It’s March! Which means one thing…financial aid awards will soon be going out from Colleges and Universities across the country (oh, and I guess spring break is coming up too). Receiving a financial aid award is often confusing to students and parents alike. There are so many different forms financial aid can take and it can be hard to understand what is offered. So, I thought breaking down the basics of a typical financial aid award might be good.
A typical financial aid award may include four types of financial aid, scholarships, grants, loans, and work study. Each of these types can come in a few different forms. It is important to understand each of them as you accept the award.
Scholarships: Scholarships are funds given to a student that do not have to be repaid. There are a few different types of scholarships for which a student can qualify. They can be need based, which means they are dependent on income and financial need, usually determined by the FAFSA. They can also be academic in nature, this means they are based on test scores and school performance. There are also athletic scholarships, scholarships for minorities, community service scholarships, and unusual or random scholarships (there’s even one for being a natural redhead). If the scholarship is awarded on behalf of your college or university, it is usually reported as part of your financial aid package, if it is an outside scholarship, you should contact your institution’s financial aid office to be sure you understand the reporting requirements. If you haven’t received any scholarships or want more, it’s never too late to apply! A few good resources are:
Remember, you shouldn’t pay to apply for scholarships, there are a few exceptions, but be vigilant!
Grants: This is money that a student receives based on financial need that does not have to be paid back. There are two main grants, both awarded through the FAFSA, Pell Grants and Supplemental Educational Opportunity Grants (SEOG). In order to qualify for grants a student must fill out the Free Application for Federal Student Aid (FAFSA https://studentaid.ed.gov/sa/). The FAFSA opens on October 1st each year and the priority deadlines for submission vary by institution.
Loans: There are three types of federal loans that a student can be awarded based on their FAFSA.
Direct Subsidized Loans: A subsidized loan is a loan that the student is able to borrow to help cover the cost of their education. It comes with a fixed interest rate that is set by congress and remains fixed for the life of the loan (it is important to note that the interest rate changes on an annual basis). The cool thing about the subsidized loan is that it doesn’t accrue any interest while a student is in school at least half time and during the six-month grace period after graduation.
Direct Unsubsidized Loans: An unsubsidized loan is another loan that the student is able to borrow to help cover the cost of their education. Like the subsidized loan, it has a fixed interest rate set by congress. Unlike the subsidized loan however, the unsubsidized loan accrues interest while the student is in school and during the six-month grace period. Interest payments are not required while the student is in school, but can be made to help keep the cost of the loan down over time.
Parent Plus Loan: The Parent Plus Loan is a loan that the parent can take out on behalf of the student to help pay for school. It is necessary to note that this loan is in the parent’s name, and will remain that way after graduation. The parent and the student can make a deal that the student will repay it, but ultimately, this loan is the obligation of the parent. To qualify for this loan, the parent must complete a separate application at www.studentaid.gov. There is also a credit check and a promissory note. This loan will accrue interest while the student is in school, but there is the option on the application to defer payments until after graduation. The interest rate is fixed for the life of the loan and is higher than what a student will face on either the subsidized or unsubsidized loans.
The three types of loans discussed above are the loans a student could be eligible for based on their FAFSA. There are also private student and parent loans that can be taken through banks. It is important to compare the interest rates and terms of private loans to those of federal loans to make an informed decision.
Work Study: The final component of a financial aid award is work study. A student is awarded work study based on need demonstrated on the FAFSA. This award allows the student to get a job on campus and earn income. The student does not get the work study funds unless they have a job, and these funds are not automatically applied to their bill. The student receives a paycheck just like any employee and these funds can be used to help pay tuition or for other expenses.
These are the basic components of a financial aid award. When a student receives their award, they are able to select which types of aid they would like to use to pay for school. It is important to understand the terms and pay back options of any money borrowed. Student loan debt has now reached over $1.5 trillion, so making informed decisions about how to finance higher education is so important!
I’d love to hear from you, how did you finance your education?