Financial aid vocabulary and procedures can be difficult to understand.
This lesson will help by reviewing the different types of financial aid, how you can determine eligibility and how to maximize your financial aid possibilities.
What Is Financial Aid?
When it comes to paying for college, students just want to know how much financial aid they can get and how to get it, right? But, the world of financial aid is full of unfamiliar vocabulary and acronyms. New students probably feel like they are trying to learn another language. The good news is that when it comes to paying for college there is something for everyone.
The question is: what type of aid is out there?This lesson will help students understand financial aid – what it is and how to get it. In the process, students will become fluent in the language of financial aid.Financial aid refers to grants and scholarships as well as loans or work-study used by students to pay for college expenses. It is awarded based on merit or need (and sometimes both). Financial aid can come from federal or state governments, colleges, private institutions or non-profit groups.Throughout this lesson, we are going to follow along with Emily, a student who has recently been accepted to a university and found a way to pay for college using financial aid. We will start by looking at how Emily was able to get one type of financial aid – a merit-based scholarship.
Merit-Based Aid & Scholarships
Merit-based aid, usually in the form of scholarships, is money awarded to students who possess outstanding academic skills, athletic ability and artistic talent. Some scholarships are awarded based on merit and financial need combined. There are also merit-based scholarships intended for students who have certain characteristics, such as single moms, students of a minority group, first-generation college students or those planning to study a particular major.Scholarships can be provided by a prospective college, individuals, private companies or non-profit organizations. Also, scholarships do not have to be repaid, but students will usually have to maintain a satisfactory academic record to renew a scholarship each year.Emily has a GPA of 3.
75 and is the first in her family to go to college. She plans to study engineering. Emily received a merit- and need-based scholarship for $500 from a local non-profit because of her GPA and due to being a first-generation college student. Emily’s high GPA and the fact that she plans to study engineering made it possible for her to win a $1,000 scholarship from a local company that promotes women in engineering.Students can find scholarships that match their characteristics by starting early and doing the research, like Emily did. She found out about these scholarship opportunities through her school counselor and by doing a little research online. She also checked at the public library and talked to the university recruiters to find out what was available.
Grants, loans and work-study funds given to students who show a financial need are called need-based aid. This type of aid is provided by federal and state governments or by colleges. The amount of need-based aid awarded is determined by the Expected Family Contribution (EFC), which is generated from information you enter into the Free Application for Federal Student Aid (FAFSA).In January, Emily finished her FAFSA.
She found out immediately that her EFC was $2,000. Once Emily’s EFC was reported, her college began creating a financial aid package, which is a detailed offer of aid, such as grants, loans or work-study.
Determining Need-Based Aid
Colleges determine the amount of need-based aid that is offered to students by using the EFC, which is calculated by the FAFSA, and the total Cost of Attendance (COA), which is calculated by the college. If the EFC is less than the COA, students qualify for need-based aid.In Emily’s case, the COA of the university is $18,000. Since she has an EFC of $2,000, she has a financial need of $16,000. Let’s go into more detail about three types of need-based aid that may help Emily pay for college.
Types of Need-Based Aid
The first type of need-based aid is grants, sometimes called gift aid. Grants are similar to scholarships in that they don’t have to be paid back. One of the most common ways to get a grant is through the federal government, but they are also offered to students through their college or the state government.
In all three instances, filling out the FAFSA is required.Emily qualified for a $3,000 Pell Grant from the federal government. Thanks to her excellent academics, Emily also qualified for a generous state grant of $5,000.
With the $1,500 in scholarships, Emily now has $9,500 towards her college education and still qualifies for another type of aid called a subsidized loan.A loan is borrowed money that must be paid back with interest. Need-based loans from the federal government are called subsidized loans. Subsidized loans are unique in that students do not pay interest on the loan while enrolled in college. Emily was offered $5,000 in subsidized student loans on her financial aid package.She also qualified for $1,500 from another type of need-based financial aid called work-study.
Work-study is money that students can earn for college by working, usually on campus. Work-study is funded by the federal government and requires submitting the FAFSA to determine eligibility. Receiving the work-study aid gave Emily the last bit of money she needed to pay for her college, but there is one other type of financial aid that is a possibility for Emily if she should ever need it.
Non-need-based aid is given to students who qualify for money for college, but the amount of aid is not based on the EFC.
Non-need-based aid is an unsubsidized student loan that comes from the federal government. Unlike subsidized loans, unsubsidized loans accrue interest while a student is enrolled in college.Fortunately, Emily was able to come up with enough need-based aid that she won’t have to take out an unsubsidized loan. Each year, Emily will complete her FAFSA, and if anything changes, this option could be available to her.
Maximizing Your Financial Aid
Let’s review Emily’s financial aid package. First, Emily showed a financial need of $16,000. She was able to get the entire amount covered by receiving $1,500 in scholarships and $8,000 in grants.
After that, she was able to get a $5,000 subsidized loan, and she qualified for $1,500 for work-study.How can students get a financial aid package like this? Getting good grades and being involved in school are a given, but there are three things Emily did that maximized her financial aid awards:
- Apply early in order to meet any admissions or financial aid priority deadlines. Emily applied to her university at the beginning of the fall semester, and she was accepted before winter break.
- Start applying for scholarships as soon as possible – just like Emily, who began applying for scholarships as soon as her senior year started.
- Fill out your FAFSA as soon after January first as is possible. Just like the saying goes, ‘the early bird gets the worm,’ and Emily completed her FAFSA before the end of January.
Financial aid funds are limited, and she was there to get the money before it was given to someone else.
This lesson discussed the different types of financial aid available to college students. Emily was able to get enough financial aid using a combination of merit-based and need-based aid. Students can maximize their financial aid potential by applying for college before priority deadlines, filling out the FAFSA a.
s.a.p. and applying for scholarships early.
After reviewing this lesson, you should have the ability to:
- Describe the different types of need-based and merit-based financial aid options
- Explain how non-need-based financial aid differs from the other types of aid
- Summarize how need-based aid is calculated
- List tips to maximize financial aid award potential