Different Types of Student Aid

There are several different types of financial aid and it is important to understand the differences between each of them. We have provided a summary of the main types of aid here to assist you in the process. However, you should consult a financial aid office to determine the specific types of aid you may obtain. As a general rule of thumb, money that does not need to be repaid (such as scholarships and grants) is preferable to student loans and other forms of debt.

Scholarships
A "scholarship" generally refers to a form of financial aid that helps pay for the cost of a student's education without a repayment obligation. They are generally created to assist a specific group of students. Scholarships generally exist to assist students based on academic achievement, athletic ability, or who are interested in pursuing a particular area of study and numerous other types of scholarships with unique requirements. Scholarships are often, but not always, based on the financial need of the student.

So how do you find great scholarships? Start with your school. In addition there are many publications and a number of scholarship search services on the Internet that can help you find scholarships.

You should beware of scholarship offers that sound too good to be true and beware of a scholarship offer that requires you to pay money to apply. Remember, scholarships are designed to help you afford school, not make it more expensive!

Grants
Similar to a scholarship, a grant is a form of financial aid that does not need to be repaid. A common grant is the Pell Grant given by the federal government. Many students are able to use grants to pay for a portion of their education and supplement them with scholarships and loans. Grants are also available from many states and other organizations. Again, there are publications and search services on the internet that can help locate grant information.

Loans
There are several different types of student loans and it is important to each type. Key factors are whether the student or parent is responsible for repayment of the loan, interest rate, repayment terms and the amount available to each student.

• There are four main sources of student loans:
• Federal Student
• Parent
• Private
• Other

Federal Student Loans
Federal student loans are the Department of Education's primary form of self-help financial aid to students. These loans are often referred to as Stafford loans. These loans are made to students directly (rather than their parents) and must be repaid with interest following the completion of your education. These loans can supplement or act as an option to scholarships, grants, or personal savings. Federal student loans generally have a discounted interest rate (which will reduce the total amount you have to repay) and do not require a credit check. The amount you can borrow depends on your academic level (i.e. undergraduate or graduate) and factors determined by the lender.

There are two types of Stafford loans: subsidized and unsubsidized.

Subsidized loans do not charge or accrue interest until you begin repaying the loan. The federal government is "subsidizing" the interest while you are in school. Subsidized loans are generally issued on the basis of financial need.

Unsubsidized loans begin accruing interest when the loan is made. You will be charged interest from the time the money is disbursed until the loan is repaid in full. However, you may have the option to pay this interest while you are in school. By making these "interest-only" payments, you can reduce the total amount repaid. If the interest is not paid during school it will likely accumulate (often referred to as capitalized interest) and add to the principal amount of your loan. If the interest is capitalized, you could pay more over the course of the loan.

So how do you know if you are eligible for one of these loans? Generally if you are a student enrolled at least half-time in an eligible program you may receive a federal Stafford loan. However, there are certain exceptions and may be additional conditions so you should check with your school's financial aid administrator.

Parent Loans
Parent loans are loans from a financial institution made to parents of dependent students. The Parent Loan for Undergraduate Students (PLUS) enables parents to borrow money to cover the education expenses of a child. To qualify for a PLUS loan, the student must meet the same requirements that apply for federal student loans (Stafford). Additionally, parents are required to meet eligibility requirements of the lender. Repayment of a PLUS loan begins 60 days after disbursement of funds.

These loans are made to the parent rather than the student and the parent is responsible for repayment. Interest is charged from the time the loan is disbursed until it is repaid in full. PLUS loans are generally limited to the amount needed to cover your education expenses each year minus any other financial aid. For instance, if your cost of attendance is $10,000 and your other financial aid is $7,000, your parents could generally borrow up to $3,000. Your school's financial aid administrator can provide the specifics of the PLUS loan program at your school.

Private student loans are loans made by private institutions such as banks, lenders and credit unions. They represent an alternative to government-based loans and are sometimes referred to as "Alternative Loans". These loans help students and parents bridge the gap between the cost of education and other sources of funding. Private student loans are usually an option for those students who do not qualify for federal student loans or who have additional education expenses not covered by other sources of aid (federal loans, scholarships, grants, etc.) Because the government does not guarantee these loans, the rate of interest is set by the lender. The lender will determine the terms and conditions of the loan and may require a cosigner - especially if you do not have sufficient credit history. The terms and conditions of private student loans vary significantly by lender so you may want to check with multiple lenders before accepting a loan.