Types of Financial Aid

There is no shortage of assistance out there. The federal government allocates approximately $30 billion a year to student aid, the colleges and universities some $8 billion, and state governments a great deal more, if you consider the fact that their lower tuitions represent a tax payer "scholarship."

The financial aid system provides three different types of aid: grant aid, which does not have to be repaid by the student, loans of various kinds, which must be repaid with interest, and work study, which is student employment that is subsidized by the government and the college.

Grant Aid:

This form of student assistance, sometimes called gift aid, does not have to be repaid. The federal government's Pell grant program is the basic grant that many students receive. To this the college or university may add a grant of its own, and in the case of special talent a merit scholarship, which also does not have to be repaid.

Loans:

The Federal Government also assists students by subsidizing two generous loan programs. Many colleges and universities offer Perkins Loans which can amount to $3000 a year. Perkins Loans have a 5% interest rate, and no interest accrues while the student is enrolled in school. When a student graduates, he/she begins paying back the interest and principle of the loan over a ten year period.

There are two types of loans under the federally sponsored Stafford Loan program. The Subsidized Stafford Loan will be offered to students in their financial aid packages. The funds are obtained from a local bank and backed by the federal government. Students may borrow up to $2625 in their first year, and the amount increases to $5500 in the senior year, with a maximum of $23,000 for four years. Students pay a 3% origination fee, and a 1% insurance premium. Repayment of interest and principle begins six months after graduation, for a period of ten years. Interest rates are now in the 7% range and an 8.25% cap protects future borrowers from steep increases.

Unsubsidized Stafford Loans are normally offered to students whose financial need is too small to qualify them for the Perkins or Stafford Subsidized loan programs. The terms of the Unsubsidized Stafford Loan are the same as the Subsidized except for the fact that interest payments begin right away, while the student is in college. Most lenders will waive this requirement and allow the interest payments to be postponed until after the student graduates, a practice called capitalizing the interest.

PLUS Loans are offered to the parents of undergraduate students through a local bank, and are guaranteed by the federal government. Parents may borrow the entire cost of a student's education if they wish, with repayment beginning in 60 days at interest rates in the mid 8% range with a 9% cap presently in place.

There are several well-respected commercial lenders who offer a variety of student loans. Here is what one such lender, Key, has to offer:

"Affording higher education can be a challenge. Key Education Resources can help. For over 40 years, we have assisted hundreds of thousands of families in achieving their higher education goals with federal and private loans, payment plans and expert advice. Key Education Resources' full range of products includes education loans for independent school, student and parent undergraduate loans, specialized graduate school loans and even loans for adult and part-time students.

"Key also makes preparing for college easier with KeyScape®, free interactive software that guides families through the college planning and financing process with interactive screens and helpful information. To get your free copy, call 1-800-KEY-LEND."

You might also want to visit or telephone Fleet Bank 1-800-2-Fleet-5. For further information about loans contact College Center directly.

Work Study:

College Work Study is supported by the Supplementary Educational Opportunity Grant (SEOG) of the federal government. A large portion of the 30 billion dollars that the federal government expends to support college students flows into the Work Study program. The Financial Aid Office of the schools to which you are applying has a formula that "expects" students on financial aid to work a certain number of hours a week each term. This amount appears on your financial aid award as work study. When you arrive at college, the Student Employment Office assigns you a particular job, but you are not obliged to work if you do not wish to.

How does financial aid get awarded?