunately, a financial aid suspension typically doesn’t disqualify you from getting aid in the future. You will, however, need to take some steps to appeal the suspension and get your aid reinstated.

Read on to learn why federal financial aid can get suspended and what you can do to get it back.

What Is Financial Aid Suspension?

Financial aid suspension occurs when the federal financial assistance you qualified for stops coming in.

Financial aid can come in the form of scholarships, loans, grants, and work-study programs. When you fill out the Free Application for Federal Student Aid (FAFSA), you are applying for federal student aid.

After your application is reviewed, you will generally receive information on what aid you are eligible for, if any. When financial aid is being suspended, you will be notified as well, generally by the financial aid office at the school where you are enrolled.


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Common Reasons for Financial Aid Suspension

Financial aid suspensions can occur for a variety of reasons. Here’s a closer look at why a student may find there are issues with their aid.

Not Making Satisfactory Academic Progress

In order to be eligible for certain financial aid, you need to be making Satisfactory Academic Progress (SAP).

This means you must be enrolled in a certain number of credit hours and be earning grades that are considered good enough to be working towards completing a degree or certificate in a certain time period.

SAP policies will often vary by school. Typically, SAP rules require students to maintain at least a 2.0 GPA on a 4.0 scale, which is a “C” average in classes.

If students receive scholarships, they may have to maintain a higher GPA than 2.0. To find out the SAP policy at a specific school, take a look at their website or contact the financial aid office.

Taking Too Long to Complete Degree

A student may experience financial aid suspension if they’ve been in school for too long. Federal financial aid is generally restricted to a time limit that is based on the length of the program the student is enrolled in.

This information is generally listed in a school’s catalog. For example, federal aid is generally limited to six years for a bachelor’s degree and three years for an associate degree.

Not Applying for Aid Each Year

You must apply for federal student aid by submitting a FAFSA each year that you are enrolled in school. Failing to submit the FAFSA means you may not receive federal aid for that year.

Also keep in mind that when you fill out the FAFSA annually, you might not receive the same amount or type of aid you received previously if your family’s financial situation has changed.

Making a Change to Your Course of Study

You could also lose federal aid if you switched majors and the aid was tied to your original major. Other changes that can lead to loss of financial aid include switching schools, not taking enough credits to qualify for the aid, and defaulting on other student loans.

Not Meeting General Eligibility Requirements

In order to continue receiving federal aid, you need to continue meeting the general eligibility requirements set by the Department of Education.

For example, if a student is not a U.S. citizen and their eligible noncitizen status expired or was revoked, then they would need to reinstate their status to keep receiving aid.

A student could also potentially lose federal financial aid if they were convicted for a drug offense or became incarcerated.

If it comes to light that a student’s high school diploma is not valid, or they have property subject to a judgment lien, that could also cause financial aid suspension.

Even though it can be frustrating and worrisome to lose financial aid, there are steps that students can take to hopefully get it back.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Appealing a Financial Aid Decision

One of the first things you can do after being notified that your financial aid is being suspended is to call or visit your school’s financial aid office. The office can likely tell you more about why you are losing financial aid and if there is anything you can do about it, like file an appeal.

The appeals process can vary based on the school. In general, you can fill out a form and write an appeal letter to your college. In the appeals letter, you may consider sharing details about the circumstances surrounding your financial aid suspension.

For example, if you lost a loved one that semester, you might have become upset and unable to concentrate on your grades. Sometimes, students experience tough circumstances that have nothing to do with school, but their grades suffer. Schools understand that this happens and they may be willing to work with students who show they are still dedicated to their studies.

After writing the appeal letter, you can mail it or hand it into your financial aid office, depending on preferences and the process determined by the school. It can help to confirm that the office received it. In addition to writing an appeal letter, there are other ways you may be able to qualify for aid again, depending on the issue that caused the suspension of aid.

You may be able to study harder and bring your grades up, for instance. Or, you might enroll in more classes and get back on track to graduate in a certain amount of time. If you are an eligible noncitizen, you could figure out how to reinstate your status.

If you switched majors, you could look into other forms of financial aid for your new course of study. There are many ways to go about it — asking your financial office for guidance can provide insight to help you get back on track.

