Types of Aid

Understanding the types and sources of aid is the best way to make sure you get the help you deserve.

 

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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. 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 are based exclusively on your FAFSA form, which must be completed by every person applying for federal financial aid.

For other awards, students must seek out and apply for each and every one. Internet searches offer the best ways to find out about awards, but be careful about revealing your personal information. You should never have to enter your Social Security Number or pay for a scholarship search. A 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.

Education Loans
Education loans make up the majority of all aid dollars. There are federal loans that are available from the government, and private loans that are available from banks or lenders.

All federal loans are now borrowed directly from the federal government. One type of federal loan is the Direct Loan, and there are two types of Direct Loans: subsidized and unsubsidized.

Subsidized federal Direct Loans are awarded based on financial need, and if you qualify, interest is not charged before graduation or leaving school. Unsubsidized federal Direct 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 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. Private loans can be an important component of a college financing solution.

Private loans are credit based. Making interest-only payments while in school or choosing immediate repayment will result in savings on interest expense.

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. Unlike loans, work-study money does not need to be repaid.

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.

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.

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