There’s no denying that completing your higher education is going to be expensive. However, there are many ways to pay for school expediently and get you through to your goal. Unless you are able to pay for your education yourself at no detriment to your other financial obligations, chances are that you are going to need some kind of financial aid in order to pay for your postsecondary education.
What is Financial Aid?
According to the U.S. Department of Education, “financial aid is money to help pay for college or career school.” Financial aid comes from a variety of sources, including the federal government, the state/county/city in which you live, from your chosen school directly, or from a private group like a business or a non-profit organization. There are two main types of financial aid:
- Grants/Scholarships
- Loans
Scholarships and Grants
Scholarships and grants are the preferred form of financial aid, as this is essentially free money to attend school that you don’t pay back like with loans. But free does come with a price, which usually comes in the form of your academic progress. You will need to maintain a 2.0 grade point average, and complete at least 50% of the courses you register for in order to maintain eligibility for this type of financial aid (the 2.0/50% rule). Be aware though, that some scholarships and grants may impose more rigorous eligibility requirements in order to qualify for their funding.
Examples of federal grants include the Pell Grant and the Federal Supplemental Educational Opportunity Grant. There are also grants available at the state level, such as the Cal Grant or Chafee Grant in the state of California. California community colleges also offer a Board of Governor’s (BOG) waiver, which reduces the cost per unit to $1. Eligibility for the Pell Grant, the Cal Grant, and the BOG waiver is determined automatically based off your FAFSA information (see below).
Most schools will also offer scholarships, which are like grants in that you don’t need to pay it back (unless you don’t meet the 2.0/50% rule). Scholarships are also available from your local county and city governments, non-profit organizations, businesses, and other special interest groups. Many scholarships are associated with an organization, interest (such as sports or political affiliation etc.), or other defining feature such as ethnicity and income level. Scholarships usually follow the 2.0/50% rule, but there are often additional criteria and submission requirements such as essays and/or letters of recommendation as well. Before you apply to an institution, it would be a good idea to first check if they have a scholarship office and what scholarships and other financial aid is available.
You can think of grants and scholarships as payment for a job. In this case, your job is to be a professional student and you’re being paid to attend school. In most cases, as long as you don’t break the 20./50% rule and progress toward your ultimate educational goal, you are not questioned about the money you have received. This means as long as you maintain your eligibility for the grants and scholarships you earn, you can use the money for whatever you deem necessary to complete your goals. You’ll probably use the majority of your grant/scholarship money to cover expenses such as tuition, books, and fees, but you can also use that money on other expenses such as food, gas, and rent. You are being paid to complete school, so that’s your job that you are being paid for. Just be aware that if you break the 2.0/50% rule, you could lose any future grants and scholarships for as long as you breaking the rule. You can also be required to pay back any funds that you were given, so be sure to seek out the resources you need in order to be successful in your educational goals.
Loans
Loans are a common method of financial aid that many students turn to in order to pay for school. Even though they are common, they are the least preferred form of financial aid due to the fact that you must pay back the loans with interest. This means that you will be paying more for your education than what you will be charged for tuition, due to the interest you will be required to pay. If you plan on using loans to pay for your education, it’s critical that you understand all the fees that you will be assessed at the institution you will be attending. This includes tuition, administrative fees, books, on-campus housing (if needed), laboratory fees, and costs for other school supplies such as Scantrons or other required class or testing materials that are not provided by the institution. Most schools will post the average cost per year to attend, and some will include auxiliary costs such as room and board as well.
There are two main types of loans: Government, and private. Government loans are underwritten by the U.S. federal government, and typically offer lower interest rates and more flexible repayment options. Private loans are typically offered by private financing companies such as banks or other lending institutions, and since they are not underwritten by the federal government, they typically have higher interest rates than subsidized loans.
Loans from the federal government come in two forms: The William D. Ford (Direct Loan) Program, and the Federal Perkins Loan Program. Direct Loans can either be subsidized (needs-based) or unsubsidized, or can also be used to consolidate your existing federal loans, called a Direct Consolidation Loan. The Perkins Loan is a school-based loan, and is meant for students with “exceptional financial need.” There is a maximum amount you can borrow per year with government loans, with amounts capped at $5,500 for a Perkins Loan, and $5,500 to $12,500 for a Direct Loan. The interest rate for Perkins Loans is currently at 5% while Direct Loans (both subsidized and unsubsidized) are currently at 4.45%
How to Apply for Financial Aid
As mentioned above, your financial aid amount will be primarily based on your federal income tax information. This information is collected and distributed to the institutions you select through a service called the Free Application for Federal Student Aid, or FAFSA. Your FAFSA profile must be updated by October 1 each year that you plan on receiving financial aid.
If you are financially independent, then the FAFSA will be based on your IRS tax information. If someone claims you as a dependent, then the FAFSA will be based on that person’s IRS tax information. Once the FAFSA is submitted, the information is sent to the schools that you select. If you have applied and have been accepted into the schools you select in the FAFSA system, then that school will contact you and let you know the next steps of the financial aid process, or inform you what documentation they may need from you in order to process your financial aid. This documentation will vary per each institution, but typically includes a copy of your photo identification, IRS and state tax transcripts or returns, copies of rental/property agreements, copies of utility bills, or any related documents that help verify your income information. Be sure to contact the financial aid office at the school you wish to attend for clarification, as the FAFSA is not able to provide this information.
The important thing to remember with the FAFSA is the first “F,” which is FREE. It is free to file your FAFSA. There are a number of services that will charge you to complete the FAFSA, and though it can sometimes be confusing to navigate IRS and other financial data, just keep in mind that millions of students do complete the FAFSA on their own. In fact, to speed along the application process, FAFSA is able to connect directly to the IRS and pull your tax data for you. For more information about avoiding potential potential scams, click here.