Financial Aid: A Guide

Financial aid has long been considered a way to make higher education affordable. Financial aid comes in various forms and is designed to cover the gap that can exist after the student or the student's family contributes to the costs of college.

In order to qualify for federal, state, and other assistance for school, you will need to fill out the Free Application for Federal Student Aid (FAFSA) from the U.S. Department of Education. You should expect to have to disclose a great deal of personal and financial information for both the potential student and the family in this application. After you have filled out the FAFSA forms, you will send them in for review. Once they have been reviewed, you should receive a Student Aid Report (SAR) that will show your expected family contribution (EFC). You can get an idea of your financial need by looking at the cost of attendance (COA) at the school you are looking at and your EFC. These numbers are used to determine how much financial aid you might be eligible to receive from the schools that you have selected to attend. Financial aid can come in several different options, including student loans, grants, scholarships, and work-study.

Common Types of Financial Aid

Student Loans

Most students who receive financial aid receive it in the form of a loan that is backed by the federal government. These are usually granted based on need. If you receive a federal loan, it will have a low, fixed interest rate, no cosigner needed, and more repayment options than private student loans. Always try to exhaust your federal student loan options before you look at private ones. There are several different types of federal student loans, and the FAFSA form will help you know which ones you might qualify for.

• Perkins loans—A Perkins loan is the most affordable loan you can receive from the federal government. The federal government will send a certain amount of funds to your school. The actual school will be in charge of distributing these funds. These kinds of loans are meant for lower-income students.
• Direct subsidized and unsubsidized loans—With subsidized loans, the government will pay the interest that is accruing while you are attending school. With unsubsidized loans, you are responsible to make the interest payments while in school. If you don't pay the interest it will be capitalized into the loan. So if you took out $10,000 in student loans and your interest payment for the month was $50 but you didn't make that payment, then the balance of the loan would be $10,050 the next month. If you continue to let this happen, you will essentially be paying interest on interest as the balance accumulates.
• Parent PLUS loans—These type of loans are taken out in the parent's name, not the student's. These are unsubsidized, fixed-rate federal loans. They may have slightly higher interest rates and could come with an origination fee. Repayment plans may be limited with these types of loans.
• Private loans—There is always the option to work with a private lender to receive loans for college. This is going to be a more expensive option than federal loans. A credit check will typically be required, which makes it tough for young adults entering school. Parents may have to cosign in order for the student to qualify. The interest rates could be fixed or variable, and will vary depending on your credit history and the lender you are working with. Repayment plans will be much more limited than with federal loans.

Grants

Most students see grants as free money. Typically, grants are need-based and therefore meant for the lower-income students. They can come from the federal government, state governments, colleges, or private or nonprofit organizations. Keep in mind that you may need to pay back a grant if you don't satisfy the agreement. An example might be dropping out of school before you graduate. Here are some examples of federal grants:

• Pell Grant
• Federal Supplemental Educational Opportunity Grants
• Teacher Education Assistance for College and Higher Education Grants
• Iraq and Afghanistan Service Grants

Completing the FAFSA form will be your first step to see if you can qualify for any of the grants above.

Scholarships

Scholarships are a form of free money that is typically merit-based. A student will need to search around to find where to apply for scholarships. Some common places to start will be the financial aid office at the school you are interested in, your high school counselor's office, your state grant agency, the U.S. Department of Labor's free scholarship search tool, public libraries, churches, a parent's employer, and so on.

It is probably best to start looking for scholarships a year or more before your first year at college. This means that if you are in high school, you should start looking the summer before your senior year.

If you are awarded a scholarship, it could affect other amounts of financial aid you receive. Be sure to let your school know if you have been awarded any scholarships.

Be cautious about any organization guaranteeing (for a fee) that it can find and get you scholarships for school. There are plenty of free services out there that can offer to help with your scholarship search, so don't ever pay for help.

Federal Work-Study

The federal work-study program provides part-time jobs for students with more financial need. This program can be for both undergraduate- and graduate-level students. Not all schools will participate in this program, however, so be sure to check with your school's financial aid office. The jobs associated with this program can be on or off campus, and you will earn at least the federal minimum wage.