Making the Most of Scholarships, Financial Aid, and Student Loans

Print Tell a Friend

Acquiring a college degree can easily top six figures at a four-year private university. Applying for a student loan or other type of financial assistance is a must for many families. In fact, 7 out of every 10 full-time students receive some sort of financial aid.

When applying for financial aid via a grant or scholarship, you compete against thousands of other families. Therefore, it is important to become knowledgeable about different forms of aid, and qualifications for each.

Overview of the Three Basic Types of Aid

There are three basic types of financial aid to consider:

1. Loans – the most widely available sources of financial aid for college bound students. Interest rates for student loans are usually lower than commercial loans. In addition, payment on the loan is usually postponed until after the student graduates. In some cases, loans can be forgiven.
2. Grants and Scholarships – generally do not require repayment. Grants are given based on financial need; a scholarship is given to students meeting some type of criteria – academic or otherwise. Scholarships are awarded regardless of whether or not the student needs extra funds to pay for college.
3. Work-study – students work 10 to 15 hours a week during school months and full-time during summer to earn money to pay for school.

Each type of financial aid comes from four sources: federal, state, institutional, and private.

The federal government doles out about $60 billion annually to students. These funds are usually made available through the U.S. Department of Education, and the U.S. Department of Health and Human Services.

Available state aid varies from state to state; each state carries guidelines. Some states have restrictions that students maintain residency in the state, and/or that they attend a school in that state.

Many colleges and universities offer students institutional aid, both need-based and non-need based. Requirements and restrictions vary.

Private aid can be of great help, but requires research and work on the part of the student to locate sources and apply. Private scholarships average around $2,050. They are awarded to needy and non-needy students alike.

Only about 6 percent of college students receive private aid, which increases a student’s chance of obtaining one if time is taken to apply.

A Look at Scholarships and Grants

Basically free money, scholarships and grants can help offset or even eliminate the climbing cost of college tuition. Still, many families fail to explore this venue of financial aid.

Some families feel their household income is too high, or that their child’s grades aren’t impressive enough to make them a likely candidate. Too bad. Sizeable funds to help save money on college may have been lost simply because they failed to apply.

State and Local Resources

Many state and local scholarships are awarded to students entering into a specific occupation field, for instance, regardless of household income. Contact the state higher education office for more information on such state-sponsored programs.

Also check with local offices of organizations that traditionally sponsor scholarships. The Protective Order of Elks, the Lions Club International, and the International Kiwanis Club are among those that do.

National Resources

According to the National Center for Education Statistics, about 750,000 scholarships are earmarked annually for qualified students, totaling around $1.2 billion.

A Pell Grant is awarded to low-income families meeting financial criteria. The average government scholarship awarded runs around $2,000. To apply for a grant, submit the Free Application for Federal Student Aid (FAFSE). Fill in all aspects of the application, do not leave anything blank. If you have questions contact the U.S. Department of Education at 1-800-433-3234.

Students who begin their search for available grants and scholarships early – in their freshman or sophomore year of high school – are way ahead of the game. By identifying the requirements of potential awards, the student can choose classes and extra-curricular activities that will increase their chances of obtaining a scholarship.

Even after entering college, free school money in the form of scholarships and grants are still available for qualifying students. Check with the financial aid officer at the school for details.

A Word About Scam Artists

In your search for available grants and scholarships to help save money on college, beware of scam artists who promise to track down “unclaimed prizes” for a fee. The Federal Trade Commission (FTC) has returned more than $560,000 to persons ripped off by such schemes since the late 1990s.

Con artists use marketing lists to track down students, and offer to help them qualify for scholarships for a fee. Avoid anyone who offers such services for money, who guarantees to get you a scholarship, or who requests a credit card or bank number in order to “hold” one.

If you believe you have been the victim of such a scam, call the FTC at 1-877-382-4357. Read more about scholarship scams by visiting the Scholarships, Employment & Job Placement page at the Federal Trade Commission website.

Student Loans – Things to Consider

After exploring available resources and applying for free money in the form of grants and scholarships, many students finance remaining college costs with a student loan.

A student loan can help open the door to higher education with a brighter future, arming the graduate with a diploma and degree with which to enter the professional employment market.

When applying for a loan, carefully consider the following:

1. The rate of interest – calculate the interest rate using tables available at the school’s financial aid office and lending institutions.
2. The cost of repayment after graduation – usually a monthly amount over a period of ten years. The Salary Wizard at Salary.com can help you decide whether or not the projected income from your anticipated career will provide enough funds to comfortably meet this obligation. The U.S. Department of Labor’s Occupational Outlook Handbook is an additional resource, available in the reference sections of many libraries.

Decide what amount student loan you can afford to borrow based upon these two factors.

Repayment of Student Loans

Students usually have a grace period of about six months after graduation before payments on a student loan are due. If the loan is subsidized, however, repayment can begin during the grace period; payments would be applied directly to the principal of the loan.

Repayment of the student loan not only teaches responsibility, but earns a good credit rating, as well. There are several repayment schedules:

1. Standard repayment schedule – requires payments each month for 10 years; payment amounts may be adjusted each year to reflect the variable interest rate.
2. Graduated repayment schedule – calls for smaller monthly payments in the beginning, larger payments later on for a total repayment schedule of 10 years.
3. Income-sensitive repayment schedule – adjusts loan payment to the monthly income; payment terms may exceed 10 years.

In all cases, a student loan deferment that temporarily suspends repayment may be possible in certain circumstances. A forbearance allows for either a reduction in the amount of loan payment, or a temporary stop in payments. Interest, however, continues to accrue.

If monthly repayments of student loans do prove too high, a student loan consolidation is an option to consider.

Lowering Payments when Repaying Several Loans at One Time

Many students acquire more than one loan while attending college. When this is true, consolidating the loans into one monthly payment that can be extended up to 30 years might be best.

One down side of a student loan consolidation is that while monthly payments are lower, the borrower may have to pay a higher percentage of interest. It is advisable to shop around for the best offer, and read all details carefully.

Although consolidating loans might be the best alternative in many cases, it would be wise to contact the loan representative to make sure it would be in the student’s best interest.

Repaying Your Student Loans is another helpful resource. It provides information about deferment, forbearance, loan repayment options, and loan consolidation.

With foresight and careful planning, and by researching available cost-cutting options such as scholarships, grants, and student loans, you help ensure a brighter future for your college-bound student.

Students can further help reduce costs by responsible spending, and by earning extra funds. Working at least several hours a week during school months and part time during the summer. And also by taking the initiative to research and apply for scholarships, grants, and private funding on their own.