Federal loans, private loans, grants, scholarships, financial aid... the list goes on. Which one is right for you? Don't feel bad if you're a little confused about how to pay for school. Here's some basic information on the world of education finance; we hope it helps.
Below are the primary sources of funding for college:
The Federal Government is the single largest source of funding for education. The aid is primarily need-based assistance. Need-based assistance is financial aid that supplements the family's ability to pay for college. It attempts to close the gap for those families whose income is insufficient to support the costs of higher education.
Need-based aid is the most common category for aid awarded throughout the United States. A student's eligibility for need-based aid is determined by completing the Free Application for Federal Student Aid (FAFSA), which evaluates the family's financial circumstances. This form is completed after January 1 of the year a student plans to enroll in college. The FAFSA uses a complex formula to determine your estimated family contribution (EFC). This number is the amount that your family, according to the federal government's methodology, should be able to contribute towards institutional costs over the course of an academic year.
Whether you are considering a low cost school or an expensive private university, all schools that you may apply to use the EFC.
All too often parents and students make the assumption that they will not qualify for any type of financial aid. Despite a family's income or ability to pay for the cost of attendance, students should apply for every possible source of financial assistance. Only then can they make an informed decision about which college or university to attend.
By November or December of the year before enrolling in college, a student should begin collecting information about specific schools that they wish to attend. Contact those schools to receive an application for admission and financial aid as well as any additional forms that are required. Complete the FAFSA as soon after January 1 as possible. When schools begin sending you information about the types of financial assistance offered, compare and contrast each school carefully to decide whose assistance will most benefit you.
Federal Government Financial Aid Programs
Many financial aid packages include some or all of the following resources to help pay for college. These awards come from federal sources, and the maximum amounts offered are based on the institution's specific cost of education or determined by federal regulation.
- Federal Pell Grant - This need-based grant is given to help undergraduates defray the cost of education. This award is an "entitlement" program, which means that, if eligible, the student must receive these funds no matter which school he/she attends.
- Federal Supplemental Educational Opportunity Grant (SEOG) - This grant is given based on financial need and is awarded to Federal Pell grant recipients.
- Federal College Work-Study Program (FWS) - This program provides jobs for undergraduate and graduate students as a part of their aid package. College Work-Study is awarded based on financial need. Other work-study opportunities may be available if a student does not qualify for the Federal Work-Study Program.
- Federal Perkins Loan Program - Not all schools participate in this program. The Perkins Loan Program is a low interest, federally funded loan program for both undergraduate and graduate students. The loan is administered by the school and is based on need. As long as the student is enrolled in school, the federal government subsidizes the interest. Repayment begins 9 months after the student graduates or leaves school. The repayment term is up to ten years with a minimum monthly payment of $40.
- Federal Stafford Loans (Subsidized & Unsubsidized)
- Federal Parent Loans for Undergraduate Students (PLUS)
- Federal Graduate PLUS Loans for Graduate and Professional Students (GradPLUS)
Other Types of Federal Assistance
Local National Guard or military reserve units may offer educational assistance in the form of scholarships or loans. Check with your school counselor or Reserve Officer for more information.
If you are an eligible veteran or the dependent of an eligible veteran, contact the regional Veterans Administration office that has records for you or your eligible parent. Funds may be available to cover a portion of your educational expenses. Educational benefits are usually paid directly to the recipient on a monthly basis. For more information on VA benefits call 888.GIBILL1 (888.442.4551) to speak with a Veterans Benefits Counselor or visit the web site at http://www.va.gov/.
Workforce and Vocational Rehabilitation may be available to qualified students. Contact your local agency for more information. These offices are usually listed in the telephone book in the state offices section under rehabilitation services or vocational rehabilitation services.
Students who are members of an Indian tribe may be eligible for assistance from the Bureau of Indian Affairs (BIA). BIA benefits may vary depending upon the tribe. You should contact your tribal headquarters to determine your eligibility for BIA benefits.
The second largest source of financial assistance is the institution itself. Institutions offer scholarships and grants based on merit, athletic ability, financial need, the study of a specific discipline, and many other criteria. Most require additional applications and have specific deadlines for receipt of their applications.
Students should inquire about institutional scholarships and grants in the school's financial aid office as well as specific departments at the institution.
Private scholarships and grants may be available from corporations, civic groups, and philanthropic and religious organizations. Finding these resources may require the student to do extensive research. Start with high school guidance counselors, financial aid offices, local libraries, the Internet, and current college students.
A word of caution: Private scholarship search companies who charge for services may or may not be reputable. Although they may help find potential gift aid, they cannot guarantee the student will receive funds. Contact your high school counselor or financial aid officer before you invest money in private scholarship search programs.
Likewise, consultants who offer to complete the FAFSA form for you in return for a fee may not be adequately trained. The financial aid administrator at any college or university located in your area is an excellent source of information and assistance. These professionals conduct workshops at high schools and community centers on a voluntary basis.
Remember: You should never pay a fee to receive financial assistance.
You should begin planning early for college attendance. Your financial planner can advise you on saving and investment opportunities. States are also stepping in to provide the means for families to start saving early for college.
Every state offers college savings plans. The College Savings Plans Network was formed in 1991 as an affiliate to the National Association of State Treasurers. This coalition of states works together to find ways to encourage families to save ahead for college. For more information about the College Savings Plans Network or the National Association of State Treasurers, write to P.O. Box 11910, Lexington, KY 40578-1910 or call 859.244.8175 or visit http://www.collegesavings.org/.
Alternative loan programs provide funds to meet the cost of education once other sources of aid have been depleted or when annual limits have been reached. These credit-based loans may require a co-signer and typically have higher interest rates than federal loans. Borrow conservatively and make certain that all other sources of federal student aid and scholarships have been explored before utilizing alternative loan funds.
Many states offer scholarships, need-based grants and special loan programs to help residents pay for college. Application processes and deadlines vary from state to state. Check with your guidance counselor or financial aid counselor for information about the programs in your state.