Student Financial Aid: Everything You Need to Know
If you have been racking your noggins how to pay for college without burdening your folks, we have you covered. You’ll find everything about student financial aid that you’ll ever need to know, right here. To begin, there are various financial aids awarded by different sources every year. The most common sources of financial aid are federal student aid, state student aid, financial aid provided by colleges, and private aid often packaged as need-based scholarships. Out of all these financial aids, the most significant source of all is the federal student aid. That is the first door you will knock, if you are a student based in the US trying to organize monies for college.
The US Department of Education’s office of Federal Student Aid is the world’s most generous provider of student loans, student grants, and work study funds. They offer more than USD 150 billion in student aid each year in the form of grants, loans and work study funds. Students use the Federal Student Aid to pay school expenses such as tuition, room and board, and books and supplies.
So, first, we’ll tell you all about federal student aid because clearly that’s where you’ve got to start your financial aid search effort. There are a few different kinds of federal aid you must know about and understand the differences. Then we’ll take you through how to apply for grants, federal student loans and work study loans. Finally, we will brief you about other avenues of financial aid that you can fall back on if the federal student aid doesn’t cover all your expenses.
Types of Federal Student Aid
Grants are based on financial need. A federal grant is the best type of student aid that you can hope for. If you qualify and receive a federal grant, it is yours to keep and you needn’t return it. The US Department of Education offers a few different kinds of grants. These are the Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and Iraq and Afghanistan Service Grants. These will help offset the cost of school but, often, you may still need additional help. If so, a work-study fund or a federal student loan might be the answer for you.
Getting a work-study fund is another great option to pay for college because it has advantages beyond financial aid. The work study program offers you a part-time job that you can do on the side while you are enrolled in school. This will help pay for tuition and other expenses. You’ll need to apply for work-study jobs on-campus and off-campus. Off-campus work study would typically mean a private non-profit organization or a public agency. You’ll be paid by hour but the amount you earn cannot exceed the total amount awarded to you by the school for that year. The work study program encourages employment in civic education and work related to your course of study to the extent possible. The availability of work-study jobs varies by school.
You got to understand that this is not a free money. You must work for it. But it’s yours to keep and eligible graduates and undergraduates will be able to earn at least a minimum wage. In addition to the money, you will also get valuable work experience for your resume. By the way, work study money does not eat into your federal student aid eligibility. You will soon understand what that means.
Federal student loan
Remember, a student loan is like any other loan. It is a borrowed money and you will have to pay it with interest. If you plan to take out a loan, a federal student loan is always a good first choice. Compared to private student loans, federal student loans often have lower fixed interest rates and come packaged with other benefits that you won’t find easily in the outside loan world.
Student aid for military families
The way this type of federal student aid works is through Pell Grants. We will cover this in detail shortly. If a student’s parent or guardian died in service in Iraq or Afghanistan after 9/11, he/she may be eligible for additional aid over and above the Pell Grant eligibility.
There are also a bunch of Reserve Officers’ Training Corps (ROTC) Scholarships which are based on merit rather than just financial need. These include:
As it happens, it is not just the federal government that is helping military related students. State governments as well as private non-profit groups also sources of these financial aids. To qualify, you must be either a service member or from families of veterans or active-duty military personnel. Some of these are sizable sums of money and hence worth exploring if you are eligible.
Free Application for Federal Student Aid or FAFSA
Free Application for Federal Student Aid or FAFSA is where the whole process of getting federal student aid begins, whether it’s a grant, a loan or work-study aid. Each October a new FAFSA is available for the next school year. Therefore, that is when you start the FAFSA application process. This will open the door for you for a variety of financial aids, including the Federal Pell Grant. FAFSA is available absolutely free on fafsa.gov in English and Spanish. Therefore, if any financial aid agency out there is charging you money for the FAFSA application, you know immediately they’re suspish. Let’s dive in.
