One of the most daunting parts of the college application process can be the search for financial aid. The question of how you and your parents will be able to afford college can often seem to be one that can’t be answered easily. Yet by arming yourself with knowledge about the types of financial aid available, the requirements each type has, and what you can do to improve your financial aid prospects, you’ll easily win the financial aid battle.
Which types of financial aid are available?
Financial aid primarily exists in three forms: loans, scholarships, and grants.
- A loan is money that you borrow either from the government (known as federal loans) or a private lender such as a bank or educational institution (known as private or alternative loans). You borrow this money at a specific interest rate–a percentage of the total loan which is added to your balance every year–which varies from loan to loan. With most educational loans, you are not required to start paying the loan back until after you have graduated school. With some loans, however, interest will accrue (meaning it will be added on to your original loan amount) while you are in school; you or your parents will have the option of either paying the interest every year, or deferring (putting off paying) the interest until after you graduate.
- A scholarship is “free money”—that is, it is money that is given to you by an institution, corporation, or individual that you do not have to pay back. Scholarships typically have a set of criteria that you must meet in order to be eligible to receive them. They can be merit-based (where you qualify based on your academic credentials or standardized test scores), need-based (where you qualify based on you or your parents’ income levels), student-specific (where you qualify based on your gender, race, ethnicity, religion, parents’ employer, etc.), or career-specific (where you qualify based on the field of study you are going into). With many scholarships, particularly merit- and need-based awards, you have to meet certain requirements throughout your college career in order to remain eligible. For example, you may need to keep a 3.0 GPA while in college or your parents’ income may need remain below a certain number; if those characteristics change, you could lose the scholarship.
- A grant is also considered “free money,” although it is slightly different than a scholarship. Students must apply for or compete for grants, either via a formal application or an essay competition. Grants are most often a one-time award. Unlike scholarships, though, a grant cannot be taken away once it is dispersed. Both undergraduate institutions and the federal government have grants available for students.