Your Guide to Financial AidHAGA CLIC AQUÍ PARA LEER ESTA GUÍA EN ESPAÑOL
- The majority of college students qualify for some form of needs-based financial aid.
- Financial aid can include federal loans, private student loans, and grants, scholarships or fellowships.
- Projecting the cost of the entire degree program can help students understand the debt they will incur in college.
- Students should first consider federal loans, which include Stafford Subsidized and Unsubsidized, PLUS, and Direct Consolidation.
A Note from BestColleges on Coronavirus and Financial Planning in College
The COVID-19 outbreak has caused rapid and significant changes in students' lives. Campus closures have pushed students to online learning, and life after graduation is uncertain for many.
Saving money and budgeting in college is top of mind for many students, even in the best of times. Our Financial Aid Guide can help you understand and plan your finances in college.
We are also working to provide information and resources to students about the impact of coronavirus on college life. Read our latest Coronavirus Resources for Students.
We encourage students to contact their college's financial aid office for any financial questions related to coronavirus. Many services have moved online as schools work to support students through this challenging time.
Around two-thirds of today's college students rely on loans to fund their education. By graduation day, the average college student who graduated in 2018 owed roughly $29,000 in student loans. While accruing some level of debt is unavoidable for most college students, there are plenty of overlooked financing options that savvy students can use to reduce the costs of their education. In this guide, we identify and explore the different categories of financial aid to help you find resources that match your needs.
An Introduction to the FAFSA
Most need-based forms of financial aid, except scholarships and certain private grants, revolve around the Free Application for Federal Student Aid (FAFSA). Individual states also use the results of this application to determine eligibility for resident students. Note that all federal and state financial aid awards are contingent upon attendance at an accredited institution.
Accreditation refers to a voluntary process in which schools and other institutions submit information about their programs to accrediting organizations, such as the agencies listed here. If an accrediting body verifies that a school meets certain educational standards, that qualifies the school's students for state and federal financial aid.
Because most awards are paid directly to the school, failure to attend classes may result in revocation of financial aid. Students who have lost funding this way may be required to pay all of their tuition for a defined period of time or pay a cancellation fee.
Most students qualify for some form of need-based financial aid. Financial aid assessments depend on the income and resources available to each student (or their parent or guardian if the student is under the age of 24). There are exceptions to the age requirement, including instances where both parents are deceased or the individual can demonstrate that they are emancipated. Grounds for emancipation include the following:
- Joining the military
- Getting married
- Obtaining permission from a court
You can learn more about state-specific emancipation laws and circumstances through Cornell Law's emancipation table.
Understanding Your Options
There are three main types of aid available: federal, state, and private.
Federal aid applies automatically once you submit your FAFSA. The FAFSA also covers many, but not all, state aid programs. Although state financial aid programs vary, most have two award levels for state residents. States often grant bigger awards to students attending schools within their home state and smaller awards to students enrolling out of state.
Many state colleges and universities offer lower tuition rates for state residents. To qualify as a state resident, a student (or the parent of a dependent student) must have lived in the state for 1-2 years before matriculation. However, eligibility requirements for residency status vary by state.
Private colleges and universities often provide different amounts of tuition assistance. Certain private organizations also offer financial aid, often in support of a particular field or community of people, such as minority learners or students with a certain religious background. These awards are usually based on a student's FAFSA results and may have annual limits. Check with your school's financial aid office for specific information.
You should seek out private loans only after you have exhausted your other available options. At their best, these loans are an expensive solution. At their worst, they can burden borrowers for decades. Before you consider the possibility of private loans, you should come up with a rough estimate of major costs for a given program (ideally per term).
Determine Your Needs
Projecting costs for the entirety of your program gives you a better perspective on the scope of student debt you may incur.
- Tuition, Room, and Board
These expenses are often the largest, so it is a good idea to determine what kind of costs you need to deal with as early as possible. Your school should tell you exactly how much each term's tuition and room and board will cost. Most four-year schools require first-year students to live on campus; however, consider local rental rates when determining your expenses beyond the first year.
- Books and Supplies
The cost of books and supplies varies for each student depending on the courses they take and their professors' preferences. The College Board reported that, as of the 2019-20 school year, textbooks cost an average of $1,240 per year.
- Cost of Living
This general category, which includes expenses like groceries, clothing, and entertainment, differs on an individual basis. A simple method for keeping these costs in check is to establish a limit on your expenses each term and then track your total as you go. In a sense, cost of living is a real indicator of a student's financial responsibility — there is plenty of room for excess or thrift. Students must decide for themselves how to manage their money.
- Travel Expenses
Travel expenses for students living on or close to campus vary. Students from out of state may need to account for trips home for the holidays or long weekends. Planning ahead and booking refundable trips early can help keep travel costs low and stress at a minimum.
Once you have added up all your anticipated expenses, you can take that total and subtract your expected income during the same period, including any expected scholarships, grants, and/or stipends. The difference will be your anticipated deficit, or the remaining costs you must consider addressing through loans.
While loans will likely cover many of the expenses mentioned above, unforeseen costs may require you to seek extra sources of income. You can deal with these expenses by finding a part-time job, joining a work-study program, or using your personal savings.
An Introduction to Student Loans
Many students require loans to fund their college education. While all loans serve the same general purpose, student loans differ from personal loans in that they must be used for education-related expenses, including tuition, learning equipment, and school supplies.
Students often take advantage of both federal and private loans to offset the cost of pursuing a higher education. Generally, both federal and private loans supply borrowers with a lump sum up front, provided the borrower commits to the terms of a contractual repayment agreement.
