Financial Aid 101
Watch this short video to get your bearings in a seemingly endless sea of financial-aid options. Grants, scholarships, loans—you name it—we cover it in this informative clip.
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As you consider additional education after high school, it’s a good idea to familiarize yourself with options for how to pay for it.
You probably know already that unless you plan to pay for it all yourself, you have to complete the FAFSA to be considered for any kind of college funding. Remember, you can go to our PF101 Conversation on the FAFSA if you have questions.
To show how all the types of funding options are related, let’s think about financial aid like a tree and use this image as an example.
There are three main branches on our financial-aid tree–gift aid, work study, and loans. To start, we’re going to talk about gift aid. We’ll discuss work-study and loans later.
From gift aid, our financial aid tree branches out in two different directions–grants or scholarships. We’ll talk about grants first. Grants are money you don’t have to pay back unless you withdraw from classes during the semester for which you received the grant.
The most common type of public grant is the Pell Grant. The federal government makes Pell Grants available as part of your overall student-aid package. Pell Grants are need-based, which means they’re available to low-income students. The government uses several criteria to determine Pell Grant eligibility including:
- the student’s Expected Family Contribution, or EFC amount,
- the cost of attending the school
- whether you attend full or part time, and
- whether you attend for a full academic year.
REMEMBER – If you withdraw from classes during the semester for which you received the grant you will have to repay the money in full or in part.
When you complete the FAFSA you are automatically applying for a Pell Grant.
The Federal Supplemental Educational Opportunity Grant or FSEOG for short, is another type of federal grant. It is an additional source of money available only to those who have already qualified for the Pell Grant and demonstrate extreme financial need based on their EFC. The only way to apply for the FSEOG is to complete the FAFSA.
Let’s return to the scholarship branch of our tree. Like grants, you don’t have to repay scholarships. Some scholarships are renewable. This means that you continue to receive the money each semester you attend school, if you maintain the scholarship’s required minimum GPA or satisfy other requirements. Other scholarships are one-time awards. Students typically receive scholarships either from private sources, or from the school.
Let’s look at private scholarships first. These can come from corporations, community, or non-profit, and civic organizations. Some scholarships are merit-based. which means they’re based on things like grades, volunteer work and community involvement or membership in social organizations.
Some private scholarships are need-based or based strictly on the student’s family income. Finally, some private scholarships are demographic based, meaning they are available to applicants with a particular categorization. This might be based on where you live, your ethnicity, whether you have children or whether your parents went to college.
Private scholarships are not covered by the FAFSA. You will need to search and apply for these on your own. Several free online databases will help you find private scholarships, so there’s no reason to pay for scholarship searches;
The FAFSA is your starting point for scholarships granted by your school. As your school is determining your financial-aid package, they will look at your financial need, any grants or loans you may be eligible to receive, and then determine what they will offer in scholarship funding.
That covers gift aid, the financial aid that you won’t have to repay under most circumstances.
Work study is the simplest branch of the financial-aid tree to explain. Work study programs provide you with a job while you’re enrolled in school. These programs are administered through your campus and your college uses FAFSA information to determine availability. You are paid directly, and may use work-study money toward education-related expenses like tuition, fees, books, and room and board.
Finally, we’ll discuss loans.
The loan branch on our financial-aid tree splits in two smaller branches for public and private loans. Let’s talk about public loans first.
Direct and Direct PLUS loans are the two main types of public financial-aid loans. Your FAFSA is used to determine your eligibility for them.
First, let’s look at Direct Loans. Some people call these loans Stafford Loans or Direct Stafford Loans.
Direct Loans can be subsidized or unsubsidized. In a Direct Unsubsidized Loan, interest begins to accrue while you’re in college. That amount is usually added into the principal of the loan, and the payments are deferred. Deferred means that you don’t have to start making payments if you’re enrolled in school at least half-time. There is a six-month grace period after leaving school, after which you must begin repaying the loan, with interest, and with a higher principal amount because the original interest was added to the loan balance.
Subsidized loans begin accruing interest right away, too, but the government pays the interest while you’re in school. This means that you ultimately end up paying less for your loan, than you would pay for an unsubsidized loan.
Direct PLUS Loans are a type of financial-aid loan available to parents to help their children pay for college or that graduate and professional students can use to pay for their own education expenses. Direct PLUS Loans are available at a fixed-interest to those who have established a good credit history. The maximum loan amount is determined by subtracting all other available financial aid, as determined by the school, from the total cost of attendance. The FAFSA is all you need to determine if you or your parents are eligible.
Finally traditional financial institutions like banks and credit unions also offer college loans. These loans typically have higher interest rates, shorter grace periods, origination fees, and may have penalties for pre-payment of the loan.
There are several search engines specifically for private college loans. It’s smart to do a lot of comparison shopping Make sure you understand all fees, grace periods and deferments, interest rates and total loan costs, and options for consolidation after graduation.
This sums up most of the various financial-aid options available. Remember, it all begins with the FAFSA, and you can use free search engines to find private financial aid and apply for scholarships, and, if needed, examine loan options from private sources. Don’t forgot the guidance counselors at your school or the financial aid office at your college. There are plenty of free sources of information to help you fund your education.
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