Student Financial Aid: All You Need to Know
You’ve heard experts say over and over again that a college education is necessary to survive in today’s highly competitive world, but how can you obtain this education with such an astronomical price? And, this price continues to increase each year. While college is expensive, there are different types of financial aid to help.
In fact, financial aid is defined by the Office of the U.S. Department of Education as “money to help pay for college.” It can come from the federal government, the state where you live, the college you plan to attend (or currently attend), or a non-profit or private organization. Financial aid covers tuition and fees, room and board, books and supplies, and transportation. It can also cover education-related expenses, such as computer and dependent care.
Let’s first take a look at the options available to you through the federal government.
FEDERAL GOVERNMENT STUDENT FINANCIAL AID
Each year, the U.S. Department of Education awards approximately $150 billion in grants, low-interest loans, and work-study funds to more than 15 million students. Federal student aid includes the following:
- Grants: Financial aid that doesn’t have to be repaid (unless you withdraw from school and owe a refund).
- Loans: Borrowed money for college or career school, which must be repaid with interest.
- Work-Study: A work program through which you earn money to help you pay for school.
Let’s take a look at each of these options with a little more detail.
There are three types of federal grants we will review in this section of the module: 1) a Federal Pell Grant, and 2) the Federal Supplemental Educational Opportunity Grant (FSEOG) Grant; and the TEACH Grant.
Let’s take a closer look at each type of grant.
Federal Pell Grant
Unlike a loan, a Federal Pell Grant does not have to be repaid. These grants are usually awarded only to undergraduate students who have not earned a bachelor's or a professional degree. The maximum award for this grant changes on an annual basis and doesn’t require any repayment. The maximum Federal Pell Grant award for the 2013-14 award year (July 1, 2013 to June 30, 2014) was $5,645. For the 2014–15 award year (July 1, 2014 to June 30, 2015), the maximum award will be $5,730. You must re-apply for a Pell Grant every year, and you cannot receive more than one award each year. Plus, you may not obtain a Pell Grant for more than 12 semesters (or the rough equivalent to six years).
If you’re eligible for a Federal Pell Grant, you’ll receive the full amount you qualify for—each school participating in the program receives enough funds each year from the U.S. Department of Education to pay the Federal Pell Grant amounts for all its eligible students. The amount of any other student aid for which you might qualify does not affect the amount of your Federal Pell Grant.
To get started, you will need to fill out the Free Application for Federal Student Aid (FAFSA). Click here to get started. You may also learn about special Federal Pell Grants available to students who are the children of military personnel or other types of special circumstances by clicking here.
Federal Supplemental Educational Opportunity Grant (FSEOG) Program
In addition to the Pell Grant, other campus-based grants can be given to students through the Federal Supplemental Educational Opportunity Grant (FSEOG) program. The specific college or university you attend is responsible for distributing these FSEOGs, and as such, allots their worth. The grants are intended for the neediest of college-bound students, determined by a financial aid application, and the maximum amount for these grants is currently $4,000.
The U.S. Department of Education provides participating schools with a certain amount of FSEOG funds. Once the school determines which students will receive these funds, no more grants will be awarded. Because of this, you will need to apply for federal student aid as early as you can. You can find out more about your school’s FSEOG deadline on its website, or by speaking with someone in the financial aid office.
The TEACH Grant Program is awarded to students who are completing or plan to complete course work to begin a career in teaching with the following parameters:
- Must teach in a high-need field
- Must teach at an elementary school, secondary school or educational service agency that serves students from low-income families
- Must teach for at least four complete academic years within eight years after completing (or ceasing enrollment in) the course of study for which you received the grant.
TEACH Grants range up to $4,000 and require you to sign an agreement that you will follow all of the parameters of the receiving the grant. If you do not complete your service obligation, all TEACH Grant funds you received will be converted to a Direct Unsubsidized Loan. You must then repay this loan to the U.S. Department of Education, with interest charged from the date the TEACH Grant was disbursed (paid to you or on your behalf).
