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The Different Types of Federal Student Financial Aid

By William Sun


Overview


Over the past decades, college costs have grown exponentially. In fact, according to the Forbes Advisor, college tuition has risen by a rate of 180% from 1980 to 2020. This inflation, which is greater than even the rise in costs of medical care and housing, is caused by a wide variety of factors. Mounting pressure to go into higher education and succeed in STEM fields, decreased state funding and a buildup of excessive campus amenities all contribute to exploding college costs.


With these rising costs, not all students can afford to dish out huge amounts of money for college. The solution? Financial aid. However, the maze of student financial aid can be difficult to navigate with so many different types and requirements for aid. In this article, we will be focusing on federal student aid.


Four main categories of student financial aid can be distinguished: grants, scholarships, loans, and work-study.


Grants


Grants are “gift-aid,” money given to students that do not have to be paid back. The primary requirement for eligibility is based on financial need. Based upon a student’s yearly income, cost of attendance, and future plans, grants are offered through various programs. Additionally, based on the lender, grants can also come from federal institutions or private foundations.


Federal: Most of the grants are only given to students with substantial financial needs. This is found by filling out the Free Application for Federal Student Financial Aid (FAFSA) form each year. Once submitted, colleges will let you know how much money you may receive and when. Although this form follows for all federal grants, several different requirements are found for certain unique grants


  • Federal Pell Grants: These are only given to undergraduate students without any degree, who show great financial need. If you are incarcerated or convicted of any sexual offense, you are not eligible for this grant. Currently, the max amount is $6,895 for this grant.

  • Federal Supplemental Educational Opportunity Grant (FSEOG): This is virtually the same as the Federal Pell grant system except that it is distributed through a school’s own financial system. Once the full amount of a school's FSEOG funds has been given, no more students can receive FSEOG awards. The max amount currently is between $100 to $4,000, depending on the FAFSA form, amount of aid, and availability of funds.

  • Iraq and Afghanistan Grant: in most special cases, if your parents died while serving in Iraq or Afghanistan, you may be eligible for this type of grant, assuming that you do not meet the requirements for other grants. The max amount is equal to the max amount of the Federal Pell Grants, but can not exceed the cost of attendance.


However, it is important to keep in mind that in some cases, it may be required that the student pays back the grant, given the possible conditions.


  • You withdraw early from the program which gives the grant.

  • Your enrollment status changes which affect your eligibility for the grant.

  • You received additional aid that reduced the amount of aid needed.


Scholarships


Scholarships are very similar to grants in that the money given does not need to be repaid. However, the key difference lies within the requirements for eligibility. While grants are solely based on financial need, scholarships also consider other merits and factors. Overall, there is a variety of merit-based scholarships available for students, usually given by colleges themselves or from other private, religious, nonprofit, or professional organizations. Academic success, special talents or artistic abilities, and athletic skills are just some of the factors taken into consideration for scholarships. In addition to merit, scholarships can also target certain groups of people, including women, graduated students, people from historically underrepresented races, and even military families.


Several tools can be used to look for scholarships.

  • College-specific financial aid offices

  • High school Counselors

  • US Department of Labor Scholarship Search Tool

  • Local organizations (religious, ethnic, nonprofit, etc.)

  • Online (Look up scholarships by group / major to see what fits you best)

  • High Schools (In addition to proving you tools on where to find scholarships, various schools also offer merit/application scholarships)


Out of all the financial aid, scholarships vary the greatest due to being supplied by so many independent schools and groups. The amount can range from a couple of hundred dollars to paying off the full-time tuition. Generally, the best way to find out this information is through thorough research of scholarships, deadlines, requirements, and amounts.


One important thing to keep in mind is that scholarships may have unintended consequences on other financial aid. Since the total student aid can not exceed the cost of attendance, a big scholarship can limit your ability to take out student loans, apply for grants, or receive more federal aid. Thus, you should keep careful track of the combined student aid from all sources.


Work-Study


The work-study program allows for students to take on part-time jobs while enrolled in college to earn money to pay off costs. Besides fostering greater community participation and student growth, work-study jobs are the most open and diverse of the federal programs, open to virtually all students. (full-time, part-time, undergraduate, graduate, professional) Jobs are usually situated in civic education fields (teachers, directors of education, etc.) or within the field that you are studying. Thus, this is a fantastic opportunity to gain valuable work experience while earning money for college expenses all at the same time.


Some important logistics to remember:

  • You can work on or off campus

  • You will earn at least the federal minimum wage ($15), but depending on your work, skills, and progression, you may earn more.

  • You can only work the number of hours equal to your total Federal Work-Study award. Organizing your class schedule, workload, and other extracurriculars in addition to your job may be a challenge.


Loans


As you probably know, loans are money that is borrowed that has to be paid back with an interest, the money added onto the original amount borrowed through a fixed or increasing rate. Although there are many different types of student loans, two central categories can be observed by the different lender institutions: federal and non-federal.


Federal: These student loans are given out by the government under the William D. Ford Federal Direct Loan Program. This program offers various types of loans based on each student’s financial situation.


  • Subsidized Loans: Loans given to undergraduate students who show financial need (based on family income and cost of attendance). Students do not have to pay any interest that accrues while they are still enrolled at their school.

  • Unsubsidized loans: Loans given to undergraduate, graduate, and professional students regardless of financial need. However, students are responsible for all interest that accumulates, even when still attending school.


Some important things to note about federal loans

  • They have a fixed interest rate, meaning that the debt will not increase exponentially over time. Moreover, the interest rates for federal loans are generally lower than interest rates for private loans, with federal loans having a 4.99% rate while private loans average at 5.70%.

  • In fact, there is currently a 0% interest rate on federal loans due to Covid-19 emergence relief.

  • No credit score check or cosigner is necessary for most federal loans.

  • Students only need to repay loans once they leave college or drop below half-time for that college.


Which one is right for you?


Naturally, depending on each person’s own financial situation and future plans, certain types of financial aid will be more beneficial than others.


If you are in severe financial trouble, yet still aim to complete your degree at a four-year college, grants are the most ideal type of aid. Due to the fact that they do not have to pay back, this type of aid is best for those whose family income can not cover enough of the cost of attendance. Moreover, for those who lack other scholarships but will maintain a steady education and attendance at a school, you would rarely have to worry about paying back grants.


For those with exceptional skills in a particular field, scholarships are the best choice. Whether it is being talented in playing the cello or being a track and field star, these top-tier students who have sufficient financial stability should consider scholarships. However, if you are still dependent on plenty of other financial aid, stay away from small/fractional scholarships as they will negatively impact your ability to take out other types of financial aid.


If you are someone who desires work experience while also still in need of financial aid, a work-study program may be better suited for you. However, if you are in great need of financial aid and would rather have more time for other activities, you should consider other options for financial aid.


Finally, the most prevalent type of financial aid, most people apply for student loans. If you have sufficient financial stability (steady income etc.) and have a secure plan for the future to handle the debt that comes with student loans, this is the right choice for you. In fact, most students will only be able to qualify for this type of aid. Check out this article on student debt to gain a better understanding of student loans and the potential consequences that come with them.


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