If you or your child is heading to college in the next few years, you have most likely heard the term, "financial aid." It is a broad term that covers a lot. This article will help you identify the types and sources of financial aid and help you determine what steps you need to take to apply for college financial aid. Here is what we will cover:
- What is college financial aid?
- Sources of financial aid
- Gift aid vs self-help aid
- Types of financial aid
- Applying for financial aid
Financial aid is any source of money that helps students and parents fund a college education. College financial aid may be awarded based on need or based on merit.
- Need-based aid: Awarded based on a family’s financial need.
- Merit-based aid: Awarded for academic achievements and other talents.
|Federal||Awarded through the school after completing the FAFSA. Comes in the form of grants, work-study & loans.|
|State||In RI, awarded directly through the colleges after completing the FAFSA. Comes in the form of grants.|
|Institutional||Usually scholarships and grants awarded through the school financial aid office.|
|Private||May be provided by local businesses, lenders, community organizations or religious foundations. Private funding comes in the form of loans, grants, and scholarships. You must secure private funding on your own.|
In a perfect world, there would only be one type of college financial aid: "gift aid." Gift aid includes grants and scholarships (more details on those below) and do not need to be repaid. As a rule, you always want to maximize grants & scholarships before borrowing.
However, there is another category of financial aid: "self-help aid." Self-help aid, which comes in the form of work-study and loans, requires some sort of investment from the recipient. In the case of loans, amounts needs to be re-paid, with interest. As for work-study, a student needs to find a work-study job and put in hours in order to earn the work-study funds that were awarded to him or her.
Below, is the Federal Methodology for determining eligibility.
Cost of Attendance (COA) - Expected Family Contribution (EFC) = Financial Need
The COA includes direct costs (those on your tuition bill) & indirect costs (such as books, transportation and living expenses).
Your EFC is determined once you submit your FAFSA. EFC is the amount your family is estimated to be able to contribute toward college costs each year. The following factors are considered when determining your family’s EFC:
- Parent income & assets
- Student income & assets
- Age of parents
- Number of children in college
- Number in the household
The graph below demonstrates how your financial need differs at colleges of different costs, yet your EFC
remains constant. Unfortunately, schools do not always have enough funds to meet 100% of your financial
need. For example, at College B, your financial need may be $30,000 but the school may only offer you $20,000 in financial aid. The $10,000 difference would be considered "gap" or unmet need.
There are four primary types of financial aid. We will cover each of them in more detail here.
Grants are funds awarded to your family that do not need to be paid back. A grant can be offered through the federal government, state, through your college, or a foundation. Grants are typically awarded based on financial need. The most common type of grants are Federal Pell Grants and Institutional Grants.
Like grants, scholarships do not need to be repaid. Scholarships may be awarded by a college or university directly, or may be available through an outside company or organization. At the RISLA College Planning Center, we recommend that students dedicate much of their private scholarship search tolocal scholarships. Local scholarships, while they tend to be smaller in amounts, are much less competitive than their national counterparts. That means your chances of winning an award are greater.
To qualify for a college scholarship, you'll need to meet some requirements determine by the individual school or organization awarding the scholarships. Academic merit scholarships tend to be based on GPA, SAT scores and/or class rank. Other scholarships, such as those for musical prowess or athletics chops, would be awarded based on your talent, and the school's need for someone like you.
But scholarships aren't just limited to valedictorians and the extremely talented. Many scholarships are based on financial need, personal attributes or even hobbies or interests. No matter what kind of student you are, there is most likely a scholarship out there for you, so start your search now.
The Federal Work-Study Program is a type of college financial aid that provides funding to financially-needy students in exchange for work. Work-study jobs can be found both on and off campus. Funds are awarded based on need, the school’s level of funding, and sometimes when the student applies for financial aid since funds are limited. The amount of money a student earns during their Work-study position cannot exceed the amount they are awarded by their school.
Students participating in the Federal Work-Study Program will earn at least the federal minimum wage. Undergraduate students are paid on an hourly wage. The Work-study program requires that schools pay students at least once a month and must pay the student directly unless he/she requests their wages be applied to tuition, fees or deposited into their bank account. Only U.S. citizens and permanent residents are eligible for this program.
Student loans are borrowed money, taken in out in either the student or parent name, and need to be repaid with interest, regardless of whether or not the student finishes school. Some student loans are need-based, such as the Federal Direct Subsidized Loan. On need-based loans, interest subsidies are provided to make borrowing less costly. However, the vast majority of student loans are awarded independent of financial need.
As a rule of thumb, a student's first borrowing option should be the Federal Direct Subsidized and Unsubsidized Loans. This form of federal student loans come with more repayment flexibility than non-federal student loans, and combined with their low fixed rates, they are a no-brainer for families who need to borrow to meet tuition bills. But these loans have annual limits which are often below the amount a family needs to borrow for an academic year.
Beyond the Federal Direct Subsidized and Unsubsidized Loans, families should be careful to take a holistic approach when comparing loans to ensure they are getting the best deal available. For example, the Federal PLUS Loan for parents does not come with nearly the same wide array of benefits as its federal student loan counterparts, and has a much higher interest rate. Parents may find they are able to save money by seeking a loan elsewhere, if they have good credit.
If you do need to borrow, you should be award of the primary differences between federal, state-based, and private student loans. Compare RISLA's state-based loans to federal student loans here and read up more on student loans at the related pages below.
Applying for financial aid can be broken down into six steps. Here is the rundown:
Apply for an FSA ID at fsaid.ed.gov. Both student and parent need one.
Submit the CSS/PROFILE application, if necessary. Not all schools require this form.
Review your eligibility and make corrections. Contact individual financial aid offices about circumstances not reflected on the FAFSA or CSS Profile (like job loss, medical bills, divorce, etc).
Compare your award letters, making sure to take into account how much you'll need to pay directly, and how much you'll need to borrow at each school.
Apply for loans, if necessary.