In some scenarios, you might lose financial aid for the year and then be able to reapply through FAFSA the next year. If you still don’t receive aid, you may need to look into alternative options to pay for your education.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

Avoiding Financial Mistakes in College

If you went through financial aid suspension and couldn’t appeal the decision, you’ll need to figure out ways in which you can pay for school without hurting your financial future.

For instance, you may want to reconsider staying in the dorms and on an expensive college meal plan if you can’t afford it. If you do continue to live and eat on campus, you could run up a huge bill that in and of itself could take years to pay off.

While it may be tempting to put extra expenses on a credit card, debt can add up quickly. If you use a credit card but are unable to pay off your balance every month, you could end up graduating with student loan debt and credit card debt. Credit card debt can have relatively high interest rates which can make it difficult to pay off.

Also keep in mind that, while going to an expensive private school may seem more prestigious, state schools can also be solid options, offering rigorous programs as well.

I Lost My Financial Aid — How Do I Pay For School?

There are many students wondering how to pay for school if they no longer have financial aid — and thankfully, there are a number of ways to cover the cost of college.

One option is to consider transferring to a school that offers a lower tuition or where you can qualify for a more competitive aid package or scholarship.

If you aren’t able to transfer, or already go to a less expensive school, you might try to find a job on or off campus and start earning money to pay for your education.

You might also consider budgeting and cutting costs as needed. A few options to cut expenses might include opting to use public transportation instead of driving, moving to cheaper housing off-campus, cooking meals at home instead of eating out, or limiting how much you spend on entertainment.

You might also consider turning to family members for help. If your parents are able to help pay for your tuition or take out loans to pay for it, this could be a solution.

Another option you might consider is taking out a private student loan. Before applying for a private student loan, however, it’s important to compare different lenders and loan rates and terms. Each lender will also have their own eligibility requirements, so it’s worth looking around at different options.

Unlike federal student loans, private student loans generally require a credit check. If you don’t have much (or any) credit history, you will typically need a cosigner, such as a parent or other adult who has strong credit. With some lenders, you can quickly find out if you qualify, and at what rate, online. Just keep in mind that private student loans don’t offer the same protections, like forbearance and income-driven repayment plans, that come with federal student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Special Purpose Acquisition Companies (SPACs) were all the rage on Wall Street, particularly during 2020 and 2021. Nearly 250 SPACs went public in 2020 — four times as many as 2019. That momentum carried over into 2021 as well, but in 2022 and 2023, interest has dropped.

In 2022, the Securities and Exchange Commission (SEC) proposed new rules for SPACs that would require more transparency, and protections for investors.

As for what drove the SPAC boom in 2020 and 2021? It was a combination of factors, and SPACs are still very much a part of the financial ecosystem. That’s why it’s important for investors to understand what they are, and what drove their popularity.

SPACs 101

SPACs are shell companies that list on the stock market with the intention of finding an existing private business to buy. Also known as blank-check companies because they have no operating business of their own, SPACs typically have two years to purchase a target.

The current SPAC boom is unsurprising given the long-time dissatisfaction with the traditional IPO model. Private companies, especially tech startups in Silicon Valley, have grumbled for years that the IPO process is expensive, onerous, and time-consuming. Many have been staying private for longer, taking advantage of other avenues for raising capital such as venture capital firms.

Here’s how SPACs work:

1.    The first step tends to involve sponsors, generally former industry specialists or executives. They typically pay $25,000 in what’s known as the “promote” or “founder’s shares,” obtaining a 20% stake in the company in return.

2.    The SPAC goes public on a stock exchange, listing shares at $10 each and promising to use the proceeds to find a private company to merge with.

3.    Once an acquisition is found, shareholders of the SPAC vote on the company merger.

4.    SPACs can buy firms valued at five times the money raised in their IPO. Therefore, additional funding is often raised through institutional investors in something known as a “private investment in public equity” or PIPE.

For the private company getting bought, SPACs offer a cheaper, faster route to listing. Below are some potential benefits of SPACs:

•   In a regular IPO, investment bankers, who advise companies in going public, alone can eat up 4% to 7% of an IPO’s proceeds in fees.

