Financial Aid Definitions - Understanding basic scholarship and financial aid terms
Financial Aid - Financial aid is money given to you to pay college costs that is based on your financial needs (this usually includes income, assets and other factors).
Grants - Grant aid can also be called gift aid, because it doesn't have to be repaid and you don't need to work to earn it. It can come from the Federal government, state governments or from your college. Clearly, this is the preferred type of aid to receive for your college tuition. The financial aid office at a given campus will know whether the school participates in the Federal Supplemental Educational Opportunity Grant (FSEOG) Program, approximately 4,000 postsecondary institutions do. The Federal Pell Grant Program also provides need-based grants to low-income students. There are approximately 5,400 participating postsecondary institutions. Grant amounts are dependent on the student's expected family contribution (EFC) and other factors. The Federal Government also offers an Academic Competitiveness Grant (ACG), a National Science and Mathematics Access to Retain Talent Grant (National SMART Grant) and a Teacher Education Assistance for College and Higher Education Grant (TEACH Grant). Each grant has different eligibility requirements. There is also the Federal Supplemental Educational Opportunity Grants for undergraduates with exceptional need; they range from $100-$4,000. For more details about Federal Grants see the Grants Programs Fact Sheet (pdf).
Scholarships - Scholarships are usually awarded on the basis of academic merit, community service, or other factors that an organization wants to promote. Scholarships are given out by colleges and universities, foundations, corporations and other organizations.
Loans - The bulk of the aid given to students is in the form of loans. These must be repaid. Government loans are awarded based on financial need and are low-interest. They are subsidized by the government so that you don't start paying interest until after you graduate. There are also many banks and financial institutions that provide unsubsidized loans to students.
To pay the difference between the cost of a college education and the scholarships and grants a student receives, most students choose to take on a loan obligation. Loans have to be paid back, so they are a less desirable form of financial aid. However, most students need to take out a loan. The federal government gives out more than a $100 billion in loans annually and there are private originators of loans as well.
Loans can take many forms; they can be loans to parents such as the Federal PLUSLoan where financial need is not a requirement. There are also loans to students such as the Federal Stafford Loans (you must submit a FAFSA to be eligible and plan to enroll at least half time) and the Federal Perkins Loans (the U.S. Department of Education provides funding to the college and the school determines which students have the greatest need).
Students sometimes have to apply for Private Student Loans because the amount the government allows them to borrow is not sufficient to pay all the bills. Eligibility for these loans are dependant on your credit score.
Federal loans are available through the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP). The FFELP is sometimes referred to as the federally-guaranteed student loan program.
Some colleges participate in both programs to maximize borrower's choice, but not all do. So your choice of school will determine which program you need to choose from.
FFELP funds come from banks and other financial institutions, the Direct Loan program funds come from the US Department of Education.
For students with financial need a loan subsidized by the Federal Government is the best choice because no interest is charged while a student is in school and the interest is usually lower.
Work study - Student employment helps them pay for their expenses. Many colleges will provide employment to students regardless of financial need. Approximately 3,400 campuses participate in the Federal Work-Study (FWS) Program. Each participating school receives limited funds for the program, so you need to apply using the FAFSA early!