Nowadays, a high school education isn't good enough to get a decent, well-paying job. Although there are always exceptions, most people find that they need further education to help launch their careers and make a decent living. Whether it's a four-year university or a community college, higher education may be the way to go.
However, career fulfillment comes with a price, and for many people the price tag of higher education can be a real shocker. For the 2009-2010 school year, the average price for tuition and fees at a public two-year college was $2,544. Public four-year colleges cost $5,930 on average, and private doctorate-granting universities cost $32,349 [source: College Board]. That's not even taking into account the cost of room and board, books, and transportation.
It doesn't help that these costs seem to creep higher every year. If you think college costs are getting beyond your financial means, you may not be wrong. In the last 10 years, the increase in tuition and fees at a public four-year university was nearly 5 percent per year [source: College Board]. How do people pay for it all?
Luckily, the U.S. Department of Education has many programs designed to help people who can demonstrate financial need pay for college and beyond. Through grants, loans and work-study programs, the government provides more than $100 billion to about 14 million students and families to help pay for education beyond high school, making it the largest provider of educational financial aid in the country.
Federal student aid can be used for a variety of postsecondary schools that participate in the Federal Student Aid program. These schools include:
- Four-year public or private educational institutions
- Two-year public or private educational institutions
- Career schools
- Trade schools
Students may use the money they receive to cover tuition, fees, room and board, books, supplies and transportation.
Next, we'll take a closer look at the different types of federal financial aid, starting with the kind you don't have to pay back.
Grants: Free Money
As we mentioned on the previous page, not all of the financial aid the government provides needs to be repaid. This type of aid is called a grant. The federal government offers six types of grants.
The Teacher Education Assistance for College and Higher Education Grant (TEACH Grant) is a $4,000 annual grant awarded to students who intend to become teachers. One of the caveats of this grant is that once you've graduated, you must teach in a public or private elementary or secondary school that serves low-income families for at least four academic years. If you don't do this within eight years of completing your degree, the government will convert the grant into a Stafford Loan, and you'll have to repay it.
A Federal Pell Grant is mainly for undergraduates who are working on their first degree. The amount you can receive depends on your level of financial need, how much your school costs and your student status. In 2010-2011, the maximum amount awarded is $5,550.
The Federal Supplemental Educational Opportunity Grant (FSEOG) is a grant program for Pell Grant recipients, but these students must demonstrate an extreme financial need. This grant ranges from $100 to $4,000 annually, and the amount you receive depends not just on how badly you need the money, but also on when you apply and the funding available at your school.
Pell Grant recipients who have completed what the government calls a "rigorous secondary school program of study" may also qualify for an Academic Competitiveness Grant (ACG). By "rigorous," the government means you've earned a more advanced high school diploma or completed a minimum amount of coursework. The ACG is a two-year grant, and you can get up to $750 for the first year of college and up to $1,300 for the second year.
Third or fourth year Pell Grant recipients who are in a non-major liberal arts program or majoring in physical, life or computer sciences, mathematics, technology, engineering or a critical foreign language can apply for a National Science and Mathematics Access to Retain Talent Grant (National SMART Grant). The SMART Grant provides up to $4,000 per year.
Individual colleges can also make institutional grants to students based on academic achievement. These grants, also called merit awards or merit scholarships, vary by school and may or may not be awarded based on financial need.
Organizations may also offer other types of aid, which we'll look at next.
Three federal programs fall under the umbrella of campus-based aid, which means that the financial aid office at a particular school is responsible for administering the program. Each participating college only gets so much money for these programs, so once it's all awarded, the school can't hand any more out. This is when it helps to get your federal student aid application in as early as possible. You should also pay close attention to your college's application deadlines for these programs, because they may be different from the deadline for the federal application.
The first of these aid programs is the Federal Supplemental Educational Opportunity Grant (FSEOG), which we explored on the previous page. The second program is the Federal Work-Study (FWS) Program. Undergraduate and graduate students in this program receive a set amount of money and work part-time jobs to pay for their school expenses. Undergrads can work hourly jobs either for their school or for a community service position. Schools may also have jobs available with private for-profit employers for students who are studying in those companies' fields of business. Under the FWS program, students will earn at least minimum wage, but some jobs may pay more. They may also not work more hours than their FWS award is worth.
The third campus-based aid program is the Federal Perkins Loan. These loans are designated solely for students with extreme financial need, and they're attractive because of their low 5 percent interest rate. Undergraduates can borrow up to $5,500 a year, with a total cap at $27,500. Graduate students can borrow up to $8,000 a year. A graduate student's total undergrad and graduate Perkins Loan will max out at $60,000. As long as you're attending school half-time, you don't need to worry about repaying this loan right away. Once you graduate, you get a nine-month grace period before the repayment process kicks in.
Each individual school administers the Federal Perkins Loan, but if you don't qualify for one of those, there are other types of loans from which to choose. We'll take a look at those options next.
If, after exhausting your opportunities for grants and campus-based aid, you still need money for college, the government also offers loans. These are loans based on financial need that do need to be repaid with interest. In fact, you start paying them six months after you graduate, leave school or stop going to school at least half-time.
