Why Your Financial Aid History Matters
The money you get for school matters, while you're in school and long after. We'll cover four reasons why.
First, some students who take out loans to cover a private high school's tuition may limit their choices for college. If they can't get grants or scholarships, they may need to choose a college with a lower tuition rate or delay attending until they have enough money to make loan payments after graduation [source: Goldin].
Second, students in bad standing on current financial aid could be ineligible for future aid. The government is arguably the most lenient lender for student aid, but even it has rules about who can get student loans. If you miss payments on your federal student loan, you can't get another one until you've made payments for six consecutive months [source: FSA].
Under certain circumstances, you could have to return your financial aid money if you take a leave of absence or drop out. For instance, let's say you're a college freshman who has a $2,000 Pell Grant from the U.S. government. You're supposed to get the $2,000 over your freshman year. At the beginning of the second semester, you receive a $1,000 check; however, you are a top-notch athlete and decide to leave for a semester to play professional tennis. Don't take that $1,000. The Pell Grant funds you only if you are in school. If you return it, you can apply for a new Pell Grant when you come back to school (and your dreams of being a pro tennis player fade). If you don't return it, you won't get government aid again until you do.
Third, when you're responsible for repaying a loan, you have to watch your spending until your loan is repaid. That could take 25 years [source: Sallie Mae]. When you take out a student loan, federal or otherwise, you'll eventually owe the money you borrowed, plus interest. In the best case, you'll pay it back on time. But even the best case requires sacrifices. For example, you may need to have a job soon after you graduate, even if it's not your dream job, so you can regularly pay your creditor. Some students move back in with their parents in order to funnel their full salaries into loan repayment and ditch the debt fast [source: Randall].
Lastly, if you're late on a loan payment, your credit score will suffer, which will make borrowing money harder in the future. We haven't gotten to the worst-case scenario, in which you default on, or can't pay back your student loan. That situation is messy enough to get its own section later.
Next, we'll explain who is looking at your financial aid history.