Types of Financial Aid

When savings and earnings aren't enough to meet your education expenses, financial aid is designed to fill the gap. Financial aid is money that is given or loaned to you to help pay college expenses.

The single largest source of financial aid is the federal government, followed by state governments, colleges, and private organizations. Financial aid falls into three general categories: Free Aid, Work Aid, and Loan Aid.

FREE AID

Grants, which do not need to be repaid, are typically awarded based on financial need. Two of the largest grant programs are the Federal Pell Grant and the Federal Supplemental Educational Opportunity Grant (FSEOG). Additional grants are awarded by the federal and state governments, colleges and independent organizations.

Scholarships are awarded for a variety of reasons, including academic achievement, financial need, community involvement, organizational membership, and ethnicity, to name a few. Scholarships do not need to be repaid and are typically awarded on an annual basis. While the federal and state governments award some scholarships, the majority of funds are offered by private organizations.

WORK AID

Work-study programs, offered by federal and state governments as well as individual schools, provide part-time jobs on and off campus so students can earn funds to pay their education expenses. Most work-study students also gain valuable work experience and greater exposure on campus.

LOAN AID

Because of the rising cost of higher education, the majority of families rely on loans to cover a portion of their education expenses. In 2004, loans comprised 45% of the financial aid awarded to families. In total, $55 million of the $122 million in aid awarded each year is in the form of loans. Education loans come in three forms: federal, private, and institutional. 

Federal Perkins Loans are available to families with extreme financial need. These loans carry a fixed 5% interest rate, are funded by the federal government, and are administered by the school.

Federal Stafford Loans are low-interest loans for students enrolled in college at least half time. Interest rates are fixed at 6.8% beginning July 1, 2006. The funds borrowed can generally be repaid over a 10-year period.

Subsidized Stafford Loans are available to students with demonstrated financial need. The interest accrued on these loans is paid by the federal government while the student is in school. Payments begin six months after you graduate or drop below half-time enrollment. 

Unsubsidized Stafford Loans are available to most students regardless of family income. Payments are not required while in school, but interest does accrue and is factored into your monthly payments, which begin six months after you graduate or drop below half-time enrollment.

Federal Parent PLUS loans allow parents to borrow up to the full cost of education less other aid received, for students enrolled at least half time. The amount borrowed can generally be paid back over a 10-year period. The interest is capped at 8.5% beginning July 1, 2006.

Federal Graduate PLUS loans allow graduate students enrolled at least half time to borrow up to the full cost of education less other aid received. The amount borrowed can generally be paid back over a 10-year period. The interest is capped at 8.5% beginning July 1, 2006.

Institutional loans are made available by individual colleges. Each school determines its own loan characteristics and eligibility requirements. Check with the financial aid office at the college you will attend for more information.

Private loans are provided to students by banks and loan companies. Each provider determines its own loan characteristics and eligibility requirements. A good rule of thumb is to look for private loans that offer in-school payment deferment, high credit approval rates, and flexible repayment options.

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