Different Types of Financial Aid in Detail

Different Tyes of Financial Aid in Detail

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Grants and Scholarships: These are the best kind of aid, as they are tax-free and won’t have to be paid back. The grants and scholarships come in different forms.

  • The Federal Pell grant: The Federal Pell grant is the toughest kind of aid that can be availed. This is given by the federal government, and is primarily meant only for low-income families. You don’t have to separately apply for the aid. When you fill the FAFSA, you automatically become eligible for it. The maximum amount one can receive under this is $5,370, and the amount of aid is decided by the federal government.
  • The Federal Supplemental Educational Opportunity Grant or SEOG: Each year, the college receives a lump sum that they are allowed to give to the students in need at their own judgement. The size of the award differs from $100 to $4,000.
  • Grants from the Schools themselves: The schools set aside some fund to provide aid to the students that can be need-based or merit-based. As this kind of aid comes out of the college’s own pocket, so it is in the form of discount from the sticker price. It can range from a few dollars to a full scholarship. Obviously the rich schools provide more money of this kind than the less-rich ones.
  • State Grants: If a student is attending a school in his own state of legal residence, or in a state that has reciprocal agreements with his state of legal residence, then he may also qualify for the state aid. These grants are based on the need and the size of the tuition cost of the college. These grants vary from college to college, and the average amount is $6,000 per year or more.
  • Scholarships from the School: For some schools, the grant and scholarship has the same meaning. There are schools that give scholarships in a more traditional sense, based on the merit of the student, which can be either academic, athletic, or artistic. Some schools give a scholarship based on a combination of need and merit.

    The only real difference between grants and scholarship that should concern you is whether the scholarship is used to meet the need, or it is used to reduce your Family contribution.

  • The Teacher Education Assistance for College and higher Education (TEACH) Grant program: Students, who are willing to teach on a full-time basis in a high need field in a private elementary or secondary school can avail some aid under the TEACH grant program. One can avail up to $4,000 per year under this grants, for their education purpose.

    To qualify for this grant, you must attend a school that has chosen to participate in this program, and you must also meet certain academic achievement requirements.

  • Outside Scholarships: This includes scholarship from a source which has not been affiliated with your college, then you must tell about it to the college separately. The college may use the scholarship to reduce your aid. More or less, getting an outside scholarship may either not affect your EFC at all, or if it does, then it will in most cases be a negative impact.

    The FAO can be the person who can help you out, if you are receiving some outside scholarship. If you succeed in convincing the FAO about your poor financial condition, then the FAO may allow you to include that outside scholarship in the family contribution part, or he may use the scholarship to replace loans or work-study components of the package, instead of the grants.

  • Federal Work-Study: In this part of the aid, the students are given part time jobs to decrease the unmet needs of the family. Most of the families’ fear that if the student works while studying, then it may affect his/her study. But several studies suggest that, the students who work during college have higher grade point averages than the student who don’t work.

    The experts suggest that before rejecting the work-study part of the aid, one should wait to see what kind of work is being offered. Though, the award letter does not specify the kind of work, the student will receive another letter later in the year which will contain the details about the work.

    The student has the choice of backing up from the job at any time he wants. So, it is better to accept the work-study, and wait to see if the job is going to affect the study or not.

    How much money can I earn from work – study?

    A work-study program will allow you to work for 10 to 12 hours every week, and you can earn a maximum of $3,000 annually

    Should I opt for work-study program?

    Work-study programs greatly increase your chances of success. Students who opt for this program spend time outside their campus with professors, alumni, and set of professional people, and they also gain the relevant experience required after study. Hence, it is always wise to go for the work-study program as it can also reduce your loan amount.

Loans: There are basically two types of loans: the need based loans, that are given to help family meet the remaining need; and non-need-based loans, which are meant to decrease the family contribution. Mostly, the need-based loans are offered as a part of your aid package.
The federally subsidized Perkins and Stafford loans are the best kind of loans. They must never be rejected because no interest is charged on these loans, and you are not required to repay it, until the student has graduated from the college or left the college. Even if you have got money in the bank, we will recommend you to leave the money in the bank to earn interest, and use the money from the loan to pay for the college.
These are some other attractive loans:

  • Federal Perkins Loans: The federal government allots certain amount of money to the colleges to give loans to the students in need. Though the money comes from the government, the college or the FAO decides who should get the aid, and what amount should be given. This is one of the best kind of loan, because the interest rate on this loan is fixed at 5%, and the payment for the loan has to be started only after the student has graduated, or left the college, or drops below half-time status. No interest accumulates during the college years, and the students have up to ten years to repay the loan.
  • Federal Stafford Loans: The subsidized Stafford loan is based on the need of the student, and the college takes the decision regarding this lon. The federal government subsidizes the loan by not charging interest on it until the student graduates, or leaves college, or drops out below half-time attendance status.