Federal loans are provided by the U.S. government and include Direct Subsidized, Direct Unsubsidized, Parent PLUS, Graduate PLUS, and Direct Consolidation loans. Each type of federal loan involves its own fixed or variable interest rates and repayment terms.
A student or their parents may take out a PLUS loan. Private loans are available to both qualifying students and their parents. Unlike federal loans, private loans typically require a credit check and consider income when determining the amount to be borrowed.
What Are the Qualifications?
While the terms of private loans vary by lender, students must meet a set of general criteria to secure a federal college loan. As a function of the federal government, the U.S. Department of Education assesses characteristics like citizenship, military service eligibility, and FAFSA status as part of the qualification process.
Here are the criteria for loan eligibility:
- A valid social security number
- Registration in the selective service (men 18-25)
- Citizenship or eligible non-citizen status (undocumented immigrants do not qualify)
- A high school diploma or the equivalent (such as a GED or homeschooling certificate)
- Enrollment at an accredited school
- Good standing in terms of other current federal aid
- A minimum 2.0 GPA
- At least part-time enrollment
Understand Before You Borrow
Federal programs and private lenders routinely accept new borrowers; however, as the party responsible for repaying the loan, students must make sure they can meet their obligations before borrowing.
Consider the following factors when researching loan options for higher education:
Private vs. Federal Loans
Exhaust federal loan options first, as they generally offer loan forgiveness and income-based repayment plans, while private loans do not.
Money Allocated ONLY to Education Expenses
Students may only use loans for direct education expenses (e.g., tuition, supplies, and equipment) and education-related expenses (e.g., childcare, transportation, and study abroad costs).
Fees and Interest
The total cost of your loan includes fees and interest in excess of the borrowed amount. The current federal loan fee for undergraduates is just over 1%, with an interest rate of roughly 5%.
Only Borrow What You Really Need and Can Repay
The reality of repaying your loans, with added fees and interest, can be sobering when loans come due. Borrow only what you need and can realistically repay.
Student Loan Repayment
Students should consider the processes and expectations for repaying student loans before entering into a loan agreement. Each loan specifies its own repayment terms and timeline, such as fixed payment amounts over a period of 10 years.
Students with multiple loans may consolidate them into a single Direct Consolidation Loan. This offers the convenience of making a single payment instead of several payments to multiple lenders each month. Many federal loans offer loan forgiveness programs for qualifying graduates, including those who become teachers in high-need areas or secure employment in a government agency.
Some students may pursue deferment — a temporary postponement of repayment — for special circumstances, like unemployment, economic hardship, or joining a rehabilitation training program.
An Introduction to Grants, Scholarships, and Fellowships
Public funding for education often takes the form of grants or educational gifts. The term "public" in this context refers to the source of the funding. Federal, state, and sometimes municipal governments provide grants to help decrease the cost of higher education. The term "private," on the other hand, refers to opportunities that are either wholly or partially funded by non-governmental parties.
Need-based funding opportunities come from public and private sources and are awarded based largely on an applicant's financial need. Alternatively, merit-based awards are more likely to be awarded by private sources. They reward applicants for meeting or exceeding preset standards, such as grades, test scores, and community service hours.
Many loans are restrictive, including municipal or county grants available only to applicants who reside in those particular areas. Sometimes funding from an organization, like a fraternal lodge, requires applicants or their parents to be members of the given society. Another form of restrictive funding occurs within specific institutions that grant awards to students who pursue a particular field, such as accounting or physics.Understanding College Grants and Scholarships
A grant is a type of educational gift that generally comes without strings attached (beyond requirements related to attendance and passing grades). Grants are usually offered by federal or state governments and are almost always based on need. Read on to learn about several well-known federal grant programs.
Primarily catering to low-income undergraduates, Pell Grants are also available to a limited number of graduate students. Grant amounts vary, with a maximum of $5,815 awarded per academic year. They are awarded based on FAFSA results.
Federal Supplemental Educational Opportunity Grants are need-based grants for undergraduate students. Awards range from $100-$4,000 per year. Administered by schools, FSEOG funds are available to students with the greatest need.
As the name implies, these grants are for students who intend to become teachers and work in low-income schools for a specified period of time after graduation. Awards vary, topping out at $4,000 per year.
- Iraq and Afghanistan Service Grants
These grants are for students whose parent or guardian was killed while performing military service in Iraq or Afghanistan and who do not otherwise qualify for a federal Pell Grant because their family contribution exceeds Pell Grant limits.
Like grants, scholarships are often awarded by organizations and individuals to help students reduce the cost of their postsecondary education. Where grants tend to offer long-term (often recurring) support, scholarships are often a single amount awarded in one lump sum.
Scholarships can be need-based, merit-based, or a combination of the two. Beyond the scholarships offered by your school, there are also awards given out by corporations, individuals (often memorial funds), nonprofits, and occupational societies. Each scholarship maintains its own requirements, award amount, and deadline.
Fellowships are almost always for graduate and postgraduate students. These awards provide a stipend or salary to participants while they work and continue their education. They are often given to doctoral students while they work on their dissertation in exchange for providing research assistance and/or teaching services for a college or university.
- Visiting Fellows
This type of fellowship generally refers to a postdoctoral student working at an institution on a temporary basis, often for the purpose of conducting research or gaining highly specialized experience.
- Resident Fellows
Sometimes referred to as resident scholars, these individuals work on completing their dissertations or postgraduate research.
- Research Fellows
These are doctoral or postdoctoral students who work under a more senior researcher and provide assistance with ongoing research.
Work-study programs provide a form of federal financial aid, paying a specific amount in exchange for work. These are federally subsidized, part-time jobs that pay benefits directly to students, rather than to the school they are attending. Students can use these funds on books, classroom materials, and personal needs.