How to Decode Your Financial Aid Package

Before you wade into the realm of loans, grants, and work study, let’s lay out the basics of these options — what the terms mean, what’s a good deal, and what might be right for you.

Most college students don’t have parents who can write a large check up front, so making the most of financial aid resources will be essential.

Before you wade into the realm of loans, grants, and work study, let’s lay out the basics of these options – what the terms mean, what’s a good deal, and what might be right for you.

Loans

This is money that you have to pay back. If a school “offers” you an “award” of loans, they are not giving you free money. If you accept their offer, you will be in debt, at least temporarily. The more loans you accept, the more money you or your parents, will have to pay back.

For all the media attention about a debt crisis among college graduates, remember that debt is not necessarily a bad thing if it’s the only way to gain a college education. It is, however, ideal to minimize your debt by taking on fewer loans.

Among loans, there are two basic types: subsidized and unsubsidized loans.

Subsidized Loan

This type of loan does not begin accruing interest for the duration of your education. As far as loans and borrowed money go, this is a really good deal. Think of it this way: when a private bank lends you money, it charges interest that’s greater than the rate it could earn by, say, putting that money in a savings account. But when a college offers you a subsidized loan, they charge you no interest at all for as long as you stay in school!

Unsubsidized Loan

Unlike a subsidized loan, interest on unsubsidized loans begins to accrue immediately. But remember, it is still a good deal, insofar as you have access to that money at all. If you have a low credit score, many banks would never lend you the amount of money necessary to pay for a degree. The federal government will lend you a portion of what you need, provided that you spend it on your education.

So, long story short, both unsubsidized and subsidized loans are good deals in the sense that they enable you to pay for college at all, but a subsidized loan has a lower interest rate and will cost you less over time, especially if you can pay it off early.

While loans are good deals, they do lead to debt, so the fewer you take on, the better. If one school will require you to accept $20,000 in loans and another will require $40,000 in loans, there would have to be an extremely compelling reason to go to that second school and double your debt.

Grants

Unlike loans, grants do not have to be repaid. They are essentially gifts of free money. Some schools offer them based on “merit” – academic performance, for example – and some are based purely on financial need. Some grants come from the school’s checkbooks, and some are doled out by the government based on your responses on the Free Application for Federal Student Aid (FAFSA) form.

FAFSA Form

It is important to fill out this form based on the previous year’s tax information. This is what will qualify you to receive any federal financial aid, as well as state and institutional support.

Pell Grant

These federal grants are offered by the federal government to students with significant financial need. They do not need to be repaid. According to the most recent figures, the maximum Pell grant was $5,550 per year. If you are awarded a Pell grant, the size of it depends on your financial need and the cost to attend your college.

Work-Study

Work-study jobs are provided to eligible students who have indicated their interest on the FAFSA. Awards are based on the cost of your college, the other parts of your financial aid package, and your overall need. Undergraduates are paid an hourly rate to work at the college or at community agencies related to their field of study. There is a cap on the work-study award, so the hours you can work are limited by this.

Non-Government Grants

There are many sources of educational grants beyond direct government sources, including non-profit organizations, recreational and vocational programs, community groups, state governments, and colleges themselves. Since there are so many potential sources of grants, it is important to research organizations that you are connected with to find out if there are any grants you might apply for. In particular, some grants are available only to students of certain demographic backgrounds or career interests, so you’ll definitely want to research whether you’re eligible for any of those.

This post is just a brief overview and introduction to basic terms, but hopefully it will get you started! Definitely post any questions you may have, because if you have a question, there’s a good chance someone else has the same question.

Best of luck, and be sure to fill out your FAFSA

FAFSA - Free Application for Federal Student Aid. (2014). FAFSA on the Web. Retrieved May 23, 2014, from fafsa.ed.gov

Federal Work-Study jobs help students earn money to pay for college or career school.. (2014). Work-Study Jobs. Retrieved May 23, 2014, from studentaid.ed.gov

Pell Grants. (2014). Retrieved May 23, 2014, from ed.gov

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