How Does Financial Aid Work?

Very few students are lucky enough to come from families with pockets deep enough to cover all the costs of a college education.  If you aren’t among the wealthy elite, you’ll need to look into the many different financial aid options to help pay for school.  Many financial aid options exist, including loans, grants, scholarships and work-study programs, and you may qualify for different programs based on your financial need, your academic achievements and many other factors.

Applying for Financial Aid

Depending on the type of financial aid you want to apply for, there are several applications that must be completed.  However, one of the first to focus on is the Free Application for Federal Student Aid, or the FAFSA.  This application will determine how much you and your family can be expected to pay for your education, and can be used for a variety of different financial aid awards.

Free Application for Federal Student Aid

One of the first steps in applying for financial aid for college is to complete the FAFSA.  This is a free federal form that’s required from all students who are seeking need-based financial aid.  This form is used to collect financial and income information from the student and his or her family, and is required to apply for almost all forms of financial aid provided from the government.  It’s available online, from high school guidance counselors, and from college financial aid offices. 

The FAFSA application can be completed online, but you’ll need to gather some information before you start.  You’ll need your current tax return, or your parents’ returns if you’ll be using their financial information, the Federal School Code of the colleges you’re thinking about attending, and personal information, such as your social security number.  If you’re currently employed, you’ll need to gather your W-2 forms as well.

Although it’s time consuming, the application is rather straightforward.  If you need help, the financial aid office should be able to provide it.  If you’re completing the form online, there’s a section of the site dedicated to frequently asked questions.  You can also call the Federal Student Aid Information Center at 1-800-4FEDAID if you’re having trouble completing the form. 

Your Student Aid Report

Once you‘ve completed and submitted your FAFSA, you’ll receive a Student Aid Report, or SAR.  This report summarizes the information you gave on your FAFSA, and indicates your Expected Family Contribution, or EFC.  This amount is what you, or your family, will be expected to contribute towards your education costs.  The EFC is then subtracted from the Cost of Attendance, or COA.  The COA is the student’s estimated budget for attending school and includes such things as tuition and fees, books and supplies, room and board, and some personal expenses for the semester.

The lower your EFC, the more financial aid will be available to you.  Most colleges will try to help you meet this need with a package of financial aid funds from sources including federal and state loans, grants, and school sources, such as work-study or other employment options.

What Financial Aid Programs Use the FAFSA?

There are many grant and loan programs that will use the information from your FAFSA and SAR to help determine your eligibility.  Some of these include:

1. Federal Pell Grant – For the 2008-2009 academic calendar, the maximum award is $4,731.
2. Academic Competitiveness Grant – A grant program providing up to $750 for first year and up to $1,300 for second year of school
3. National Science and Mathematics Access to Retain Talent Grant – A federal program that provides up to $4,000 per academic year
4. Teacher Education Assistance for College and High Education Grant – Qualified students can receive up to $4,000 each academic year
5. Federal Stafford Loan – Requires repayment of loan; however, if the loan was based on financial need, your interest and payment will be deferred.
6. Federal Plus Loan – Loans available for parents of students.  Interest payments are due while the student is still attending school.
7. Federal Supplemental Education Opportunity Grant – Program that provides anywhere from $100 to $4,000 per academic year.
8. Federal Work Study – Provides jobs to students to help with education costs.
9. Federal Perkins Loan – Low interest rate loans that are deferred while the student is enrolled at least half-time.  The maximum loan amount for undergraduates is $4,000; $8,000 for graduate students per academic year.

Of course, this list is not all-inclusive and there are many other programs that will use the SAR to determine your aid eligibility.  It’s also important to note that not all financial aid programs are available at every school or college, and you may not qualify for every program listed above.  Make sure you check with the financial aid office at the school you’re thinking about attending to see if they participate in the programs you’re interested in.

When Do I Have to Repay the Money?

Many of the financial aid programs available to you don’t require repayment.  For example, grants and scholarships usually don’t have to be paid back.  Most of the student loans will require repayment, but as long as you’re attending college, even half-time, you won’t have to make payments on the principal of the loan.  Most of these loans also offer a nine month deferral period after you graduate before payments will be due.  In addition, in some fields of study and eventual employment, you may be able to qualify for forgiveness of the loan.  The criteria for forgiveness change each year, so you should plan financially to make these loan payments, no matter what your course of study is.

Some Final Thoughts

Financial aid is often the only way for many students to attend college.  If you need these funds to continue your education, make sure you apply early and keep track of financial aid deadlines.  Most colleges their own deadlines for financial aid applications, and these dates aren’t usually the same from one college to the next.  By applying early, you’ll have a better chance of qualifying for aid. 

If the cost of college has you down, don’t worry – there is money available to help you continue your education.  However, you must correctly fill out the necessary paperwork and follow up with any additional information or processes necessary in order to qualify.  If you have any questions about the funding sources available to you or how to qualify, check with the financial aid officer at the school you’ll be attending.