Understanding Financial Aid | OnlineColleges.net

If you are a student planning to enroll in college, or a parent with a college-bound child, there’s probably one question foremost in your mind: how do I get financial aid? A recent College Board survey on education costs shows that public college (in-state) tuition for 2014-2015 stands at approximately $23,410; attending a private college is often far more expensive, and may cost $46,000 or more.

College education does not come cheap, but you may be eligible for various financial aid options, provided you enroll at an accredited institution. With options ranging from virtually free money (scholarships, grants and fellowships) to loans, your funding decisions should hinge on your current and future income. For example, if your finances are strained, you may want to consider loans as a last resort after applying for all possible scholarships and grants. This process starts with determining your needs.

Determine Your Needs

The amount of aid you need may be very different from your peers. Your friends may have a college fund set aside, for example, meaning they won’t have to rely much on financial aid. If you’ve already explored all scholarship and grant options, and you have to take a loan to cover the rest of the cost, assessing exactly how much you need is essential to minimizing your debt burden. Below are a few factors that will help determine the amount of aid to apply for:

Annual costs: Tuition, room and board, books and study materials
Cost of living: Clothing, daily essentials, food and entertainment
Travel expenses: Daily commute to the university and trips home if you attend school out of state

These are the total costs you will incur; however, financial aid funds may only cover part of these expenses. The rest needs to come from your savings or through a loan. To finance your education efficiently, assess your ability to pay for the degree:

Start by estimating your income from full or part-time work
Factor in funds from scholarships and/or grant awards
Factor in funds from other sources, such as family members
Add the amount you can pay from savings (college funds, family gifts, etc.)
Subtract all of these from the total cost to determine your loan amount

It All Begins with the FAFSA

The Free Application for Federal Student Aid (FAFSA) is the gateway to determining your financial aid eligibility. Based on this form, a Student Aid Report (SAR) is forwarded to you and sent to the colleges you list on the FAFSA. For a clearer picture of your eligibility status, input your details into the FAFSA4caster.

Eligibility for FAFSA financial aid takes the following into consideration:

You are a citizen or eligible non-citizen and possess a valid social security number (there are exceptions to this)
You have a high school diploma, GED or have completed home school
You are enrolled in an accredited institution in a degree or certificate course
Your academic performance meets the required standards
You have no dues on any federal students grants
For some types of aid, you may need to prove your financial need

Remember that there are deadlines by which you have to submit the completed FAFSA form. You may also have to factor in time limits set by your preferred colleges. Start by verifying the federal deadlines on the FAFSA site. Typically, the FAFSA is available in January, but different programs (such as state student aid, career school, etc.) may have different deadlines.

You can file the FAFSA form online or in PDF form by downloading it here. If you do not want to do this over the Internet, you can request a hard copy be mailed to you. Your college may also allow you to file it through its financial aid office.

Entrance Counseling, Borrowing Money and Repaying Your Loan

Once you have completed your FAFSA and are approved for federal loans, you are required to go through an entrance counseling session. During this meeting, which may be online or in person, your school will make sure you understand the terms of your loan, your interest rate, your rights and your responsibilities. They will explain how you receive the money, as well as work with you on how to manage your expenses. In addition, you will be guided through your Master Promissory Note, the official document which finalizes your loan agreement. This session is mandatory in order for you to receive your first disbursement.

Once your loan disbursements start, interest will begin to accrue immediately on that amount. If you are receiving subsidized loans, the government pays this interest up until the first six months after you leave school. If you have unsubsidized loans, then you will be responsible for all the interest. Payments on both types of loans do not start until after you leave school, and there are a number of different options available to you. Below we have summarized your options to give a better idea of which payment options may be best for you.

Standard Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
Federal Stafford (Subsidized and Unsubsidized)
PLUS (All)

Repayment: Minimum fixed payments of $50, up to 10 years
Interest: You will pay the least interest over time with this plan

Graduated Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
Federal Stafford (Subsidized and Unsubsidized)
PLUS (All)

Repayment: Payments begin lower and gradually increase, up to 10 years
Interest: This plan requires you to pay a greater amount of interest than the standard plan

Extended Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
Federal Stafford (Subsidized and Unsubsidized)
PLUS (All)

Repayment: Fixed or graduated payments, up to 25 years
Interest: This plan has lower monthly payments, but you will pay more in interest than the standard plan.
Notes: You must have more than $30,000 in loans to qualify for this plan.

