Making Sense of College Grants, Loans, and Scholarships

The cost of attending college increases each year, with some private institutions charging as much as $40,000 to $50,000 for one year of education. Student savings are often not enough to cover these high costs, so there are several sources of financial aid available to qualified applicants. These sources of funding include grants, loans, and scholarships. Each type of aid has different eligibility requirements, so it is important to read all application materials thoroughly and follow the instructions to the letter. Qualifying for financial aid can make the process of paying for college a little less stressful for both students and parents.

What is a College Grant?

Grants are a type of college financial aid that does not have to be repaid by the borrower. The U.S. Department of Education offers several grants to students who are enrolled in community colleges, four-year colleges and universities, and technical schools. The Federal Pell Grant is available to undergraduate students who do not have previous professional degrees or bachelor’s degrees. As of 2012, the maximum Pell award is $5,550. This does not mean that every student will receive the maximum award, however. The Pell grant is awarded based on financial need and education costs.

The Federal Supplemental Educational Opportunity Grant (FSEOG) is for students who have substantial financial need. The amount given each year is anywhere from $100 to $4,000. The award amount depends on financial need and the availability of other funding sources. The federal government also offers special grants to children of veterans who died in Iraq or Afghanistan after September 11, 2011. The maximum award for this grant is $5,500. The Teacher Assistance for College and Higher Education (TEACH) grant is available to students taking courses necessary for teaching at the elementary or secondary levels. Recipients must enroll in schools that participate in this grant program. Students interested in these grants must complete the Free Application for Student Aid (FAFSA). The Department of Education will then determine an expected family contribution (EFC), which will help college financial aid officers develop a financial aid package to help meet the student’s financial needs.

Some colleges and universities award grants to students who cannot cover their educational expenses with their loans, income, and savings. Each school has different criteria for awarding student grants. Some are awarded solely on the basis of financial need. Other grants reward students who participate in a specific activity or maintain a certain GPA. The best way to find out about available grants is to contact the financial aid office. Financial aid officers can provide information about all available grants and the eligibility criteria for each one.

Students should apply for grants as early as possible, as some schools award grants on a first come, first served basis. The deadline to file the federal FAFSA form is typically June 30. Each state has its own specific deadlines. Pennsylvania has a deadline of August 1, but North Carolina recommends that students apply as soon as possible following the first of the year. Some states stop giving awards once funds have been depleted. Colleges also have specific deadlines for filing financial aid forms. Check with a college financial aid officer to find out the cutoff date for grants.

What is a Student Loan?

A student loan is money used to pay for educational expenses. The difference between a student loan and a student grant is that, like a car loan or home loan, a student loan must be paid back. There are several types of loan programs available for students attending community colleges, private colleges, state colleges, and trade schools. One of the most popular is the federal Stafford loan program. Subsidized Stafford loans are given on the basis of financial need. Students must be enrolled at least half time in order to receive this loan. The interest on this type of loan is deferred until repayment begins after graduation.

The unsubsidized Stafford loan is not given on the basis of financial need. Unlike the subsidized Stafford, the interest accrues immediately after the funds are disbursed to the student. Students must be enrolled in at least six credits in order to qualify for this type of loan. A completed FAFSA is required for both types of Stafford loans. The maximum amount of a Stafford loan depends on three factors: school year, whether the student is considered dependent or independent, and whether the student is an undergraduate or graduate student.

Dependent first-year students receive a maximum of $5,500. Independent first-year students receive a maximum of $9,500. For both types of students, only $3,500 of the loan funds can be subsidized. Second-year dependent students receive a maximum of $6,500, while second-year independent students receive a maximum of $10,500. Only $4,500 of this money can be subsidized. Students in their third, fourth, or fifth years of undergraduate school receive a maximum of $7,500 if they are dependent students, and $12,500 if they are independent students. The maximum amount subsidized is $5,500. All graduate students qualify for a total maximum of $20,500 and a subsidized maximum of $8,500.

The Perkins loan is a type of loan given to students who demonstrate financial need. This type of loan has the best terms available, as it comes with a low interest rate, and students do not have to repay their loans until nine months after leaving school. This type of loan does not require a credit check, so it is a good alternative to private loans that require good credit. To receive any federal loan, the student must not be in default on any other educational loan. The student must also meet all other eligibility requirements for receiving federal aid. The maximum award amount for this loan is $4,000 for undergraduate students, and $6,000 for graduate students.

Those who do not qualify for federal student loans should consider applying for private loans, which are also called alternative loans. These loans help students pay the costs that other types of financial aid do not cover. Students must have good credit to get a private loan. Since some high school students do not have credit histories, their parents may have to sign as co-borrowers. Select a co-borrower with a good credit score, as good credit helps borrowers get the best loan terms possible. Sources of private loans include credit unions and banks.

There are some pros and cons to taking student loans. One of the pros is that they help cover tuition, room and board, books, and other college expenses. Savings and income from a part-time job may not be enough to cover these expenses. The major con of taking out student loans is that they must be repaid. Repaying these loans may be difficult, especially if a student is unable to find employment after graduation. Federal loans typically have more attractive loan terms than private loans, so students should apply for this type of loan before applying for a loan with higher interest and fees.

  • Stafford Loans: This resource lists the types of Stafford loans and explains the maximum award for each type of student.
  • Federal Perkins Loan: This page explains the eligibility requirements for the federal Perkins loan.
  • Private Loans: This resource explains why a student may need a co-borrower to qualify for a private loan.
  • Pros and Cons of Co-signing for a Student Loan (PDF): This article discusses the use of private loans to cover the cost of a college education.
  • Federal Student Loan Portal: This site allows students to view loan documents, sign loan promissory notes, and complete loan entrance counseling requirements.
  • Entrance and Exit Counseling: This site allows students to fulfill the federal student loan entrance counseling and exit counseling requirements. The activities on this page explain the importance of repaying student loans.

What is a College Scholarship?

A college scholarship is an award given, based on a specific set of criteria. This is free money that does not have to be repaid, so it is ideal for students of all income levels. Schools, nonprofit organizations, community organizations, and businesses offer scholarships to students who meet specific eligibility criteria. A business might offer a scholarship to the student of an employee. Nonprofit organizations may offer scholarships to students who demonstrate financial need. Many scholarships require students to maintain specific grade point averages or enroll in specific academic programs. The requirements for each scholarship are different, so always read the application materials thoroughly.

The application requirements vary, based on each scholarship. Some only require students to complete a basic application. Others require students to write essays and gather letters of recommendation. Follow the application instructions carefully to avoid being disqualified. Some scholarships cover any education-related costs, so students can use them for tuition, fees, room and board, books, and class materials. Some scholarships only cover tuition. In some cases, the organization gives the scholarship directly to the student in the form of a check. The student is free to do what he or she wishes with the money. Applying as early as possible is important, as each organization has a limited amount of funds.

The major benefit of getting scholarships is that they do not have to be repaid. A $10,000 scholarship is a more attractive form of aid than a $10,000 loan with a 5 percent interest rate. Since the eligibility requirements vary for each scholarship, students who do not qualify for federal grants and loans may be able to gather funding by winning several scholarships. The biggest drawback of scholarships is that most programs are very selective and there is a lot of competition. It is difficult to stand out among 1,000 applicants, so students must put a lot of effort into fulfilling the application requirements.

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