Affording Education: FAFSA, loans, scholarships, grants

By Roshan Pourghasemi

Abstract

Education is one of the best investments you can make in yourself, but, unfortunately, it is extremely expensive. Still, there are many programs in place, like federal financial aid and scholarship programs, created to help students afford university. If you would like to know what financial aid options are available, the first thing you need to do is fill out the Federal Application for Student Aid (FAFSA). Completing the FAFSA will help gauge your options and lay out the next steps you should take. Also, there are many federal and local programs in place to give students scholarships to attend school, and these options are also worth exploring.

If you or someone in your family is thinking about going to college, the first thing you should understand is how to afford an education. With the average overall cost of a Bachelor’s degree sitting around $30,000, it can be easy to chalk college up to something that only the rich have access to. There are lots of financial aids, however, that make college more affordable for the thousands of families that can’t afford to pay the exorbitant costs.

Key Takeaways

  • Your first step should be to complete the FAFSA

    • Based on your answers to the FAFSA, you will be supplied with avenues for financial aid

    • Scholarships are another avenue for financial aid, and your school, federal organizations, state organizations, and local organizations are good places to look for them

  • If your aid through scholarships and grants isn’t enough, you’ll have to take out loans. Federal loans are the first place to look and they are either subsidized or unsubsidized. The difference between the two is that interest on subsidized loans don’t accrue until you graduate, while unsubsidized loans will have interest accrue throughout your time at school

  • If none of these avenues work for you, you can look into getting private student loans from banks, credit unions, and online lenders, but this should be your last resort. Interest rates on these loans are higher than federal loans, and they typically don’t have loan protection plans in place.

The Free Application for Federal Student Aid (FAFSA)

The FAFSA is the official form that you send to the government to apply for federal student aid. Many other organizations that give financial aid, like your school, state, or third party organizations, also rely on the information you provide on the FAFSA. You can fill out the FAFSA here. The process doesn’t take too long if you have all your financial documentation ready, and it is recommended that you complete it as a family. The form opens on October 1, and you should complete it ASAP since many of the programs are rolling.

Even if you think your family makes too much money to qualify for the FAFSA, it is still worth your time to check whether you are eligible for some form of assistance, including federal, state, and school-based aid and merit-based scholarships. It’s best practice for almost all families with a college-bound kid to fill out the FAFSA.

The purpose of the FAFSA is to determine how much aid a student qualifies for after asking a series of questions about their family’s financial situation (parent and student income, assets, how many kids are in college, etc.). It determines eligibility for the following federal need-based and non-need-based forms of financial aid:

  • Pell Grant and Federal Supplemental Educational Opportunity Grants (need-based)

    • Both are grants, meaning they don’t have to be repaid

  • Subsidized federal student loans (need-based)

    • Subsidized loans are similar to loans in that you need to pay back the principal, but they have no interest associated with them until you graduate

  • Unsubsidized federal student loans (most qualify for)

    • The government doesn’t get interest on these loans until six months after the student finishes their education, but it will have to be paid following this period.

    • Since there are many months of extra interest accrual vs subsidized loans, you’ll end up paying much more in interest overtime through unsubsidized loans.

  • Federal work-study (need-based)

    • This program makes part-time jobs available to students

  • State-based financial aid

    • Grants, scholarships, and loans on a state level. Oftentimes, this aid is dependent on attending an in-state school

Following the questions on the FAFSA, your family’s Expected Family Contribution (EFC), which will be renamed to the Student Aid Index (SAI) in July 2023, is calculated. Based on your family’s EFC, you will be told what avenues of aid you qualify for.

Scholarships - What They Are and How to Apply

Scholarships are another common way that families pay for college. They are financial aid awards that can be given on the basis of merit or need. Some of the more competitive scholarships begin their application process in the beginning of the year, so you should look into scholarships as soon as possible.

Scholarship funds can come in the forms of one-time checks, recurring payments, or direct deposits into your school account. They come from a variety of different sources, such as clubs, foundations, charities, governments, individuals, and universities. Whenever you are awarded a scholarship, there will be terms on what you can spend your money on, but many of them have few restrictions.

The first place you should check for scholarships are your schools of choice. A Google search of “[insert school name] scholarships” will suffice. This is an example of Vanderbilt’s merit scholarship page. You can navigate through the page and look for scholarships which you could qualify for, with some covering your entire tuition! Many schools also will automatically check whether you qualify for their scholarship when they read through your application. Some schools, however, do not offer any merit scholarships, and it’s worth looking into their forms of aid before you apply.

There are many scholarship databases, such as this one, but it can be difficult to find scholarships that apply to you on such pages. Still, they are definitely worth looking into, because you can find some diamonds in the rough. Outside of this, your next best bet would be local religious organizations (your church, mosque, etc.), as they often will have scholarships for graduating high school seniors, and other nonprofit organizations. This is an example from my hometown of Louisville, KY of a foundation made purely for the purpose of giving scholarships.

Student Loans - Last Resort

You’d be hard pressed to go a week without hearing about the student loan crisis in America, and for good reason. Still, making an investment in your own education is one of the best investments around, and, if you work hard to make sure you’ll be able to repay your loans post-graduation, they are definitely worth it.

You can either get a federal or private student loan, with federal typically being the avenue of choice. To access federal loans, you will have to submit the FAFSA. Almost all of them, the PLUS loan being the exception, do not require a credit check and will have the same interest rates for everyone, which is typically lower than private loans.

Federal loans are either subsidized (interest only starts accruing after you graduate) or subsidized (interest accrues during all periods). There are borrower-protection plans and a max for the amount of money you can borrow associated with federal loans.

Private loans are available through banks, credit unions, and online lenders. They will use their own standards to set the interest rates and will factor credit scores into their decision, making it difficult for undergraduates with short credit histories to qualify for them (you can use a co-signer, though). Most importantly, private student loans don’t come with borrower-protection plans that come with federal student loans, like income-driven repayment plans and forgiveness if you have financial hardships or work in certain fields.

If you plan on applying for federal student loans, the first step is to complete the FAFSA. Once you get accepted into your school, there will be an award letter outlining your financial aid. On this letter will be the aid you’ve been rewarded and how much you have to take out in loans. You will have the chance to accept or reject the student loans outlined in your award letter.

If you still need more money, you will have to go to private lenders individually. The information needed will vary, but most will need your financial and school information, how much you will need to borrow, when you plan to graduate, and whether you’ll need a co-signer. Again, private loans do not have the same protections for the borrower that federal loans do and should only be your last resort.