Financial aid simply put is money to help pay for education. The aid comes from a variety of sources including the government, colleges and other loans. Some of the money needs to be paid back and some does not.
Aid that does not need to be paid back includes grants and scholarships. Scholarships are primarily based on merit such ACT scores, athletics or grades and sometimes require the student to maintain a certain GPA while in college. The Federal Work Study program also falls into this category since the money is earned and not taken out as a loan. If a student qualifies, he or she can work while in college to earn money for their education.
Need based aid is supplied by federal and state governments along with the college. To qualify for this aid, the family must fill out a FAFSA (Free Application for Federal Student Aid). The FAFSA uses the Federal Methodology formula to calculate the EFC (Expected Family Contribution) or the amount of money the family is expected to contribute. Private colleges and universities often use the Profile Form along with the FAFSA. Once the EFC is determined, then the college financial aid office will put together a package for the student.
Everyone who fills out the FAFSA is evaluated for a Pell Grant which is given based on need. The federal Academic Competitiveness Grant (ACG) is based on high school performance and is applied to the first two years of college. The federal government also offers a National Science and Mathematics Access to Retain Talent Grant (National SMART Grant) applies to the third and fourth year of college in high need fields determined by the Department of Education. There is also a federal grant called Teacher Education Assistance for College and Higher Education Grant (TEACH) that is available for students who plan to teach in schools serving low-income families. One last grant to note is the Federal Supplemental Educational Opportunity Grant (SEOG).
There are four types of loans. Student Loans, Parent Loans, Private Loans and Alternative Loans. Student loans are subsidized by the government. The two types of student loans are the Perkins Loan and the Stafford Loan. Parent Loans are fixed rate loans referred to as PLUS Loans and payment typically starts a few months after taking out the loan. Private Education Loans are often supplied by banks and terms vary according to the institution providing the loan. Alternative Loans include Home Equity Lines of Credit, Mortgage Refinancing and a host of other options.
It is best to talk to a college financial planner when reviewing your options. College is expensive, but if planned for correctly, is possible.