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Understanding the types and sources of aid is the best way to make sure you get the help you deserve.
Module Transcript
There are essentially three ways you can receive money for college: it can be given to you through grants and scholarships, it can be loaned to you and you must pay it back later, or you can earn it through a job. There are federal, state and even school-based financial aid programs of each type.
Grants and Scholarships
Grants and scholarships are financial aid awards that never need to be paid back. Needless to say, these are the most sought-after types of aid. These awards may be based on financial need or academic and extracurricular merit. Almost all federal grants are based solely on need. For example, the Pell Grant and Supplemental Educational Opportunity Grant programs are the most well known of the federal grants. About $40 billion in federal aid is awarded to needy students every year (about 8 million students in 2009-10). In addition, almost $10 billion in state grants are awarded to students, some need-based and some merit-based. And schools themselves award over $25 billion, also a combination of need- and merit-based grants.
Private scholarships from foundations and individuals also provide a significant pool of money. There are several free scholarship search websites available, so you should never have to pay a fee to apply for a scholarship. Those that require a fee are often scams, so avoid those sites. Be especially careful of any organization that asks you to provide personal identifiable information (like your Social Security number) when searching for a scholarship.
Education Loans
Despite many reports to the contrary, loans are not the largest type of aid program students receive, particularly for undergraduate students. According to The College Board, in 2009-10 full time undergraduate students received an average of about $11,500 in total aid, over $6,000 in grants and less than $5,000 in federal loans. While only about a third of undergraduate students borrow to pay for their education in any year, about two thirds will have borrowed at some point during their undergraduate years. That is one of those awful myths that has spread. Still, $5,000 per year is a hefty sum (and it will be a lot more if you go on to graduate school) so it's important to know about loans.
As of July 2010, all federal loans are now borrowed directly from the federal government. One type of federal loan is the Stafford Loan, and there are two types of Stafford Loans: subsidized and unsubsidized.
Subsidized federal Stafford Loans are awarded based on financial need, and if you qualify, interest is not charged before graduation or leaving school. Unsubsidized federal Stafford Loans are not need-based and interest is charged from the time you receive the money until it is paid in full. With unsubsidized loans you can usually defer any payments while you are in school, but the interest will continue to accrue so when you do start repayment, you will owe significantly more than what you originally borrowed. Clearly then, if you qualify, subsidized loans could save you thousands of dollars in interest over the life of the loan.
Other federal loans available are the Parent Loan for Undergraduate Students (PLUS), and the graduate PLUS loan for graduate students. The parent PLUS loan allows parents of dependent undergraduate students to borrow money for their child's education while the graduate PLUS loan allows independent graduate students to borrow for their own education.
Private loans are becoming more and more common since there are limits to the amount students can borrow through the federal programs. Private loans are a good option for filling the gap between the maximum government loans and the cost of attending school. Seek private loans only after maxing out federal loans.
Repayment of student loans, federal and private, typically begins within six to nine months of graduation or after dropping below half time enrollment if you've chosen to defer payments. There are other repayment options available, including immediate repayment and interest-only payments while in school.
College Work Study Programs
Work-study programs provide jobs for students with demonstrated financial need. These jobs are often on-campus, and range from career-related positions, such as research assistant for a professor, to cashier positions at a student store. Off-campus jobs are sometimes awarded as well. Please note that not all schools offer work-study jobs to students.
The pay for work-study jobs is at least minimum wage, and earnings are limited to the amount established in each student's financial aid award package. Work-study is paid on an hourly basis.
Work-study programs are administered by each school's financial aid office. If you qualify for need-based aid, work-study may be an option you should explore.
Even if you are not awarded work-study, there are often part-time jobs available on or near the campus. If you are awarded a loan in your financial aid package, you may be able to decline that loan and instead, either receive a college work-study award or find a part-time job on or near campus to replace the loan. Be sure to notify the financial aid office if you are receiving aid and are working.
Service Programs
Service programs provide aid to students based on the type of work they do either before or after college. Examples include military service, AmeriCorps, the Peace Corps, and Teach for America. Benefits range from a few thousand dollars working for AmeriCorps to a practically free college education for military officer training. Service programs are typically NOT need-based, and spots in some programs can be very competitive - so explore these options early.
Whether or not these programs make economic sense depends on a variety of factors, including the monetary benefit, the time commitment to the program, and what other options would be available for earning money after graduation. But service programs also provide an experience that may be unavailable in other jobs - including leadership development and community service.
Applying for Financial Aid
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