To receive a TEACH Grant, you must meet the basic eligibility criteria for the federal student aid programs and complete a FASFA. You must also be enrolled as an undergraduate, post-baccalaureate, or graduate student at a school that participates in the TEACH Grant Program, and you must be enrolled in a TEACH Grant eligible program. Additionally, you must meet certain academic achievement requirements (generally, scoring above the 75th percentile on one or more portions of a college admissions test or maintaining a cumulative GPA of at least 3.25), and receive TEACH Grant counseling that explains the terms and conditions of the service obligation. Talk to the financial aid office at your college or career school for more details about this grant.
Student loans are a common resource students use to pay for college, but should be considered as a last resort. Unlike grants and scholarships, student loans have to be paid back, often with interest. In many instances, student loan payments can hinder a freshly graduated young adult who hasn’t yet secured employment. There are three types of student loans most commonly used:
- Federal Stafford Loan
- Perkins Loan
- Direct PLUS Loan
Federal Stafford Loan
Stafford loans are the most common form of government student loans, and are awarded to college students who file the Free Application for Federal Student Aid (FAFSA). There are many Stafford loan benefits, but one of the greatest benefits is that they are not credit-based and do not require a co-borrower. Stafford Loans come in the following two forms:
- Subsidized Loans: Low interest rate on the loan and the federal government pays interest while you are enrolled in school (at least part time), for the first six months after you leave school, and during a term of deferment (a postponement of loan payments). You can borrow up to $8,500 per year depending on your eligibility; your school determined the amount you will receive.
- Unsubsidized Loans: Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive. You are responsible for paying the interest during school; however, if you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan). You can borrow up to $12,000 per year depending on your eligibility and there is no requirement to show financial need to receive this loan.
Federal Stafford Loans may be used to pay for tuition, fees, textbooks, supplies, housing, food, transportation, a computer and other college costs. Additionally, they offer income-based repayment, public service loan forgiveness, generous deferments and forbearances, and flexible repayment plans. Plus, the interest on the loan may be deducted on your federal income tax return even if you does not itemize.
Loans made through the Federal Perkins Loan Program, often called Perkins Loans, are low-interest federal student loans for undergraduate and graduate students with exceptional financial need. Your school is the lender and you will make payments to the school or to the school’s loan servicer (you will be made aware of this on your loan documents). Not all schools participate in this program, so you will need to check with your school’s financial aid office to see if your school participates.
Funds given depend on your financial need and the availability of funds at your college. If you are an undergraduate student, you may be eligible to receive up to $5,500 a year, up to a total amount borrowed of $27,500 as an undergraduate student. If you are a graduate or professional student, you may be eligible to receive up to $8,000 per year. The total you can borrow as a graduate student is $60,000, which includes amounts borrowed as an undergraduate.
If you are attending school at least half-time, you have nine months after you graduate, leave school, or drop below half-time status before you must begin repayment of a Perkins Loan. If you are attending less than half-time, check with your college or career school to find out how long your grace period will be.
Perkins Loans may be used to pay for tuition, fees, textbooks, supplies, housing, food, transportation, a computer and other college costs.
Direct PLUS Loan
Direct PLUS loans are federal loans that graduate or professional degree students and parents of dependent undergraduate students can use to help pay education expenses. The U.S. Department of Education makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program; they are considered the lender. The following are the criteria for receiving this loan:
- You must not have an adverse credit history.
- The maximum loan amount is your cost of attendance (determined by the school) minus any other financial aid received.
Your Direct PLUS Loan enters repayment once your loan is fully disbursed (paid out). However, if you are a graduate or professional student, your loan will be placed into deferment while you are enrolled at least half-time and for an additional six months after you leave school or enrolled less than half-time. Parent borrowers may contact the loan servicer to request deferment of the loan.
If your loan is deferred, interest will accrue on the loan during the deferment. You may choose to pay the accrued interest or allow the interest to capitalize when the deferment period ends. Your loan servicer will notify you when your first payment is due.
To apply for a Direct PLUS loan, you will need to talk to your school’s financial aid office.
