Counseling Education

The Financial Aid System Explained

Despite the skyrocketing costs of obtaining a college degree, graduating from college has become a prerequisite to even be considered for most jobs. Most students need financial aid to cover the costs of a college education.

The U.S. Department of Education provides financial aid to students based on family income and financial need. To get this assistance, students must submit the Free Application for Federal Student Aid (FAFSA) application to the U.S. Department of Education and their college or university. The FAFSA provides income information and other financial details used to calculate how much aid applicants are eligible to receive.

Students can qualify for financial assistance from both the federal government and their educational institution based on a number of factors, including the information in their FAFSA application.

FAFSA Completion

After a student's school and the Department of Education review and process a FAFSA application, they send an award letter to the applicant explaining eligibility and loan amounts.

There are four primary forms of government and university financial aid.

- Grants - Grants provide students with "free" money that is awarded interest-free based on financial need. The Pell Grant awards up to $4000 per year to eligible students, and is of the most popular government grants for undergraduate students.

- Scholarships - Thousands of different private institutions offer scholarships to students based on a skill or merit. This money never needs to be repaid.

- Work Study Programs - Federal Work Study (FWS) allows students to work on campus or in the community and use their earnings to offset educational costs.

- Federal Loans - The government provides low-interest loans to many students. They must be repaid with interest beginning after the student graduates.

Loan Facts

The majority of students fund most of their education with federal student loans.

Federal Loans vs. Private Loans

The main difference is that federal student loans are usually more flexible and have lower interest rates than private loans. The government issues loans in order to help students, and their terms are designed to address students' primary concerns. Private loans are governed by banks and market forces, so they tend to be less forgiving.

Other Federal Loan Advantages

- Low interest rates;

- Extended repayment plans with generous deferment and forbearance options;

- No credit check, usually;

- Freedom to use the money for any education costs, including house and supplies.

- Federal loans enter repayment six months after graduation or if the student's schedule falls below half-time enrollment.

Federal student loans come in three main varieties.

Subsidized - No interest is assessed while the student is in school with at least a half-time schedule, and interest only begins accruing six months after graduation. Students must demonstrate financial need to be offered subsidized federal loans.

Unsubsidized - Interest is assessed on unsubsidized loans starting with the first disbursement, though payments are not due until after graduation. All students are eligible for this loan.

PLUS - PLUS loans are unsubsidized loans available to graduate students and parents of dependents who meet basic eligibility criteria, including a favorable credit report. Interest is assessed from the beginning of the loan, just like with an unsubsidized loan.

Loan Limits

The government caps the amount that students and their parents can borrow. For the first year of college, dependents can borrow up to $5,500, while non-dependents and parents can borrow up to $12,500. These amounts increase after freshman year, but each loan and total federal loan value cannot exceed the cost of education, including tuition, supplies, and reasonable living expenses. Graduate students can receive a maximum of $20,500 in loan money each year.

PLUS loan applicants are eligible for an amount equivalent to the student's attendance minus the award money already bestowed. Schools often set a maximum borrowing amount for their students as well.

The financial aid process can seem complicated, but many schools have financial aid officers who are very knowledgeable and helpful. They key is to start the application process early and get as much information as possible about options before making any long-term financial decisions. Article Courtesy of SNHU.EDU's Online Education Programs .

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