What your financial aid package means when paying for college
Now that the new year is in full swing, college applications are being submitted, and decision letters are being sent, it is important for students to plan ahead for decision-making time. The 2013-2014 federal financial aid application was released on January 1st, and while many deadlines are a few months away, it is important for students and families to plan ahead and discuss how they will finance college. For many college applicants, following an acceptance to a college or university, or maybe even included in that large envelope waiting for you in the mail, is a financial aid package. As it becomes increasingly expensive to fund a higher education, financial aid packages become more important in making a decision about where to attend.
Every family will need to assess their options and decide which financial plan is best for them. Some colleges have adopted a fixed-tuition plan, where a students tuition remains the same all four years they are in school, or even a free tuition or “pay what you can” plan to make their school more appealing to financially-conscious applicants. However, at most schools, students can expect their tuition to increase slightly every year they are in attendance, and for those individuals, a financial package could heavily determine which campus they choose.
It is important for students and families to understand what their financial package means for budgeting immediately as well as long-term. Here are some important terms regarding financial aid for American colleges and universities.
FAFSA is the Free Application for Federal Student Aid. The FAFSA determines how much a family is able to contribute to college tuition each year, as well as how much federal aid they are eligible for and in what forms. The FAFSA determines student grants, federal loans, and work study awards for public and private schools. A student must complete the FAFSA to be eligible for federal student aid, the largest form of student aid in the country. Many colleges use a student’s FAFSA to determine additional financial aid.
Grants are financial awards that do not have to be paid back. Grants can come from the federal government, the school itself, or from an outside organization. The FAFSA or independent applications determine whether a student will receive a grant. An added bonus: grants are usually tax-free.
College Scholarships may be award by the school or an outside organization. Scholarships, like grants, do not need to be paid back. Usually the recipient will have a scholarship package that will take a pre-determined amount of money off of the full-tuition every academic year. In some cases, students will receive a full-ride, or full tuition paid by the school. Students may receive merit scholarships where students must maintain a certain GPA to keep their award annually, or other scholarships with stipulations like community service scholarships where a student must perform a certain amount of service hours for scholarship money. Students can also research and apply for specialty scholarships offered by outside organizations.
Student Loans are borrowed from the federal government or an individual bank. Loans must be paid back, and come with interest rates that could accumulate and become dangerous for a student in school or a post-graduate. Subsidized loans are considered the best as their interest rate is lower than that of a bank. No interest accumulates while the student is in school and no payment of loans is required until the student has graduated or if they enroll less than part time. Unsubsidized loans also have lower interest rates than bank loans and do not require repayment until the student is out of school, but the interest rate amasses from the day the loan is taken out. Bank loans or unsecured loans are usually undesirable as they have higher interest rates, interest accumulates from day one, and loans are expected to be paid-off as soon as the student is able. Loans can assist a student in attending college, but any loan applicant should be wary and have a strategy for paying them back when they complete school.
Federal Work Study is another financial aid awarded by the FAFSA. Most college campuses have pre-determined work study jobs on-campus. A student provided with work study is employed part-time for their school and is paid specifically to be put towards school by the federal government.
There is not one right way to finance college. Every family must assess their own needs, along with their financial aid options and/or awards package, to choose the right school. Most colleges and universities want to assist students in any way possible so they can attend their top choice, so when in doubt, contact the schools you’re most interested in and see if they can offer you any advice, or better yet, additional aid. Whether through grants, loans, or scholarships, it is important that students are able to tackle the cost and make college a reality.