If you are preparing to start college, it is important to have an understanding of the most common forms of college financial aid to help you make wise decisions when searching for college funding and when selecting an affordable college. If you have already begun college, gaining a greater understanding of college financial aid may help you become aware of new options to fund your education.
Below is information about some of the most common types of financial aid in the United States:
Scholarships are financial awards to help college students and prospective college students pay for students' college-related expenses. Some scholarships are a one-time award of money, while other scholarships are renewable for students continuing to meet the qualifying criteria.
In most cases, scholarships do not have to be paid back. However, there are some scholarships that have to be repaid if the student does not meet specific requirements after graduation, such as becoming employed in a particular career field.
There are a wide variety of types of scholarships available including athletic scholarships, academic scholarships (also called merit-based scholarships), need-based scholarships, scholarships for students in a particular geographical region, and scholarships for students possessing a unique qualification (such as a religious affiliation, a particular intended career field, or the profession of a parent). Many scholarships are actually a combination of types. For example a merit-based scholarship may include a financial need component.
Grants are a form of financial aid that does not have to be paid back. Grants are available from the federal government, state government, colleges, and private organizations. Most government grants are given to students who have a demonstrated financial need. Private grants are available from both non-profit organizations and businesses. Private grants are very similar to scholarships.
Educational loans are available for both students and parents. These loans are divided into two main categories: federal student loans and private student loans. Federal student loans are lent by the federal government. Private loans are lent through financial institutions.
To qualify for federal loans, students must maintain satisfactory academic progress. In most cases, loans do need to be repaid. There are both subsidized (the government pays the interest while the student is enrolled in school) and unsubsidized (the student is responsible for all of the interest) federal loans. Federal loans are appealing because they offer low interest rates, a grace period after graduation, and some assistance for borrowers who are unable to pay the full amount of their loan.
Borrowers of private loans are generally not required to maintain satisfactory academic progress. However, they need to qualify by demonstrating their creditworthiness. If the borrower is unable to demonstrate sufficient creditworthiness, they will need a creditworthy co-signer to be approved for the loan. In general, students only take out private loans after all other funding options have been exhausted because the interest rates for private loans are generally higher than government loans and there are few options for assistance if the borrower of a private loan has trouble repaying the loan.
Federal and state work-study programs are available for students with a demonstrated financial need. Work-study students are granted a specific amount of money that the student can earn in the form of wages through work-study jobs.
College Savings Plans
The two most common types of college savings plans are Qualified Tuition Plans (commonly known as 529 plans) and Coverdell Education Savings Accounts. Each of these plans offers parents different tax advantages while saving for their children’s education.
Military College Incentives
Each branch of the military offers financial incentives for their personnel to attend college. The Servicemen's Readjustment Act (commonly referred to as the GI Bill) is available for all enlisted military personnel who choose to participate. In addition to the GI Bill, many military branches offer additional financial incentives such as student loan repayment and tuition assistance. Military incentives for college vary among branches of service. In addition, some incentives may be available during one period of time and not available during another time period. Current members of the military should check their contracts and contact military education personnel to understand what options are available to them. Prospective military members should check with their recruiters to see what options are available to them for the funding of their education. Educational benefits that are included in the service member's contract are usually available throughout the time of the contract.
Use the information above to help you learn more about options for funding your college education. This information can help you seek out additional aid and help you make wise choices for funding your education and selecting a college that fits your budget.