Federal Student Aid Eligibility
These criteria apply across the board whether it’s federal grant eligibility, federal loan eligibility, or federal work study eligibility that we’re talking about.
- You have to be a US citizen or an eligible non-citizen possessing a valid Social Security number, with a few exceptions
- You have to be enrolled for a 4-year or a 2-year full-time or part-time eligible academic program
- Demonstrate “satisfactory academic performance” and your school will be able to tell you the standards
- You have to sign a statement in the FAFSA application that you are not in default of a federal student loan and do not owe money on a federal student grant. You’ll only use the federal student aid for education.
- Most male students must be registered with Selective Service between the age of 18 to 25. The Selective Service program is basically a database of young men who the government may call in the event of a national emergency.
- Serious criminal convictions can seriously impede your eligibility
FAFSA application online
It takes under 30 mins on average to complete a FAFSA application online. If you fill the FAFSA application online you can check status updates immediately. Things to keep in mind:
- You create your login and password called FSA ID. This becomes your digital signature for FAFSA going forward.
- Keep your social security number, your permanent resident card if applicable, any W2 forms, records of money you earned and tax records for the previous years.
- By the way, you can automatically import your tax data from the IRS to your FAFSA application.
- You can list up to 10 schools of your choice in your FAFSA application. Make full use of this list even if you haven’t applied or haven’t been accepted yet.
Student Aid Report (SAR)
Within a few days of filling out the FAFSA, you’ll get your Student Aid Report (SAR). Basically, it summarizes all of the information you submitted on the FAFSA. You can access your SAR online on fafsa.gov using your FSA ID. You must check your SAR for any mistakes and correct them, if any, particularly in your tax information.
Expected family Contribution (EFC)
On your SAR, you’ll see a reference to your Expected family Contribution (EFC). This number is used to determine your federal student aid eligibility. But it doesn’t mean that you have to contribute that amount.
Financial aid eligibility
The information you submit gets directed to the US Department of Education’s Office of Federal Student Aid for processing. The colleges you select will be notified so that they can begin their process of awarding aid. They will use the information on your FAFSA application to assess how much federal aid or loan you’re eligible to receive. You may need to verify the information you submitted if the school authorities ask. They will guide you on what they need.
The financial aid award letter
Once you’re accepted into the school, you’ll receive an award letter from the school’s financial aid office providing you with all the details of the offer. This letter explains all the federal and also the non-federal aid options that this school is offering you. If there’s anything in your financial aid award letter for which you need further explanation, you should contact the financial aid office of the particular school.
Review your awards and choose a college
At this stage, you should compare the award letters you’ve received from all the different schools and choose the college that’s best for your situation. The choice of college needn’t just be based on the amount of financial aid you receive. Since your future depends on your education, check the reputation and ranking of the school, the programs you wish to enroll for, etc.
The federal loan
If your aid offer includes a grant, then you do not need to repay it. But a federal student loan is money you borrow from the government and you must promise to repay it. So, make sure you borrow only what you need and keep this option as your last resort. If it’s your first time getting a federal loan, there are a few more things you need to go through to complete the process. You need to complete what is called “entrance counselling”. This is to ensure that you understand the responsibilities and obligations you are assuming. After that you will need to sign the master promissory note (MPN) which is a legal document saying you will pay back the loan.
You must be wondering how federal student loans come to you. Do men in black suits bring briefcases full of bills to your doorsteps? That would be fun. But basically, the grants and federal loan money go to your student account to set off your tuition fees and other charges. If there is any leftover money, the school will pay you.
FAFSA is NOT a one-time process that you complete at the beginning of your program and forget about. You will need to renew your FAFSA application each year that you’re in school. Since this is a financial-need based student aid, the federal authorities will review any changes in your financial situation each year. While October is when FAFSA becomes available for the next academic year, each college or trade school has its own FAFSA deadline. Besides, student aid funds in colleges are limited and dry up as quickly as they become available. So, it’s in your best interest to complete the process early so that you do not miss the FAFSA application deadline in your list of colleges.