Students can get what's called a Stafford Loan. The type of Stafford Loan you get depends on which federal program your school participates in. Students in the Federal Family Education Loan (FFEL) Program get their loans from private financial institutions, while those who participate in the William D. Ford Direct Loan Program (also known as simply the Direct Loan Program) get their loan money directly from the government. Once you get the loan, you should expect to go through counseling when you start and finish school to understand how the loan works and choose which one of four repayment options you prefer.
Undergrads who qualify as dependents on their parents' tax return can ask them to apply for a PLUS Loan, or Parent Loan. Parents can apply for these loans through either the FFELP or the Direct Loan Program. This application process usually requires a credit check and a demonstrated need for financial aid. A PLUS Loan adds on to any financial aid you've already received, and the total amount of all of these awards can't exceed the cost of your schooling. Parents can choose to repay these loans either 60 days after the loan is paid out, or they can wait until six months after their child graduates or is no longer at least a half-time student.
Graduate and professional degree students may also participate in the PLUS Loan program, but they must have a good credit history and begin repaying the loan on the date of its last disbursement.
Now that you know about the different types of federal financial aid out there, let's look at the process of actually getting the money.
Getting the Financial Aid Money
Start off by collecting all the documentation the government will want to examine. This includes your Social Security Number, driver's license, income tax returns, bank statements, investment records, and alien registration or permanent resident card if you're not an American citizen.
Next, you should apply for a Federal Student Aid Personal Identification Number (PIN). This number takes the paper out of paperwork by allowing you to complete the federal aid application process electronically, sign promissory notes online, make any corrections and view your aid records online. This PIN protects your personal information and is much like the one you get with a debit card, so you shouldn't give it out to anyone. Otherwise you could risk being a victim of identity theft.
Once you have your Federal Student Aid PIN, you can fill out the Free Application for Federal Student Aid, also called FAFSA. You can submit the FAFSA either online or by downloading a paper application and mailing it in. The benefit to completing the online application is that it's processed more quickly, which can put you at the front of the line for some of those limited grants we mentioned earlier. A paper application will take two to three weeks to process. With an electronic FAFSA, you can also submit your information to up to 10 schools; the paper version can only be sent to four schools. Also, you have to reapply for financial aid every year, and the electronic records make this process a lot simpler.
Once you've sent in your FAFSA and the government processes it, you'll receive a copy of your Student Aid Report (SAR). This is a summary of your financial aid application, so you should review it to make sure all the information is correct. Each school you've chosen to send your information to will look at your SAR, and they'll decide if you're eligible for federal financial aid. The school will send you an award letter telling you how much aid you'll be able to receive. Once you select the package best for you, you sign the award letter and return it to the school, and they'll process it.
Once you've gotten your federal aid, the stress of paying for college may not be over. If you've received loans, you'll have to repay them. Next we'll look at that process.
Paying Back Loans
Student loans are great because they usually have lower interest rates than other loans, and you don't need to pay them back right away. You still need to pay them back, though. Refusal to do so -- called defaulting -- can impact your credit history, which will be a problem if you want to buy a house or get another loan later on in life.
The first order of business is signing a promissory note, which means you promise to pay the loan. You'll do this when you receive the loan. You'll also go through counseling to help you understand the specifics around your loan and learn how to budget your money.
Before you graduate or leave school, you'll attend another counseling session to review what you owe, the interest rate, fees and consolidation options. You'll also find out when the grace period for your loans ends.
Once your loan payments kick in, you're responsible for paying them each month, even if you aren't able to find a job right away. If you've received a Perkins Loan, you'll have up to 10 years to repay it. Those with Stafford Loans have a little more flexibility in their repayment options -- from 10 to 25 years, depending on what type of repayment plan you've arranged with your lender. These plans can be based on a fixed amount, or they can vary based on income and ability. You may also have the option of consolidating your loans to make payments easier and establishing a fixed interest rate on them.
If you're really running into difficulty repaying your loan, you can apply for a deferment, which will allow you to postpone certain types of loan payments in the event that you re-enroll in school at least half-time, can't find employment, suffer undue economic hardship or are called to active military duty. Depending on the type of loan you have, it may or may not accrue interest during the deferment period.
If you don't qualify for a deferment but still can't pay back your loan, you may ask your lender for forbearance, which allows you to reduce payments or postpone them for a fixed amount of time. You're still responsible for the full amount of the loan, and you'll continue to accrue interest on the outstanding balance. In extremely rare situations, your loans may be completely forgiven, such as if your school closes, you become permanently disabled or you die.
For lots more information on financial aid, see the links on the next page.
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More Great Links
- College Board. "Trends in College Pricing." October 2009. (March 14, 2010) http://www.trends-collegeboard.com/college_pricing/pdf/2009_Trends_College_Pricing.pdf
- U.S. Department of Education. "Federal Student Aid: FAFSA." Jan. 30, 2010. (March 14, 2010) http://www.fafsa.ed.gov/index.htm
- U.S. Department of Education. "Funding Education Beyond High School: The Guide to Federal Student Aid 2009-10." (March 14, 2010) http://studentaid.ed.gov/students/attachments/siteresources/FundingEduBeyondHighSchool_0910.pdf