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Student Loans & Financial Aid
Updated: March 19th, 2012 by
Timothy James
--
Going to college and need financial help?
This guide will take you through what you
need to know and includes information on
student loans, scholarships, grants and
other important information about student
financial aid.
Here are
some
additional
student
financial
guides that
you may find
useful...
For higher education aspirants the news on
the college financing front is mixed. The cost of
college tuition continues to increase at rates that
far exceed inflation as has been the case for more
than two decades. The good news is that financial
aid available for higher education is at its highest
level on record making it possible for just about
anyone with the goal of earning a college degree to
achieve it.
Nearly 70% of today’s college students receive some form of financial aid to help get them through both undergraduate and graduate studies. While the financial aid landscape is lush with financing options, it can also be somewhat difficult to navigate without proper planning and guidance. The key to obtaining the optimal college financing for your particular situation is to plan early and know your options. .
Before searching for financial aid options
The number of financial aid options available has expanded over the last decade, and because many of them are government-provided, the rules and eligibility requirements change frequently. For the unprepared, finding the right option and wading through the application process while avoiding mistakes can be very overwhelming. Before searching for financial aid options, you'll need to:
Assess Your Personal Financial Situation:
It’s important to have a clear picture of your family’s financial situation in terms of its ability to pay for college expenses in relation to your need based on the costs to attend the school of your choosing. Be sure to account for all expenses such as tuition, room & board, books, transportation, etc. For many of the financial aid options, this will determine your eligibility, so some may be ruled-out immediately.
Plan a Multi-tiered Strategy:
Because there are different types of financial aid requiring different levels of financial participation on the part of your family, you should also look at your financial aid strategy as a multi-tiered strategy where the least expensive options (scholarships, grants) are explored first and reliance upon more expensive options (student loans) are considered last. Some grants and scholarships are needs-based, while others are not, so you will first need to determine how much your family will be able to contribute towards college expenses. You should determine your eligibility for various financial aid options early on.
Establish Your Timetable:
Free money, such as scholarships and grants are is not unlimited in supply, so the process of searching and applying for it really needs to begin early on. It’s recommended that you start as early as your freshman or sophomore year in high school. For government financial aid, there is only one form you need to file, form FAFSA (Free Application for Federal Student Aid) and it should be filed no later than April 1 for attendance the following fall. Because each college is only allotted a certain amount of federal grant money to distribute, you shouldn’t wait for the deadline to apply.. Scholarships can be hit and miss and new ones are created all of the time, so it’s advisable to make scholarship hunting a continuous effort beginning in your sophomore year of high school.
The Three Tiers Of College Financial Aid
There are three main tiers of financial aid. You can see an overview of each of them below then we'll explore each of these in more depth.
Scholarships
Scholarships are, essentially, free money provided by various organizations or individual benefactors to assist worthy students in pursuing higher education. They can be quite large (although these are harder to find or qualify for) and they can be small, just a few hundred dollars. Small scholarships should not be overlooked, because it’s possible to qualify for several and they can add up. (See, Finding Scholarships)
Grants
More free money, but this is provided by the federal and state government as well as directly from certain schools. Grants are usually need-based and there is no requirement to repay them. Another form of federal aid is work-study where you are provided a job earning at least minimum wage and your earnings are applied to college expenses.
Student Loans
These are loans offered through federal and private institutions that require repayment. The federal government offers several varieties, such as the Stafford loan and the PLUS loan, and there are several repayment options available. Some loans are subsidized where the interest charges are paid while in school, others allow for a deferment of payments until after graduation. Loans can also be obtained through private lenders.
Finding College Scholarships
The most common misconception about scholarships is that only the smartest, most talented or most athletic students need apply. That is far from the truth. There are literally thousands of scholarships available through local community organizations, national associations, churches, ethnic organizations, private companies, and individual benefactors. There could be a dozen with your name on it. You just need to know where to look and how to apply for them.
It should be noted that, while scholarships are a great source of college financing, the amount of scholarship dollars you do receive will reduce the amount of financial aid money you can receive. So, they should first be considered as an option if your financial situation might preclude you from receiving need-based grants or subsidized student loans. If you are eligible for need-based grants, you will need to work with your school counselor or a financial aid specialist to determine if the offset would reduce your overall financial aid when both grants and scholarships are included.
Create Your Search Plan
Because of the number of different scholarships that are available, and the fact that they are not all widely advertised, it would be important to be proactive in locating opportunities and applying early on. Many scholarships establish criteria for applicants that preclude you from applying before your junior year in high school, but some will award scholarship money to freshmen and sophomores. Some scholarships are awarded based on achievement, while other are awarded just for applying. You could pay a scholarship locator service to cull the nationwide data-base of scholarships, or you could do it on your own with a little time, effort and the Internet.
Your first course of action should be to list potential benefactors based starting with local community organizations, affiliations with religious or ethnic groups, employers of your family members, social organizations to which family members belong, and non-profit organizations in your area. You should also make a list of the colleges you are considering as they may also have resources. With your list, meet with your parents and your school guidance counselor (who may also be a good source) to enlist their help in mapping out your search.