Income-Based Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
Federal Stafford (Subsidized and Unsubsidized)
PLUS (All)
Consolidation (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents

Repayment: Maximum payment is 15% of discretionary income, the difference between your adjusted gross income and 150% of the poverty guideline for your family size and state of residence. Payments fluctuate with your income, up to 25 years.
Interest: Your monthly payments will be lower, but you will pay more in interest.
Notes: To qualify, you must demonstrate partial financial hardship. After 25 years, any outstanding debt is forgiven.

Pay As You Earn Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
PLUS (All)
Consolidation (Direct) that do not include Direct or FFEL PLUS loans made to parents

Repayment: Maximum payment is 10% of discretionary income, the difference between your adjusted gross income and 150% of the poverty guideline for your family size and state of residence. Payments fluctuate with your income, up to 20 years.
Interest: Your monthly payments will be lower, but you will pay more in interest.
Notes: To qualify, you must demonstrate partial financial hardship. After 20 years, any outstanding debt is forgiven.

Income-Contingent Repayment Plan

Eligible Loans

Direct (Subsidized and Unsubsidized)
PLUS (All)
Consolidation (Direct)

Repayment: Payments are calculated yearly according to adjusted gross income, family size, and total amount of direct loan, up to 25 years.
Interest: Your monthly payments will be lower, but you will pay more in interest.
Notes: After 25 years, any outstanding debt is forgiven.

Income-Sensitive Repayment Plan

Eligible Loans

Federal Stafford (Subsidized and Unsubsidized)
PLUS (All)
Consolidation (Direct)

Repayment: Monthly payments are calculated according to annual income and fluctuate as it changes, up to 10 years.
Interest: You will pay more over time for this plan compared to the standard plan compared to the standard plan.
Notes: Each lender calculates monthly payments differently for this plan.

In addition, there are several circumstances in which your loans may be forgiven, cancelled or discharged. Entering the teaching or public service fields is the most common circumstance in which loan amounts are forgiven. For a full summary, visit the Federal Student Aid website.

For more information on receiving financial aid for college, check out these YouTube videos provided by StudentAid.gov, or read our “Understanding FAFSA” guide.

Loans

Federal loans are the most common source of financial aid, though private lenders like banks, state agencies and credit unions do offer loan options. Government loans come with several benefits, such as easy repayment terms, lower interest rates, subsidy options, no credit check, tax benefits and more. Bear in mind that these loans are the first option you should explore. Only after you have exhausted this option and also looked for all possible scholarships, grants or fellowships should you start looking at private loans.

Federal Loans

Direct Subsidized Loans

Eligibility: Undergraduates with financial need
Interest: 4.29% plus loan fee 1.068%
Details: School determines the amount of aid, interest is paid for some period by U.S. department of education

Direct Unsubsidized Loans

Eligibility: Undergraduate and graduate students
Interest: 4.29%- undergraduate, 5.84%- graduate/professional degree plus loan fee 1.068%
Details: School determines the amount of aid

Direct PLUS Loans

Eligibility: Graduate students/professional degree students
Interest: 6.41% + 4.204% origination fee
Details: You need to have good credit history but loan is not need-based, it is determined on basis of your FAFSA information.

Direct Consolidation Loans

Eligibility: For students wanting to consolidate several federal loans into one single loan.
Interest: At least $50 every month
Details: Repayment for a period between 10 and 30 years, no application fee, borrower benefits of the original loans may not apply.

Federal Perkins Loans

Eligibility: Subsidized loans for undergraduate, vocational and graduate students with financial need.
Interest: Subsidized loans for undergraduate, vocational and graduate students with financial need
Details: About 1,700 schools have this program, eligibility is determined by the school. Eligible for Federal Loan Cancellation program.

Private Loans

When federal loans do not cover all of your financial aid needs, you can opt for private loans from banks or credit unions. Repayment for these loans generally begins immediately. The interest rates may be fixed or variable and these loans are not subsidized. When you are opting for an expensive college, you may have to bridge the gap between your federal loans, scholarships, grants and savings with private loans.

Different Types of Private Loans

Private loans are credit-based loans not sponsored by the federal government. These are typically a last resort option for when your financial need is over and beyond what federal loans can cover. Private college loans may have special terms for students that are more lenient than traditional loans.

