Options: Types of Financial Aid
By The FoolProof Team
Financial Aid can take many forms:
scholarships, loans, grants, work-study. These may be offered through the U.S. or state government, the college or university, or other organizations.
Did you know that the National Consumer League's 2002 Teens and Financial Education survey revealed that teens are overly optimistic about their ability to obtain scholarships and grants to pay for college? When asked, 38% of teen students said that scholarships would be their main resource for covering the costs while only 10% indicated that they'd use mainly loans.
In fact, a report by The College Board indicated that loans comprise 58% percent of college aid packages while scholarships and grants make up only 25%. So it's smart to have a good, realistic grasp of the actual resources available for help pay for the costs of higher education. This article profiles the major types of resources and provides reliable websites to help you find more.
Scholarships provide funds to pay part or all of your tuition. Some scholarships also cover other expenses such as room and board or books and study materials. Scholarships do not have to be repaid. Scholarships are available from individual schools and many other sources. See this guide's article on Finding Scholarships and Other Financial Aid for more information.
U.S. Government Financial Aid Programs
Federal financial aid programs include the following grants and loans. Application for some programs are made through the individual school, while others may be submitted directly. It's also important to note that an individual school may not participate in all federal programs. Working with the Financial Aid Office of any school to which you are applying is a must to ensure that you take advantage of the specific financial aid resources that school offers.
- Federal Pell Grants
This program provides grants for undergraduate study that do not have to be repaid. Applications are submitted through the individual school.
- Federal Stafford Loans
These loans are available to undergraduate and graduate students, and loan eligibility increases for each subsequent year of study. Stafford loans may be obtained directly from the federal government (Direct Loan program through your school) or from participating private lenders. The federal government guarantees the loan funds. The variable interest rate can never exceed 8.25%. If you qualify for a subsidized Stafford loan, the government will pay the interest on your loan while you are in school. If you have an unsubsidized Stafford loan, you are responsible for paying all the interest that accrues. The school or lending institution determines whether you qualify for a subsidized or unsubsidized loan based on financial status. An individual who receives a subsidized loan may also get an unsubsidized loan.
- Federal PLUS Loans
These unsubsidized loans are made to parents by private lending institutions.
- Federal Supplemental Educational Opportunity Grants (SEOG)
These grants, which do not have to be repaid, range from $100 to $4,000 per year for students who remain eligible and are only available for undergraduates. The participating school administers the program and receives the application.
- Federal Work Study
This program provides jobs for undergraduate and graduate students. The money earned is applied to education expenses. The participating school administers the program and receives the application.
- Perkins Loans
These are low interest (5% APR) loans administered by the individual school. Undergraduates can borrow up to $4,000 annually and graduate students can borrow up to $6,000 annually.
In addition to government-supported loans, you may take out education loans from financial institutions, probably including this credit union. These loans may provide more flexibility (repayment, loan amounts) than federal loans. A smart consumer will compare options offered by several lenders in order to select the terms that are best for the individual.
Information on Other Sources of Financial Aid
Beyond the basic sources of financial aid described in this article, sources of financial aid range from free scholarship lotteries, to aid from your specific school, to national service, to meeting specific criteria (such as female, older, minority). Check out the FinAid! website for more information.
Done? Go to How to Find Scholarships and Financial Aid.