The Four Primary Sources of Financial Aid

Before applying for a school, it is important to know what percentage of “need” based financial aid the school will be from gift aid (free money, i.e. grants and scholarships) and self-help aid (loans, work-study). Not every school will give the same type of award package.

Some schools will meet 100% of your ‘need’ in grants and scholarships, and some will meet 100% of it in loans and work-study. For the most part, it will definitely be a combination of grants, scholarships, loans, and work-study.

The majority of financial aid comes from four primary sources:

• Federal Government
• State Government
• Campus-based programs
• Private Scholarships

Federal Government Based Programs

There are three major federally based programs: 1) Pell Grants, 2) Subsidized and Unsubsidized Stafford Loans, 3) Parent PLUS LOANS.

Pell Grants: The Federal Pell Grant does not have to be repaid. Pell Grants are awarded only to undergraduate students with extreme financial need.

Subsidized and Unsubsidized Stafford Loans: These loans are available through the Federal Family Education Loan (FFEL) from a bank, credit union or other lenders that participate in the program. Subsidized loan is based upon the need of the student and the unsubsidized is available to families regardless of the need.

Parent PLUS/SLS Loans: PLUS stands for “Parent’s Loans for Undergraduate Students.” These loans are in the parent’s name and aren’t based upon ‘need’ but on credit approval.

State Government Based Programs

Each state differs in its own special programs. These can include grants, scholarships, tuition assistance, and loans. There will be more benefits most likely if you are registered as an in-state student.

The best thing for you to do is to contact the state in which you are planning to attend school at and contact the Office of Higher Education Student Assistant Authority and ask for a complete guide to the programs available to you as a student.

Campus Based Programs

Campus based programs are funds that colleges and universities receive from the Federal Government and from private endowments. A specific amount of money is given to a college each year. Once that money is awarded, there are no more funds available until next year. This is why it is so important to file your financial aid form on time and correctly since aid is awarded on a first come basis.

The four main sources of campus based aid are: 1) SEOG grants 2) work-study 3) Perkins Loans and endowments.

Supplemental Educational Opportunity Grants (SEOG): these are “need” based grants awarded to students with extreme financial need. Priority is given to students who receive the Pell Grants.

Federal Work-Study: This award is based upon “need”. The student is offered an amount of money for the year and is expected to work part-time on the campus for the Federal, minimum wage to pay back the funds until the student has earned the amount awarded.

Federal Perkins Loan: These are low interest subsidized loans that are offered by colleges and subsidized by the Federal government. The Government also subsidizes the interest.

Endowments: Endowments are funds that are given to schools from private sources such as alumni, corporations and other foundations.

Private Scholarships

Millions of dollars are given away each year to deserving students by private organizations. Finding these scholarships and applying for them can be a frustrating, but rewarding process. It is recommended NOT to pay for scholarship searches.

The best place to start is in your high school guidance office, then move onto searches on the Internet. Be persistent and apply for all that you can.

Many students go through their youth with little desire to even consider reading a statement from their lender for their student loans.  This can be a dangerous decision because it can quickly sneak up on you and come to bite you in the rear.  I suggest that you take the time if you are in college now to pay attention to when you have to start paying your lender and how much.  If it has jumped on your back recently like a clinging monkey then you might need to take action immediately to get a good plan set up for your student loan repayment.

There are a couple simple things to find out to make sure that you can get on the right track to paying off your loans.

1. What is the loan classified as?

There are many types of loans that are out there and they all are going to have different requirements for you based on what terms they have established with the loan.  Many students will find American government funded loans such as the Sallie Mae, Stafford, Perkins, or PLUS loans. 

There are certain loans where you will have the full responsibility and then there are loans like the PLUS loan that is your parents obligation to repay.  If your parents have done that for you then I would suggest that you are a very lucky person.  I would look to do what you can to help pay for it in the future if you are able to create financial security in a short period after college.

There should be a thorough list of paperwork that you should keep by your organized in a file of some kind or typed up on to a computer.  Read through all of the terms to know when you have to start paying and how much is required of you.  Also get a good understanding of any penalties you may have for late payments, just to know what you would have to deal with and how short of a leash your lender has given you.

If you have lost the paperwork then contact the school’s financial aid office to get documentation on what you owe.  This information is easy to gather and shouldn’t take too long for you to get back on track if you have been a miserable mess for the past couple years.  If the school doesn’t have it then they will get you in touch with who does.  This is information that is your legal possession that you can always gain access to.

2. How much am I going to pay you?

When you apply for these loans there are decisions made by the Department of Education as to how much they can offer to your student situation.  They might give you more than you need or not enough and require you to go get another loan from another source.

You will receive statements probably at the end of each semester that you are in school giving you an understanding of how much you borrowed and how much you owe.  Keep these on file just in case if there are errors in their system as to what actually is going on.  This will save you a lot of time.

Make sure that you separate your forms from any scholarships that you may have received because there are plenty of documents out there from many different companies.  Make sure you know first if you are getting a Pell Grant or some kind of scholarship before you get a student loan and for how much because the last thing you want is to get a loan that you don’t need.

3. Who is it that I am paying back?

When you make a decision to go with a certain type of a loan you will also decide which bank you will lend from.  The bank usually will go through a thorough process and decide on how much to give you and then if they do pay you it will probably be on a semester basis until you are finished with school.  Make sure to stay in school if you can to avoid the messy idea of deferring payments.  Many students do it for plenty of solid reasons and it can be taken care of, but with some banks it can be a hassle.

The bank will sell off the loan to Sallie Mae to make more money and in turn you become the possession of Sallie Mae, which is the government established Student Loan Marketing Association.  This association was established to create more loan opportunities for students across the country and has been hailed as one of the best achievements in government action along with the creation student loans since in the 20th century.

Now there are going to be times when Sallie Mae will not only buy up the loan, but sell it to other companies and each time this transaction may happen with your loan, you will be notified so you know who it is that you are paying your bills to.  The terms and conditions will stay the same, but make sure to be on the ball because some companies may be less lenient then others.