All About Financial Aid

With the FAFSA opening on October 1, let’s talk money!  There are many different types of financial aid as well as sources of financial aid.  What’s the difference?

The TYPE of aid is like the category of aid - grants, loans, scholarships, etc.  The SOURCE of aid is where the aid is coming from - the institution, the government, your bank account, etc.  Let’s talk aid organized by source, then by type. Keep in mind this is a general overview, but my hope is that it provides you with the basics you need to know as you either begin the college admissions process or dive into the FAFSA!

Federal Aid

This aid comes from the federal government.  It often has lower interest rates and more flexible repayment terms than other sources of aid.

  • Student Loans: Student loans are money you borrow to help you pay for your education that you must pay back with interest.  There are multiple types of federal student loans.

    • Direct Subsidized Loans: These offers are made to eligible undergraduate students who demonstrate a great financial need (as determined by the federal government) to help with the costs of higher education.  Your college determines how much money you can borrow, not to exceed your financial need. There is no interest charged while the student is still working towards their undergraduate degree at a half-time status or more or during the grace period, which is six months after you get your degree or leave school.  This means you won’t be accumulating additional debt as long as you’re in school and for six months after you graduate so you can get settled financially. You will start making payments and accumulating interest in your loan six months after you graduate or leave school.

    • Direct Unsubsidized Loans: These are loans made to eligible undergraduate, graduate, and professional students, but they are not based on financial need.  Your college determines how much money you can borrow based on how much it costs to enroll there, plus other financial aid you have. Interest is charged during grace periods and while you’re in school, but you won’t have to make payments until after that six month grace period after you graduate or leave school.  The biggest difference between unsubsidized loans and subsidized loans is the fact that subsidized loans do NOT charge interest for an extended period of time and therefore do not add money to your loan.

    • Direct PLUS Loans: These are unsubsidized credit-based loans made to parents of dependent undergraduate students or graduate and professional students to help pay for education costs not covered by other sources of financial aid.  Eligibility is not based on financial need, but a credit check is required and credit history does play a role in qualification. Interest is charged during all periods of the loan, ultimately adding costs to your total loan.

  • Grants: Federal grants are free money from the government!  Students are awarded grants based on financial need and can only get them by filling out the FAFSA.

  • Work Study: This is a part-time job opportunity to college students with financial need.  The number of hours can’t exceed your work study award, but you’ll be paid at least minimum wage and the money will go directly to you, to your bank account, or directly to your tuition and fees - whichever you decide and whatever your school can accommodate!

State Aid

This aid comes from your state.  It may ease the cost of paying for a state school if you choose to stay in state for college.

  • Student Loans: While rare, your state might offer loans to students at a low interest rate.  Each state has varying programs in place.

  • Grants: Similar to loans, each state is different - but your state might offer grants to certain populations (veterans, minorities, etc.) or low-income students.

  • Scholarships: Yep, your state might offer scholarships!  Broken record here - but offerings varies by state.

  • Work Study Programs: These are similar to federal work study, except the funds come from your state.  Each state has different requirements and opportunities.

  • Tuition Assistance: Your state might offer tuition assistance to various groups, such as the military.

Institutional Aid

This aid comes from your college.  It is awarded based on merit or financial need.

  • Grants: This is free money you don’t have to pay back!  Your college or university may have a bucket of funds available to distribute to students, either need-based or merit-based.  This is often where your test scores come into play. (Higher scores, more money!)

  • Scholarships: Many schools, and even departments within your college or university, offer scholarships to students.  This could be scholarships available to business students, so if you are a business student, you are eligible to apply.

Private Aid

This aid comes from private sources, such as a bank or company.

  • Loans: Private loans are usually borrowed from banks, credit unions, or private companies.  They usually have variable rates and cosigner options but might be less forgiving when it comes to interest and payments.  Private loans are only recommended if you have exhausted all of your other options, including grants and federal loans.

  • Scholarships: These are scholarships you might find from small or large companies or local foundations.  Private scholarships provide more options for you to pay for school and, especially for the scholarships from smaller local companies, potentially less competition.

Family

You may not consider this “financial aid” - but it is still a source and way to pay for college!

  • 529 Plan: Categorized as either College Savings Plans or Prepaid Tuition Plans, 529 Plans are investment accounts that provide tax-free earnings growth and withdrawals when the funds are used for eligible education costs (tuitions, fees, books and supplies, etc.).  Withdrawals to be used for non-educational purposes are subject to a 10% penalty.

  • Savings: If you worked throughout high school and saved up some money, this is a great type of “aid” to help you pay for college!

  • Friends and family: Parents may want to help their child pay for school and may have some money saved up for this purpose.  Students - never assume, and always ask your parents if they intend to help you pay for school.

Whew!  There you have it - my overview of financial aid.  Kudos to you for educating yourself before the FAFSA comes out soon!