Student Aid: Your Guide to Financial Aid Options

What Is Student Aid?

Student aid is money that helps you pay for college or career school. It can come from the federal government, states, colleges, and private organizations. There are four main types: grants, scholarships, work-study, and loans. Each type has different rules about eligibility and repayment.

Sources: USAGov, U.S. Department of Education

Financial Aid: Grants, Scholarships, Work-Study, and Loans

Grants and scholarships are often called “gift aid” because you generally don’t have to pay them back, unless specified conditions change. Work-study lets you earn money through a part-time job. Loans, including federal student loans, must be repaid with interest.

• Grants: Usually need-based and do not need to be repaid unless your enrollment or financial situation changes.
• Scholarships: Awarded based on merit, talent, need, or area of study, often from nonprofit and private organizations.
• Federal Work-Study: Part-time jobs for students with financial need; earnings are paid as a paycheck.
• Federal Student Loans: Low-interest loans from the U.S. Department of Education with various repayment options.

Sources: USAGov, Corning Community College, Penn State World Campus, U.S. Department of Education

Federal vs. Private Student Loans: Key Differences

Federal student loans are funded by the U.S. Department of Education. Private student loans are offered by banks, credit unions, and other financial institutions. Federal loans generally offer fixed interest rates, income-driven repayment plans, and forgiveness options. Terms for private loans vary by lender and are not covered in this resource.

• Federal loans do not require a credit check for most undergraduate loans.
• Federal loans offer flexible repayment plans, including income-driven options.
• Federal loans have forgiveness programs for public service and certain professions.

Sources: USAGov, Corning Community College

Getting Started: FAFSA and Financial Aid Applications

The Free Application for Federal Student Aid (FAFSA) is the starting point for most financial aid. Completing the FAFSA is required to be considered for federal grants, work-study, and loans. The information you provide also determines eligibility for state and school-based aid, as well as many scholarships. You should complete the FAFSA even if you think your family income is too high, because there is no income cut-off for aid.

• Federal Pell Grant: Maximum amount is set annually by the federal government.
• Federal Supplemental Educational Opportunity Grant (FSEOG): Limited funds for Pell-eligible students with the most need.
• Direct Subsidized Loans: Need-based; the government pays the interest while you are in school at least half-time.
• Direct Unsubsidized Loans: Not need-based; interest accrues from the time the loan is disbursed.
• Parent PLUS Loans: Available to parents of dependent undergraduates; the parent is the borrower.

Sources: USAGov, Corning Community College, U.S. House of Representatives, Penn State World Campus, U.S. Department of Education

Repaying Your Loans

If you take out federal student loans, repayment generally begins six months after you leave school or drop below half-time enrollment. During that time, you should understand your repayment options and choose a plan that fits your budget. Federal loans offer several repayment plans, including income-driven options that base your monthly payment on your income.

• Standard Repayment Plan: Fixed payments over 10 years (or up to 30 years for consolidated loans).
• Graduated Repayment Plan: Payments start lower and increase every two years.
• Income-Driven Repayment Plans: Payments calculated as a percentage of discretionary income and forgiven after 20 or 25 years.
• Public Service Loan Forgiveness (PSLF): Forgives remaining balance after 120 qualifying payments while working full-time for a qualifying employer.

Sources: Corning Community College, U.S. House of Representatives

Considerations for Refinancing and Loan Forgiveness

Refinancing involves replacing existing loans with a new loan, often to simplify payments or change repayment terms. However, refinancing federal loans with a private lender may mean losing federal benefits such as income-driven repayment plans and loan forgiveness options. It is important to weigh these trade-offs carefully. Loan forgiveness is available for eligible public service workers and those in income-driven repayment plans.

• Loan forgiveness is available for eligible public service workers and those in income-driven repayment plans.
• Refinancing can simplify payments and potentially change your interest rate.
• If you refinance federal loans into a private loan, you may lose access to federal repayment and forgiveness programs.

Sources: USAGov, U.S. House of Representatives