Financial Aid Types

Introduction 
A few years ago, the colleges and universities all had their own financial aid systems. You would have to apply to each school individually for financial aid. There was not a lot of consistency on who got what. This changed with the FAFSA system.

FAFSA stands for Free Application for Federal Student Aid. Essentially, it is a detailed application that you fill out on-line which contains information about what college you are going to attend, your income, and your parents income and assets.  FAFSA calculates your financial need and reports that to the colleges. As of 2007, a family of 4 with $50,000 per year or less income could plan on quite a bit of “need based” financial aid. Families that made over $100,000 per year could plan on none. Where you fit in the continuum depends on the number of students in college in a family as well as the family’s liquid assets. Home values are not included in the calculations.  The FAFSA website has a calculator to give you an idea where you fit in without having to go through the entire application process.

When a student applies for financial aid at a particular school, the school will issue a “financial package” that lists how they anticipate the student will be able to afford to pay for their estimated expenses that year in school. The package includes: Student Contributions, Parent Contributions, Student Loans, Parent Loans, Scholarships and Grants, and Work Study.  What all of these mean are listed below to help you understand the terminology.

Grants: These are funds that are given by the State, the Federal Government, or by the college to a student and they do not need to be paid back.  The most common grant is the “Cal Grant” given to students based on financial need.  If a student meets the criteria based on their FAFSA application, they can get from $5000 to $9000 as a Cal Grant.  Each year, grants must be applied for. Pay special attention to follow carefully the application process exactly. My daughter was awarded $5000 her freshman year. When she went to collect her check the first week of school, they told her that her money was given to another student because the school did not send in a verification of g.p.a.. We had asked the school (Horizon) to send in the form and assumed it happened. It did not. I’m still paying off the $5000 I had to borrow so she could start classes.

Scholarships: These are funds given to the student from the college or from a private source. They also do not need to be paid back. These are based on academic scholarship, sports achievement, or because you are part of a specific group of people that an organization wants to support. For example, Sarah Jester graduated from our school a couple of years ago and received $5000 from a variety of local organizations including the Shakespeare Club and the El Dorado County Association of Realtors and the El Dorado Builder’s Exchange. These funds were very helpful for her studying architecture at Cal Poly. Both of my daughters have earned around $9000 per year in scholarships by their university because of their grades.  
                Scholarships are often one-time moneys, but in some cases can be earned year after year.  If you are counting on a scholarship, remember that there are strings attached. If your grades go down, no money. If you don’t play well on the sports team, no money.  Scholarships are great, but unreliable and should be considered as such when making your plans, especially if they are not guaranteed for multiple years.

Student Loans: These are just what you thought. The key is that the interest rate is pretty low and the student does not have to begin paying them back until 6 months after they cease to be a full-time student. Some loans accrue interest during this time. Most student loans are interest free until you begin paying them back. The government (our tax $ at work) pays the interest until the students start paying them back. These are called “government guaranteed student loans”.

Parent Loans: When a student applies to a college, they complete a financial background application. From that application, the schools are given the amount of money the student is expected to pay, and the amount of money their parents are expected to pay. Parents can take out a “Parent Loan” for any amount, up to, the amount they are expected to pay. The rates are usually pretty good and pay-back terms are generous.

Work Study: 
                Colleges have many student jobs, from washing dishes in the cafeteria to watering plants in the botany greenhouse. The school supports students by supplementing the cost of hiring. Essentially, the business may only be able to afford to pay $5 per hour to a student, so the university pays the other $5, thus creating a $10 per hour job. It is up to the student to find the job and get hired based on competition, but only those with “work study” status are eligible for those particular jobs. The university is careful only to grant the same number of work study students as there are work-study jobs.  These are based on financial need as demonstrated in the financial aid application.

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