Federal Work-Study provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses. The program encourages community service work and work related to a student’s course of study. In order to participate in this program, your school must participate in the program. It is best to check with your school’s financial aid office to find out more details about how the program is administered at your school.
If you participate in the work-study program, you will earn at least the current federal minimum wage; however, you may earn more depending on the type of work you do or the skills required for the job. Further, how you are paid depends partly on whether you are an undergraduate or graduate student. If you are an undergraduate student, you will be paid by the hour. For graduate or professional students, you may be paid by the hour or by salary, depending on the type of work you do.
Your school must pay you at least once a month, which can be done directly to you or through an automatic deposit to your bank account. Or, you may ask them to use the money to pay for your education-related charges (e.g., tuition, fees, room, board, etc.). You can only work the hours required within your work-study award.
Eligibility Requirements for Federal Student Financial Aid
No matter what type of Federal Student Financial Aid program you are going to participate in, you will need to meet ALL of the following eligibility requirements:
- Qualify to obtain a college or career school education, either by having a high school diploma or General Educational Development (GED) certificate, or by completing a high school education in a homeschool setting approved under state law.
- Be enrolled or accepted for enrollment as a regular student in an eligible degree or certificate program.
- Sign the certified documents available on the FASFA stating that you are not in default on a federal student loan and do not owe a refund on a federal grant, and you will use the aid only for educational purposes.
- If you are male, you must be registered with Selective Service (if you are between the ages of 18-25).
- Maintain satisfactory academic progress in college or career school.
- Be a U.S. citizen or U.S. National, or have a Green Card or an “arrival-department record,” “battered immigrant status” or a T-VISA (or a parent with a T-1 Visa) from Immigration Services.
You are not eligible to receive a federal aid if you are incarcerated in a federal or state penal institution or are subject to an involuntary civil commitment upon completion of a period of incarceration for a forcible or non-forcible sexual offense.
For more information about all types of federal student financial aid, please click here.
Because federal student financial aid will not cover the total cost of college in most instances, you should also take the time to find scholarships to meet your needs.
Scholarships can be awarded for outstanding academic, athletic or artistic achievement, either from the school you plan to attend or a private foundation or company, and can range from $500 awards to 100% of your college expenses paid.
A variety of online databases allow you to search for scholarships. Take a look at some of the most common sites below to start your search:
In addition to private and university scholarships, students may qualify for the National Merit Scholarship by scoring high enough on the PSAT test, usually administered in their junior year of high school. Plus, sometimes your parent’s companies or even credit unions provide annual scholarships to those who meet certain criteria and are willing to apply.
There are usually specific parameters outlined by different scholarships. Some will require a high level of academic consistency, while others will require athletic or artistic advancement and development over a period of time. If you do not meet these requirements, your scholarship may be taken away from you. However, if you keep the requirements, you do not have to repay the scholarship.
PRIVATE STUDENT LOANS
In addition to federal student loans, there are options you can consider through your local bank, credit union or other financial resource. Here are some important facts to consider in regard to private student loans before you sign on the dotted line:
- Many private student loans require payments while you are still in school.
- Many private student loans carry a variable interest rate, which can be as high as 18%. A variable rate may increase the amount you repay as time progresses.
- Private student loans are not subsidized and, therefore, no one pays the interest on your loan but you.
- Private student loans may require an established credit record; therefore, the cost of your private student loan may depend on your credit score and other factors. Additionally, you may need a co-signer for the loan. However, this may also help you establish credit as you enter the workforce.
- Interest on a private student loan may not be tax deductible.
- Private student loans cannot be consolidated into a consolidation loan as time progresses and you may not have the deferment options as you would with a federal student loan.
For more information about the rules and regulations regarding private student loans, you should visit the Consumer Financial Protection Bureau's website at: www.cfpb.gov. They will be able to assist you with any concerns you may have about a private student loans.
The necessity of college is clear, but the means in which to pay for it does not always come so easily. Grants and scholarships lessen the blow for students without requiring any repayment, while student loans provide a last resort for students with no other way to pay for school. The opportunities are out there, it is just up to you to put together an impressive resume, and apply for as many grants and scholarships as possible. Good luck!