•   The IPO process typically takes 12 to 18 months. In contrast, a SPAC merger generally takes between four to six months.

•   Regulators review SPAC mergers, but more forward-looking projections can be used to market the deal as opposed to IPO prospectuses, which require that only historical figures be shared. This can be particularly appealing to more futuristic ventures like those in electric vehicles or space travel.

•   The valuation of a SPAC target is typically determined by private negotiations behind closed doors, similar to how a deal in a merger would be struck. This can make SPAC IPO valuations less tied to the whims of public markets.

💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

SPAC Performance

Critics of SPACs argue that they are much too lucrative for the sponsors, and bypass measures in the traditional IPO process that are designed to protect investors. The flurry of SPAC activity in recent years also had many worried that a bubble was forming.

However, defenders of the structure argue that this most recent wave of SPACs is different. They say that more recent SPACs have had more credible sponsors, who then in turn target higher-quality companies.

An academic paper by professors at Stanford and New York University law schools looked at SPAC acquisitions between January 2019 and June 2020. The study found that companies that went public by SPAC fell by an average of 3% three months after debuting, 12% after six months, and 35% after a year.

Meanwhile, those with higher-quality sponsors returned 32% after three months and 16% after six months.
When it came to companies with higher-quality sponsors that had been public for at least a year, there were only seven and they fell on average by 6%. The professors concluded that, “It is true that a few SPACs sponsored by high-profile funds or individuals have performed well. But these are the exceptions, not the rule.”

How the SPAC Boom Came About

Here’s a table with the number of SPAC IPOs by year and the capital raised. It shows that the number of SPACs that have listed on the stock market have steadily increased in recent years.

Only 13 debuted in 2016, but the number of SPACs in the stock market spiked in 2020, quadrupling from 59 to 248, and more than 600 launched during 2021. The table also shows the money raised through these IPOs also climbed dramatically, but has since fallen again after a blowout year in 2021.

Source: SPACInsider

Recommended: How Many Companies IPO Per Year?

What Drove the SPAC Boom?

There were several factors that drove the SPAC boom in 2020 and 2021.

1. IPO Dissatisfaction

IPOs have historically been an important step for maturing companies, signaling that a business is ready for public scrutiny, greater regulation, and increased liquidity of its equity.

However, in the past decade, tech IPOs haven’t always kept pace with the number of unicorn companies that have cropped up. Private companies have shunned the traditional listing process by either staying private for longer or seeking alternative routes such as direct listings or SPACs.

2. Booming Markets

Context is important, too: After the volatility in early 2020 caused by the COVID-19 pandemic, financial markets soared. The Federal Reserve’s stimulus measures played a role in keeping the markets buoyant.

In addition, there was an increase in investing during this time for several reasons. All told, it created an optimal window for private companies to enter public markets, giving them better odds of pricing SPAC deals at higher valuations.

3. Rule Changes

Both the New York Stock Exchange and the Nasdaq have tried to loosen their rules on SPACs in recent years in order to attract more such listings. Nasdaq had dominated the SPAC market until 2017, when NYSE had the first blank-check listing on its main market, after getting approved by regulators to ease some requirements. Separately, Nasdaq tried in 2017 to gain permission to lower a number for required shareholders.

4. Famous Sponsors

Well-known sponsors were also a defining feature during the SPAC frenzy. Well-known investors, former politicians, and former athletes have all jumped on the SPAC bandwagon, setting off a flurry of launches.


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SPAC Risks

Despite the combination of factors that helped spark the SPAC trend, the fact remains that most SPACS — like most IPOs — are highly risky endeavors.

In addition, despite the hype around both these paths for going public, the main beneficiaries of SPACs have been those closest to the company itself. Retail investors typically don’t have access to SPAC shares until they’re in the secondary market.

The Takeaway

SPAC activity reached a peak in 2020 and 2021, but some of the conditions that have turned SPACs into a popular IPO alternative had been in place for a while. For example, many private companies had been long unhappy with the traditional IPO model. Additionally, the mood in the stock market at the time had become increasingly ebullient, luring private companies into public listings.

SPACs have a checkered history when it comes to actual performance in the stock market. But some market observers have claimed that having more credible sponsors will lead to better mergers and consequently, better share prices.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

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