College financial aid makes the cost of attending school affordable. The types of financial aid available include grants, loans and work-study.
Each program has a separate set of eligibility requirements based on financial need, enrollment status and field of study. Some programs require students to repay the funding. Other programs offer what is known as “gift aid” that does not need to be repaid.
Students may apply for grants and loans using the Free Application for Federal Student Aid (FAFSA). The information provided on the form helps the school and the federal government determine the student’s financial need and the aid for which they qualify. More information on the types of financial aid available and information on how to qualify for each can be found in the sections below.
Grants are a form of student financial aid that does not need to be repaid. Thus, federal subsidies for college are also known as gift aid. Student grants are based on a student’s financial need and the amount awarded depends on the student’s financial status. Those with a greater need receive the most funding.
Related Article: FAFSA Application Process
Students apply for grants using the Free Application for Federal Student Aid (FAFSA). FAFSA collects information from the student to determine their financial need. The form requires students to enter information such as their name, date of birth, Social Security Number and income. They are also required to provide the income for each parent. Schools use this information to determine how much the student must pay minus other grants, loans or scholarships the student receives.
The college financial aid funds are directly sent to the school to pay for the student’s expenses. The remainder goes to the student.
There are many federal student financial aid grants available from the federal government. Each college financial aid grant has a specific set of eligibility criteria based on factors such as income and field of study. The grants are as listed below.
The Federal Pell Grant is awarded to students based on their financial need. After submitting the FAFSA, each school evaluates the student’s financial status and automatically allocates the funds to those who qualify.
The FSEOG is a grant that is also based on a student’s financial need. Unlike the Pell Grant, the FSEOG is for those who demonstrate an exceptional financial need. Those students with an Expected Family Contribution (EFC) of zero receive priority for an FSEOG.
Aspiring teachers qualify for a TEACH grant provided they fulfill terms outlined in a service agreement. To receive this federal student financial aid, students sign a contract stating that they will teach at certain low-income schools for a specified number of years. If a student does not fulfill the contract, the grant is converted to a loan which must be repaid.
Federal student loans are loans made to undergraduate and graduate students to help pay for their college expenses. They may use the student financial aid loans to pay for tuition, books, supplies and other approved items related to their education. Loans must be repaid at the end of the borrower’s grace period.
For a student to qualify for this loan, the student must be enrolled at least half-time in an approved course of study. Also, they must be a U.S. citizen or eligible noncitizen. The borrower must be enrolled in selective service if a male and must not be in default on any federal student loans. Parents may also apply for loans to help fund their dependent’s college education. The parent must meet income and credit requirements to qualify.
To apply, students must submit a Free Application for Federal Student Aid (FAFSA). The FAFSA is a standard form used to evaluate a student’s financial need. Schools use the information to determine the types of financial aid for which a student may be eligible.
College financial aid loans are available to both students and their parents. Each type of student financial aid has different eligibility requirements based on financial need, enrollment status and creditworthiness. The following information outlines the types of loans available.
With a Direct Subsidized Loan, the government pays for the interest on the student’s loans during the student’s grace period. The grace period lasts while the student is enrolled in school, for six months after finishing school or during deferments.
The Direct Unsubsidized Loan differs from the subsidized loan in that the government does not pay interest on the loan. Borrowers must pay interest on the loan. The borrower may elect to defer paying interest until after they complete school. In this scenario, the interest accrues and is added to the loan principal.
The Grad PLUS and Parent PLUS loans are used to pay for expenses after all other forms of student financial aid have been exhausted. Graduate students are eligible for GRAD plus loans. The Parent PLUS loan is available to parents of undergraduate students. Each loan requires the applicant to pass a credit check.
Borrowers must begin repaying student financial aid loans after the grace period. Parents with college financial aid loans for their dependents must start their payments as soon as the loan is disbursed.
Borrowers have a variety of payment options from which to choose. They may select a graduated payment plan where the payments increase over time. Or, they may select an income-based repayment plan where the amount varies depending on the borrower’s current income.
Loans for student financial aid may be combined into a direct consolidation loan. The consolidation loan means the borrower pays one payment for their loans versus multiple payments spread across all their loans. If a student is unable to repay their college loans, they may apply for a deferment. The deferment permits them to stop making payments for a specified time. If a student stops making payments when they are not in a deferment or forbearance, their account may go into default. A default could make a borrower ineligible to receive further federal student financial aid.
College students may use federal work-study funds as a form of student financial aid to help pay their education expenses. With this type of college financial aid, students locate a job in a variety of settings including schools, local state and federal organizations or nonprofit organizations.
Students earn their college financial aid in the form of wages. The employer pays the student directly. Students may then use the money at their discretion. Work study funds are not meant to cover the more substantial college expenses. Instead, it is intended to help the student pay for day-to-day expenses while in school. To apply, students must submit a FAFSA. The school evaluates the student’s financial situation to determine if the student qualifies for this type of financial aid.
Related Article: Federal Student Aid Amounts