    The unsubsidized Stafford loan is not need based. Any student who applies for FAFSA is eligible for this loan. The interest is charged from the day the loan is granted, and the student can pay the interest during the college years, if they want.

    In both the cases, the dependent student is eligible for, up to $5,500 for the freshman year, up to $5,500 for the sophomore years, and up to $7,500 for the rest undergraduate years. However, for all of these annual limits, at least $2,000 must be unsubsidized in any year.

    The independent students can borrow up to $9,500 for the freshman year ($6,000 of which will be unsubsidized), up to $10,500 for the sophomore year ($6,000 of which will be unsubsidized), and up to $12,500 per year for the remaining undergraduate years ($7,000 per year will be unsubsidized)

    POINTS TO NOTE-

  • A junior or a senior year student can take up to $5,500
  • $4,500 is awarded for the sophomore year
  • Students in the freshman year can get up to $3,500
  • Taking a subsidized Stafford loan after the month of July, will attract a nominal interest of 3 to 4% annually.
  • The College’s Own Loans: Many loans come under this category with varying attractiveness. Some college asks you to repay the loan immediately with interest rates less than VISA and MasterCard.

    These loans seldom appear as a part of the aid package. But some colleges may pass them off as need-based aid to unsuspecting students and parents.

    Remember to carefully examine the terms of loans from the individual colleges before you accept them.

  • Non-Need-Based Loans: These kind of loans won’t show up as a part of your aid package. Many loans come under this category, and it will be nearly impossible to discuss all of them here, so here are examples of some of the common loans that belong to this category:
    1. Parents Loans for undergraduate Students (PLUS): PLUS loans are given to the families that have trouble in paying their EFC. Virtually, any parent can get the PLUS loans of an amount up to the sticker price minus the financial aid, provided that the federal government thinks the parent is a good credit risk. The PLUS loan seems to reduce your EFC and help you in meeting the unmet need, but that is not true. The repayment has to start within 60 days after you receive the last payment for the academic year.
    2. State Loans: The state loans are almost same as the state grants, but they differ only in one context, that is, they can be availed by non-residents. Some of them are offered only to the students, and some only to the parents; many of them are below market rates.

Some other kind of Non-Need-based loans are CitiAssist Loans, Sallie Mae Smart Option Student Loans, Collegiate Loans, etc.

If you are confused about the kind of loan that you should take, then you should consider the following parameters of the loans:

  1. What is the interest rate and how is it determined?
  2. Is the interest rate fixed or variable, and if the variable, is there a cap?
  3. What are the repayment options? How many years will it take to repay the loans? Can you make interest-only payments while the child is in school? Can you repay the loan early?
  4. Who is the borrower—the parent or the student?
  5. Are there origination fees?
  6. Is a co-signer permitted or required?
  7. Will have a co-signer affect the interest rate and/or origination fees?
  8. Is the loan secured or unsecured? The rates on a loan secured by the home or by securities are generally lower, but you are putting your assets on line.
  9. Is the interest on the loan tax-deductible?

Before you decide to settle for or reject a part of the aid package, you should compare all the packages. The size of the package is not important, but analysing that how much the package helps you in paying for the college is important

To maintain a particular package in the upcoming college years, the student must maintain a minimum grade point average, and should have good behaviour.

The FAO is also a source through which you can try to better your aid package. The College FAO is extremely experienced, and will know if the package decided for you is good or not. If you can convince the FAO that your aid package is not satisfactory for you, then he may help you out with a better package.

The best way to communicate to the FAO for increasing the aid is through phone, until you live at a walking distance from the school. Because it can become hard to convince the FAO about your poor financial condition, if you fly to the college just to complain.

However, there are certain other kinds of loans that you should avoid-

  • PRIVATE LOANS
    When it comes to taking loans from private banks, one must keep in mind that the banks are completely business oriented, and have nothing to do with the education of the student. All they care about is making money from the interest.

    Why should Private Loans be kept as the last option?

  • They are highly expensive and have a lot of other hidden charges.
  • You have to pay a high rate of interest and the loan amount will be doubled within very less time.
  • The private loans are not insured. It means that in case if you have a terrible accident that leads to your death, or even disability, then the banks will not have any pity on you, and your family will have to repay the money back anyhow.
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