Financial aid doesn’t just mean student loan options. The term “financial aid” encompasses a wide variety of programs aimed at helping students fund their education.
Some forms of financial aid amount to free money with few strings attached, while others are loans that need to be paid back with interest. The distribution of these funds is usually based on need or merit.
There are essentially four different kinds of financial aid. Let’s take a deeper look at each kind, so you can better understand the options available.
- Student loan option
Student loans are the most well-known kind of financial aid — and they’re the only kind of financial aid that you have to pay back. There are two different types of student loans: federal and private. Here’s how they compare:
Federal student loans
Federal student loans, which are issued by the U.S. government, are the more common variety, making up the vast majority of all student loans. Federal student loans usually have lower interest rates, more income-based repayment options, and longer deferment and forbearance periods than private loans.
There are different types of loans within the federal student loan system. The main difference is whether a loan is subsidized or unsubsidized. The former is only offered to students with a demonstrated financial need, while the latter is available to anyone.
Subsidized loans do not accrue interest while you’re in school or during other deferment periods, but unsubsidized loans will accrue interest during all deferment periods.
Students can apply for federal student loans by filling out the Free Application for Federal Student Aid (FAFSA), which asks for your parent’s income and asset information. While the federal government uses parental financial information to determine what kind of student loans you’re eligible for, your parents do not cosign the loan. The loan is strictly in your name.
Federal student loans are available to undergraduate, graduate, and professional school students. As an undergraduate, the maximum amount you can borrow is $57,500 in total. If you’ve maxed out your federal loans, your parents can take out Parent PLUS loans to pay for your education.
Private student loans
Students who don’t qualify for federal student loans or who have maxed out their federal loans can apply for a private loan. You can apply with different lenders to see who will give you the lowest interest rate or best terms. Most private student loans require a cosigner — although Funding U only makes private student loans without cosigners.[Callout box: Funding U only makes private student loans without cosigners. Not sure what a cosigner is? Here’s how cosigning works and more info about why Funding U only makes no cosigner student loans.]
Private student loans are available to undergraduate, graduate, and professional students as well as parents. The process to apply for a private student loan requires a credit check and income verification, whether it’s for a typical cosigned student loan or for a no cosigner student loan.
Unlike student loans, scholarships do not have to be repaid at any time. That’s why it’s so worthwhile to apply to as many scholarships as possible.
There are two main types of scholarships: private and university-based. Private scholarships are distributed by third-party organizations like nonprofits and for-profit companies, and you have to apply directly to the organization to be considered.
University-based scholarships are offered by or through your college directly. Usually, you don’t have to apply separately to them — when you apply to college, they will automatically consider you for any internal scholarships. Within the university, different departments may have their own scholarships available only to students in that discipline. For example, the English department may offer specific scholarships for students who have declared English as their major.
Every scholarship has different qualifications, and they can be awarded based on either merit or financial need. Check out our post on how to pay for college for more tips on applying to scholarships.
Grants are similar to scholarships in that they do not have to be repaid. Grants are almost always awarded based on financial need. There are both federal and state-based grants for college students:
The Pell Grant is the most common type of federal grant, given annually to students with a demonstrated financial need. The maximum amount available varies per year and is currently set at $6,495 for the 2021–2022 academic year.
Prospective teachers can apply for the TEACH Grant, which pays out $4,000 per year for students who promise to serve in high-need areas for four years after graduation.
Most states offer grants to eligible local students who attend an in-state university. Some states also have grants for minority students, those majoring in a certain field or students who are the first in their family to attend college.
If you’re attending a local school, research what options are available in your state. Some grants are only available on a first-come, first-serve basis – so don’t delay in applying.
Work-study is a need-based form of financial aid distributed on a first-come, first-serve basis. Students who are eligible for work-study will receive a paycheck in exchange for a college-sponsored job, like working in the library or the campus rec center. In some cases, you may work for a nonprofit or agency that has a contract with your college.
Students are limited to working 20 hours a week so that work duties don’t interfere with academic obligations. Students can use work-study funds to pay for any expenses.
Common questions about student loan options and other aid
Does my financial aid stay the same every year?
Because your financial aid award mostly depends on your family’s financial situation, the amount distributed may vary from year to year.
For example, if one of your parents loses their job, you’ll likely receive more aid because their total income has dropped. On the other hand, if your parent’s income skyrockets, you may receive less need-based aid.
Can I lose my financial aid if my GPA drops?
Scholarships that renew each year often require that you keep your GPA above a certain threshold, usually a 3.0. The exact requirement can vary depending on the scholarship provider, so double-check the rules.
Federal student loans require that students make sufficient academic progress every semester. This includes both regularly taking classes that count toward your major and maintaining a 2.0 GPA. Private lenders may have their own GPA minimums.
Do I have to keep the same major to retain my financial aid?
If you receive a scholarship or grant from a specific college department, you may lose access to that award if you switch your major. Federal student loans are available for any major, as are most private loans.
If switching your major means you’ll have to spend more time in school, then you may max out your federal student loans before you graduate. In this instance, you may have to rely on private student loans to fund any additional costs.
No cosigner student loans from Funding U
At Funding U, we make no cosigner student loans directly to college students. We don’t look at your parents’ credit; we look at you, your academic progress, and your financial plan. Apply online. Check out our latest blog posts for tips and useful info about managing money in college, navigating the job market, and more.
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