Your best search tool is the Internet, but don’t ignore networking and word-of-mouth. The more people who know of your determination to earn a scholarship, the more opportunity you have of finding the diamond in the rough. Be prepared to complete scholarship applications. While many are awarded based on academic or athletic achievement, others are more interested in the quality of your character and your vision for the future. With some, you be will required to you complete an essay which is your opportunity to explain why you are deserving of the scholarship..
Grants
The federal
government has made available substantial amounts of money that
is distributed through the colleges in the form of grants which
don’t have to be repaid.
Pell Grants, the most widely used form of
federal aid, are offered to undergraduate students,
but are sometimes available for those pursuing
post-graduate studies.
The Federal Supplemental Educational Opportunity
Grant (FSEOG) is awarded to low-income
undergraduate students to assist them in their quest
for a post-graduate degree.
The National Science & Mathematics Access to Retain
Talent Grant (National SMART Grant) is a
relatively new aid package directed at college
juniors and seniors who are majoring in the fields
of science, math, technology or engineering.
The Academic Competitiveness Grant (ACG) is
available to help finance the studies of freshmen
and sophomore undergraduates.
The eligibility
and the amounts awarded are based on financial need and which
are determined after the filing of an application. Additional
information of these grants, eligibility requirements and the
application process can be found at
www.studentaid.ed.gov.
Applying for Grants
The application process for financial aid, while not
very complicated, can be somewhat involved depending
on where you apply. All applications for federal
financial aid must be funneled through the federal
government using its FAFSA form (Free Application
for Federal Student Aid) which can be found at
www.fafsa.ed.gov.
From
there, you may be required to complete an additional
application through the college you want to attend.
The college will receive the determination from the
federal government regarding your application and
then run the school’s application through another
set of criteria to see if you are eligible and for
what amount.
It is advisable to review your college’s eligibility
requirements and application process before you
apply to the federal government because you may find
that it offers additional funding through school
grants or scholarships. You may also find that some
state schools require that you file an additional
application through the state as requirements can
vary from state to state. You should expect that
financial documentation and income verification will
be required along with the applications.
Student Loans
For many students, family
resources, grants or
scholarships won’t be enough
to cover the entire bill for
college which is why the
vast majority of today’s
college students rely on
student loans. Student loans
should be considered very
carefully as they do vary in
both type and in their
repayment requirements. It
is also important to
consider your or your
family’s capacity to repay a
loan that could stretch over
many years. (Try
our
student loan repayment
calculator)
Types of
Student Loans
For
undergraduate
students there
are,
essentially, two
types of loans –
subsidized and
unsubsidized.
Subsidized loans
utilize federal
dollars to pay
the interest
while you are in
school and for a
predetermined
time following
graduation. The
Perkins Loan is
subsidized for
the most
financially
needy students
while the
Stafford loan is
will subsidize a
broader range of
financial need.
For students
from families
that don’t
demonstrate
financial need,
there are two
alternatives: An
unsubsidized
Stafford Loan
and a PLUS Loan.
The Stafford
Loan is issued
to students and
requires full
payment of
interest during
attendance at
college. The
PLUS Loan is
issued to the
parents of
students and
generally
requires that
applicants have
a good credit
standing.
Applying for
Student Loans
As with federal
grants, students
must apply
through the
federal
government using
the FAFSA form.
The amount
applied for
should be based
on the amount of
total college
expenses
required less
any other
resources
available. There
are both
eligibility
requirements for
loans as well as
borrowing limits
based on
financial need.
Nearly all
students are
eligible for
student loans,
but the type and
amount available
will vary
depending on
need.
Student Loan
Repayment
Equally
important to
determining the
type of student
loan to take, is
determining the
repayment plan
that best suits
your financial
situation. Most
student loans
are issued under
the assumption
that you will,
at some point be
earning a living
with the
capacity to
start repaying
them. That may
not always be
the case, and
some students
find themselves
in difficult
financial
situations with
no income to
make the
payments. With
most of student
loans available
come various
repayment
options.
Most include
some sort of
grace period of
six to nine
months which
allows you some
time to find a
job and build up
some cash flow.
At that point
principal and
interest
payments are
expected to be
paid. In today’s
tough economy,
many graduates
are having a
difficult time
finding gainful
employment that
can generate
sufficient cash
flow, so, there
are a few
additional
repayment
options
available to
ease the burden:
Deferment
-A
loan deferment
allows you to
defer your
payments for a
specific period
of time. Some
deferments will
defer both
principal and
interest
payments while
others only
allow for
principal
deferment. It
would be
important to try
to keep up with
your interest
payments as
these can accrue
and compound
into a much
bigger problem
down the road.
Forbearance
- A loan
forbearance can
be requested if
you can
demonstrate
financial
hardship which
prevents you
from making loan
payments.
Typically the
loan terms are
revised to where
the balance is
reduced or the
payment schedule
is postponed. In
most cases, you
will still be
required to make
the interest
payments.
Loan
Consolidation
- If you have
several federal
loans, you may
be able to
consolidate them
into one which
will not only
reduce your
monthly payments
to just one, it
could reduce the
amount of the
payment
depending on the
consolidated
loan terms.
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