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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
What is Financial Aid?
There are four main kinds of financial aid: education loans, grants and scholarships, work-study, and service programs.
Education Loans
Education loans make up the vast majority of all financial aid dollars. Loans are borrowed from federal or private lenders like PNC, and must be paid back with interest.
Federal education loans are either "subsidized" or "unsubsidized." Subsidized loans are need-based, and if you qualify, interest does not begin to accrue until after graduation. Unsubsidized loans are not need-based and you are charged interest from the time you receive the money until it is paid in full. If the interest is not paid while in school, it will be capitalized - that is, the interest will be added to the original amount of the loan and additional interest will be based upon the new, higher amount. Needless to say, if you qualify for a subsidized loan, it should be your first choice.
Private loans are becoming increasingly important since government loans are capped at a specific dollar amount for each year you attend school - an amount that rarely pays all school-related expenses. Private loans are a good option for filling the gap between the maximum government loans and the cost of attending school. Private loans may have higher interest rates than government loans, so seek private loans only after maxing out federal loan programs.
You must typically begin repayment of student loans within six to nine months of graduation or after dropping below half time. Remember, you are responsible for repaying education loans whether or not you graduate or receive the job you always wanted.
Grants and Scholarships
Grants and scholarships are financial aid awards that never need to be paid back. These awards may be based on financial need, or academic and extracurricular merit.
Many schools will automatically consider you for school-based grants and scholarships when you apply for aid. In addition, the federal Pell and Federal Supplemental Educational Opportunity Grant programs along with some state grant programs are based exclusively on your FAFSA form, which you will learn about in a few minutes.
For other awards, you must seek out and apply for each and every one. Internet searches are the best ways to find out about awards you can apply for. Your high school guidance counselor may also be aware of significant local awards that may not be in these other sources, so be sure to ask.
And remember, never pay money for a scholarship search - visit the resources section for more information on grants and scholarships.
Work-Study Programs
Work-Study provides jobs for students with demonstrated financial need. These jobs are often on-campus, and range from career-related positions, such as research assistant to a professor, to cashier positions at a student store. Off-campus jobs are sometimes awarded as well.
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.
Unlike loans, you don't have to repay work-study money.
Work-study programs are administered by your school's financial aid office. If you qualify for need-based aid, you should inquire about work-study.
The amount you earn in work-study is usually paid directly to you, so it is not applied to your tuition bill.
Service Programs
Service programs like military service, AmeriCorps, the Peace Corps, or Teach for America provide aid to students based on the type of work they do before or after college. Benefits range from $1,000 for a summer working for AmeriCorps to up to a practically free college education for military officer training. Service programs are typically NOT need-based.
Where Does Aid Come From?
There are five main sources of financial aid:
The federal government is by far the largest source of money for college. In fact, about 75% of all aid comes from the U.S. Department of Education and other government agencies.
Banks and other lenders offer a variety of loans that may be used for college expenses.
Your state may also be a great source of aid - especially through reduced tuition for state schools. But states provide little, if any, aid to students who move out of state for college, unless they have a special agreement with a neighboring state.
Many colleges and universities offer their own aid programs, which often come from school or state-sponsored endowments. Especially at private colleges and universities, this kind of aid can be very substantial.
Finally, private organizations such as corporations, unions, churches, non-profit organizations, and social clubs award over a billion dollars each year in financial aid. Even though these sources only account for about 5% of all financial aid, private sources are important to remember since you must apply separately for each of these awards. These are the most difficult to find awards, so scholarship searches are the best way to locate them.
Most students who receive aid usually receive it from a number of the sources mentioned here.
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