Must-Knows About Financial Aid
February is financial aid awareness month, but what is financial aid? How do you apply for it? What factors determine how much aid you receive? These are all basic financial aid questions which are important to know.
Today, student loan debt is at an all-time high and some may spend the over 20 years trying to pay back their student loans. Americans have a combined total of 1.48 trillion in student loan debt and a delinquency (default) rate of 11.2%. This staggering number can seem overwhelming, but knowing the basics of financial aid and how student loans work can help you have a better grasp on repaying your future student debts.
What is Financial Aid?
Financial aid is considered to be any form of funding which helps you pay for college; this may be in the form of grants, scholarships, loans, and work-study programs. In order to be eligible for any form of financial aid, you must complete the Free Application for Federal Student Aid, also known as the FAFSA.
How Do You Qualify for Financial Aid?
Different factors will help you qualify for different types of aid. Generally, these factors are broken down into two different categories- merit-based aid and need-based aid. Grants, work-study, and some student loans are need-based. The government calculates your financial aid needs based on the information you provide in the FAFSA such as salary, family demographics, etc. Merit-based aid is typically given out by the university or another private organization. Typically merit-based aid is a scholarship based on academic, athletic, or other talents.
Types of Financial Aid
Grants and scholarships are both forms of aid which normally do not need to be paid back. The difference is, grants are normally from the federal or state government; they are based on financial need. Scholarships are typically awarded by the college or some other private organizations; these are normally merit-based. Work study is different, it is a federally funded program which funds part-time jobs for undergrad and graduate students with a financial need. You are able to earn X amount of money per year at a job on or near your college campus.
Student loans come in two different types- federal and private. Federal student loans come with fixed interest rates. Depending on whether you are undergraduate, graduate, or parent, you can get different types of federal student loans. Private student loans are fixed or variable rate loans which you get from any bank or credit union. This is where your credit score will come into play to determine your interest rate.
How Do I Know What Financial Aid I Get?
Once you have completed the FAFSA, each college you have applied to will send you a financial aid award letter. Each package will be different and include a mix of federal, state, and institutional aid. However, just because you have been offered the aid does not mean you have to accept all of it. If you are not comfortable with the interest rate on your loans or other loan terms, you may choose to deny accepting that aid.
Need help navigating student loans and student loan debt? Want help with your FAFSA form? Leave a comment below or give us a call today!