So you want to go back to college? Great! You're probably wondering how you're going to pay for it. There's good news: there are numerous options for financial aid: grants, scholarships, federal and state aid, and even work study and student loans. We'll take a look at some of these options so you can better understand what to expect when it comes to the financial bottom line.
Keep in mind that this is only a brief overview of some of the aspects of financial aid. To learn more, talk to your financial aid counselor, financial advisor or loan servicing offer. If you are already out of school and dealing with issues concerning repayment, contact your loan holder to learn more about what you should do to stay current on payments.
Terms to Know
1. What are loans?
Loans are exactly what they sound like: Money borrowed from the federal government or private institutions to pay for the college expenses that other financial aid (such as grants or scholarships) doesn't cover. Federal loan options include direct subsidized loans, based on financial need; direct unsubsidized loans, which are not based on financial need; and direct PLUS loans, which are designed for parents or graduate and professional-track students.
2. What are grants?
Grants are financial awards available from federal, state or local sources. They provide financial assistance for college students and are usually based on need. Some of the most popular grants come from the federal government and include the Pell Grant, the Supplemental Education Opportunity Grant, TEACH Grants and Iraq and Afghanistan Service Grants. Though grants usually do not have to be repaid, some situations might require the grant to be returned — for instance, withdrawing from school before finishing the semester might result in losing grant aid for the entire semester.
3. What are scholarships?
Scholarships are some of the best options available to pay for college, as they do not have to be paid back. These gifts can be applied toward tuition, fees, room and board and are sometimes simply given to the student as a cash award to be used as they see fit. Scholarships might be merit-based or need-based; merit-based scholarships take into account academic achievements, while need-based scholarships look primarily at financial need when choosing who receives the award. Scholarships are offered by schools, private organizations, businesses, communities, religious groups, employers and more.
4. What is the FAFSA?
The Free Application for Federal Student Aid is a vitally important application for anyone pursuing higher education. The FAFSA collects income information that helps determine how much financial aid you might get. Filling out a FASFA is a requirement for those who hope to obtain federal financial aid. Many states, colleges, local organizations and the like also use FAFSA information to help determine eligibility for need-based grants, scholarships and other types of aid.
5. What is federal aid?
In the context of higher education, federal aid is money the government is willing to contribute to your education. The Higher Education Act of 1965 provides for student financial assistance programs from the federal government; the Office of Federal Student Aid administers the programs. More than $120 billion is awarded in federal financial aid each year, reaching over 13 million students. Federal aid includes several options, such as grants, work-study awards, loans and more.
6. What is work-study?
Federal work-study programs allow a student to work up to 20 hours per week, making an income up to the amount of the work-study award. This income can be used to offset college expenses, including tuition. Work positions in work-study programs can include those on campus, or those with off-campus employers such as nonprofit organizations and local businesses. In the best case scenario, the work-study job will be in your field of interest. It's based on financial need and available to part-time or full-time students, as well as undergraduate, graduate and professional-track students.
7. What is loan consolidation?
If you take out more than one loan in pursuit of your higher education goals, loan consolidation might work for you. Many students take out separate loans for each year or semester; at the end of their college career, they have numerous loans, all with different due dates, grace periods and the like. Loan consolidation cuts through the jumble and rolls all the loans into one, allowing you to make one payment each month. This helps you stay on top of the payments and avoid default. However, loan consolidation can have some pitfalls as well. To know which route to take in your particular situation, it's a good idea to speak with a financial advisor.
8. What is income-based repayment?
When it's time to pay back your student loans, income-based repayment can help you keep the payments affordable. As the name implies, income-based repayment takes into account income, family size and where you live to determine what your monthly payment will be. This can work very well for those who have high student loan debt but an entry-level income in their profession. As you make more money, your payments can be adjusted to a higher amount. As a general rule of thumb, loans obtained before July 1, 2014 are capped at 15% of your discretionary income; those obtained after July 1, 2014 are capped at 10%.
9. What does it mean to default on a loan?
When you fail to make your loan payments according to the terms of your agreement with the lender, you're in default. For federal student loans, being 270 days (about nine months) past-due on your loan payments puts you into a default status. If you cannot make your payments, you can avoid default by making certain arrangements with your lender, such as opting for a deferment or forebearance. If you don't have an agreement in place, your lender will begin trying to contact you to set up an agreement or obtain the payments that are due.