Financial Aid 101: A Crash Course in Paying for College


Loans

When gift aid and work-study aren’t enough, you may have to borrow money to finance college. The College Board advises that federal, subsidized loans are the least expensive option. An important consideration when taking out a loan is interest, a fee based on a percentage of your debt, that you must repay in addition to the amount you originally borrowed. Student loans sponsored by the federal government usually have low interest rates, and low interest loans are the most affordable. Another concern is subsidization. Some private loans are unsubsidized, which means that interest starts accumulating as soon as you borrow money. However, many federal loans are subsidized, meaning that you won’t be charged interest until after you graduate from college.

The student herself usually takes out a federal loan, but parents can choose to be the borrower through the Parent PLUS program. If you are denied federal student loans because your financial need isn’t large enough, or you’ve already taken out all of the federal loans available to you as a student, your parents or legal guardians can opt to borrow a Parent PLUS loan to cover the remaining cost, which is equal to the CoA minus the amount of financial aid you already have. In addition, private loans are available to students. To take out a private loan, you may be asked to present a parent who is creditworthy, or has a good credit score and financial history, to be a cosigner, meaning that they share equal responsibility with you in making sure the loan, interest, and all other fees are fully repaid. Private loans have higher interest rates, but you might consider them if you don’t qualify for federal loans based on your calculated financial need.

Finally, the federal government and some private institutions may offer loan forgiveness, erasing a student’s debt altogether if she commits to work in a certain field, the military, or a public service career after graduation. For instance, a student who takes out a federal Perkins loan and later becomes a teacher in a low-income area may have 30% of her student loan canceled once she has taught for five years.

Compare and contrast your student loan options
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Applying for Aid

As you complete college applications, you should also fill out the federal government’s FAFSA form, the College Board’s Financial Aid Profile form, and the financial aid application at each of your prospective colleges. If you’re accepted, universities will offer you a financial aid package, which likely contain a combination of gift aid, work-study, and loans. For this reason, it is necessary to apply for both need-based and merit-based aid.

Need-Based Aid

  • FAFSA:  The Free Application for Federal Student Aid is your gateway to federal and state grants, work-study, and loans. Filling out the FAFSA is important because “federal aid is the bulk of aid available,” Lewis says. Some universities also award financial aid based on a student’s FAFSA form, she adds. The FAFSA is open to high school students from fall to January 1 of their senior year. You or a parent can fill out the FAFSA form online, but first, you’ll need to register for a PIN and have income tax returns and other financial documents within reach for reference. Three to five days after completing the FAFSA form, you’ll receive a Student Aid Report, which will list your federal aid options: the number and types of grants, aids, and loans you qualify for.
  • CSS/Financial Aid Profile:  College Board’s Profile form is sometimes used to award need-based, non-federal aid. “Schools that offer a large amount of aid from institutional funds may require that the students complete the CSS Profile form,” Lewis says. “The Profile form usually asks for more information about the parents assets like home equity and other information that is used to determine financial need for institutional funds.” Because the Profile is not required by all schools and the College Board charges a fee each time your Profile report is mailed to a college, you should contact prospective universities to find out if you need to submit the Profile as part of your financial aid application.

Merit-Based Aid
Unlike the FAFSA for need-based federal aid, there is no common application for all merit aid. Luckily, financial aid databases can connect you with opportunities you’re eligible for based on your background, interests, and college plans. Try the free sites below.

Don’t forget that your high school’s guidance office is a great place to discover local scholarship opportunities. Also look to your parents’ employers, as well as extracurricular and community organizations in which you’re involved, for potential scholarships and grants.