Some private student loans require a creditworthy co-signer, but these may offer some advantages. For example, with Discover student loans, the student can opt for a deferred payment option, plus they also get an auto debit reward and a reward for good grades. All of these work to reduce the overall debt burden on the student. Discover offers loans for undergraduate, graduate and MBA students; there are also options for parents to support their children through college. The main point of difference between student loans and parent loans is that repayment lies on the parents for the latter.

Some other options you can explore for private financial aid for college students are:

Common Misconceptions About College Loans

When you are discussing how to get financial aid for college, you may come across several contradictory views from family and friends. A number of misconceptions do exist about these loans and it is important for you to recognize and understand them.

Misconception 1: You don’t have to file FAFSA to get a loan. The FAFSA needs to be completed every year you plan to attend college and this is the first step to verifying your eligibility for loans. You must file FAFSA.
Misconception 2: Loans won’t help with the most expensive schools. There are federal loans, grants and private loans to choose from, so you can cover 100% of your total cost with these. In fact, loans are not offered only to those who show financial need, but also to students with significant personal means who want to enroll in a highly expensive course that they cannot afford on their own.
Misconception 3: Not having money for college will hurt your chances of getting in. This is not true. The federal government has a variety of loans; some of them are designed for students who have a clear financial need and cannot support their education on their own.

Grants, scholarships, and fellowships

Before you start comparison shopping financial aid from private lenders, understand that these come with a significant cost. You undertake a debt burden that can last for years. In contrast, scholarships, fellowships, and grants never need to be repaid. You should explore and exhaust every possible one of these options before even considering loans.

Typically, these awards are merit-based, which means if your academic performance is excellent, you have a great chance of qualifying. There are also a number of need-based options, so if you can show that you have inadequate finances, you may qualify for them. In addition, some awards are offered to specific cultural groups or tied to specific institutions. Depending on your background and the institution you attend, you should learn about any grants, scholarships or awards that may be available.

Grants

Grants are typically need-based and they originate from the federal government, state government, private and public nonprofit entities, colleges, and schools. For federal government grants, you start by submitting your FAFSA. Some of the most common grants offered are:

State grants may also be need-based and may factor in academic achievement as well as other factors. For example, in Wisconsin, you may be eligible for the Wisconsin Higher Education Grant or the Talent Incentive Program. Grants for specific groups such as the Indian Students Assistance Award are also available for minority students.

Scholarships

Generally scholarships are merit based, meaning you earn them by achieving specific standards that are outlined by the provider. You can also get scholarships for achievements outside of academics, such as sports scholarships for gifted athletes. The scholarship may be a one-time award of a fixed sum or it may cover your entire cost of education.

There are different types of scholarships:

Need-based
Academic/merit-based
Demographic-based
Subject-based
Talent-based (example: music, acting, athletic, and so on)

For more information about specific scholarship opportunities for undergraduate students, graduate students, active military/veterans, disabled students, minority students and online students, check out our scholarship database at the bottom of the page.

Fellowships

Fellowships may last for a few months or up to several years. They focus on professional development, and are typically sponsored by a specific organization that aims to improve talent in its niche. The provider may not require repayment of the funds, but the student usually must carry out research for them as part of the deal. Many fellowship packages come with stipends paid to the students, which is another benefit to this form of financial aid.

You may be able to choose from different types of fellowships such as visiting fellows, resident programs, and others. For example, the Federal TEACH grant offers funding for those planning to take up full-time teaching positions in high need subjects for low-income students.

Work study

For students who are willing to work while completing their college education, the Federal Work Study program is a good option. The students may be employed by the school itself or other employers, who will cover 50% of the student’s wages while the Federal Government covers the rest. Eligibility depends on financial need and academic progress. The student should be enrolled courses for at least half time.

Finding an Affordable School

If you haven’t chosen a school, and are still on the fence about what you’d like to study, take some to time to browse through our top degree rankings. We’ve ranked the top 25 programs in the country in a number of popular disciplines, across a couple of academic levels. Affordability is a crucial part of our ranking methodology, and all of the school’s featured in our lists offer an academically rigorous degree at an affordable price tag.

Scholarship Search

Note: A complete, searchable scholarship database will be added soon.

Making Financial Aid Work for You