Federal Grants for Student Aid in Detail
The US Department of Education offers four main grants. They are Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG grants), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and Iraq and Afghanistan Service Grants. Below, we will cover each one of them.
Federal Pell Grants
The federal Pell Grant is named after a U.S. Senator from Rhode Island called Claiborne Pell. Pell Grants are almost only available to US students for undergraduate studies. You can use your Pell Grant at over 5400 participating US undergrad colleges or trade schools. Over 5.4 million college aspirants and vocational school students get Federal Pell Grants each year. If you’re aiming for student aid of any kind, it’s highly recommended that you apply for a Pell Grant. Being Pell Grant eligible is the foundation and passport to numerous other grants and need-based scholarships. That includes many private aids and scholarships as well.
Federal Pell Grant Eligibility
- You need to be enrolled for 2-year or 4-year undergrad study or vocational training in the US. Also, you will need to be a US citizen or a permanent resident.
- Start with a FAFSA application as explained above.
- The amount you receive will depend on tuition fees and expenses at the specific institute and the specific program you’re applying for and your Expected Family Contribution (EFC). Based on all of these, therefore, the U.S. Department of Education applies a standard formula and works out the amount of Pell Grant you’re eligible for. The maximum Federal Pell Grant award is $6,345 for the 2020–21. That should give you a fair idea of what to expect of this process.
- Federal Pell Grant funds are normally paid directly to your school towards tuition.
- To maintain a federal Pell Grant award, you will need to continue studying and also apply through FAFSA each year of college. Also, you will need to maintain satisfactory academic performance.
- You can only receive a Pell Grant from one college at a time.
A Federal Supplemental Educational Opportunity Grant (FSEOG Grant)
The FSEOG grant is for undergraduate students with a great financial need as determined by the EFC amount. Participating institutes administer this grant based on your EFC index. Each year, schools get a certain amount of FSEOG grant funds. The schools then determine your eligibility. You will get an amount between $100 and $4,000 a year, depending on your need, other aid you received, and the availability of funds at your school.
Unlike the federal Pell Grant which all eligible students get, eligibility is not the only the criteria for FSEOG grants. Availability is another one. So, you will need to move fast with the application process. As with Pell Grant, you’ll need to renew the FAFSA application for the FSEOG grant and prove eligibility afresh each year of school.
Teacher Education Assistance for College and Higher Education or the TEACH Grant
The TEACH Grant requires you to commit to four years of qualifying teaching in order to win the grant. It is very different from other federal grants in that it is free only if you fulfil your teaching obligation. The TEACH Grant federal student aid began in 2007 to attract highly qualified teachers to fill difficult teaching positions in low-income school districts. You should be mindful of what this work entails and be ready for it. If you don’t fulfil your service obligation, the TEACH grant becomes a loan and you’ll need to repay it.
TEACH grant student aid eligibility
- You must enroll for an undergraduate, post-baccalaureate, or graduate programs with a participating school.
- You have to meet certain academic achievement thresholds such as a cumulative GPA of at least 3.25 or being in the 75th percentile of a college admission test, etc.
- Go through the FAFSA process
- Go through TEACH Grant counselling that explains your obligations
- You need to sign an agreement to serve as a teacher as required under this grant
Under a TEACH grant, you will be eligible for an amount anywhere between $100 and $4000 per year. The awards have declined slightly in recent years. The TEACH Grant is a great opportunity for those going into the teaching profession after college. However, if teaching is not your end goal in life, then you should probably look for financial aid elsewhere.
Iraq and Afghanistan Service Grants
Like other federal student aid grants, Iraq and Afghanistan Service Grants fund college or career schools for students who lost a parent or guardian in the Iraq and Afghanistan wars. This grant is based on the Pell Grant. A student needs to be Pell Grant eligible except in terms of Expected Family Contribution. The amount awarded is also equivalent to the Pell Grant and cannot exceed the college tuition fee and expenses.
Federal Student Loans or Direct Loans in Detail
The federal student loans used to called Stafford loans, named after the US Senator from Vermont, Robert Stafford. They are also called Direct Loans since students get the loans from the Department of Education directly. They are issued under the William D. Ford Federal Direct Loan Program. Title IV of the Higher Education Act describes the terms of the loans. Over 90% of US student loans are federal direct loans.
There are three different types of federal direct loans. They are subsidized federal loans, unsubsidized federal loans, and Direct PLUS Loans.
- Subsidized federal student loans are available for only undergraduate programs. The student needs to demonstrate financial need via the FAFSA application. The government pays the interest when the student is still studying. Subsidized federal direct loans have loan amount limits.
- Unsubsidized federal student loans are available for both undergraduates and graduate level programs and it is not based on financial need. The students pays the interest during college and any unpaid interest becomes part of the loan.
- Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.
Advantages of federal direct loans
- A big benefit of a federal direct loan is flexible repayment. A loan officer will work out a repayment plan based on your income and individual situation. You may also be able to defer your federal student loan payments.
- The interest rate doesn’t change over the life of the loan
- Federal student loans have a grace period of usually 6 months after the student leaves college, before repayments start.
- You can deduct federal loan interest on your taxes.
- You can consolidate all your federal student loans into one loan and pay just one monthly payment.
- Federal student loans are sometimes forgiven based on certain types of employment.
In a nutshell, federal direct loans are the safest and the most student-friendly loan option you can get. Now you know what to expect from federal student aid (which comprises federal grants, work study programs and federal direct loans). Many US students solely rely on one of these grants. However, depending on your situation, this may not cover all your expenses and you may need to raise more. Hence, we’re going to take you through a couple of other sources of student aid.
Student Aid in the form of Scholarships
In the United States, scholarships are a significant part of student financial aid. There are several scholarships awarded to students not just by federal and state governments but also by non-profit organizations and corporates. Many of these scholarship awards have financial-need criteria or race/ethnicity criteria in addition to academic prowess. Further, they are normally part of the FAFSA application process. So, if you have been that smart kind in school who has been doing well in coursework as well as extra-curricular activities, you should give these scholarships a shot.
Types of scholarships available
A scholarship is an award given to students to pursue further studies based on merit, financial need, ethnicity, subject specialization, any other special criteria or even some weird criteria or a combination of these. It may cover the entire cost of your education including living and accommodation (full-ride scholarships), or just the tuition fees (full-tuition scholarships). Most commonly, they may just cover your expenses partially. In the following links, we have put together a series of resources to help you navigate this myriad of undergraduate scholarships available to you. Please go through each and check if one is for you.
State Student Aid
States in the US provide grants and scholarships. Almost every state education agency has at least one grant or scholarship available to residents with student aid eligibility typically restricted to state residents attending a college in-state. You have to contact your state grant agency to find out about programs available and the application procedures. One of the more popular state grants is the Cal Grant or the California Student Aid Commission (CSAC). Only California residents are eligible for these awards. Residents can, therefore, apply through FAFSA or CADAA. Similar to Cal Grants, every state has programs to support higher education for students in need. State student aid is normally accessible through FAFSA. Different states have different FAFSA application deadlines
How to find information about financial aid
The best way to get information about financial aid is to contact the financial aid office at the school you plan to attend and checking information online. For all things related to federal student aid you can get information on studentaid.gov. For information on state student aid, you can go to nasfaa.org. For information related to scholarships, you can check the federal government’s free scholarship finder. For federal direct loan information, check out FDLP. To get general counselling on student aid, there are several agencies that provide information and application services. TRIO is one such federal government outreach program that has been instituted to help students from disadvantaged backgrounds navigate through financial aid options.
The key to success with financial aid packages is to start early, collect information systematically, prepare in advance and move fast. If you do these things, therefore, you will likely achieve the best possible outcome for your situation. All the best.