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Not All Financial Aid Types Are Created Equal

 

Getting into college is great. Getting money to pay for college is even better. Being buried in debt after you graduate is the worst. Ending up with more student loan debt than you can ever hope to pay off is a common reality that students typically don’t hear about. Throughout the U.S., student loan debt currently “outranks any non-mortgage debt, including auto loans and credit card debt.” Understanding the different types of student financial aid available to you at the beginning of your college journey is necessary to making good financial decisions that will affect you and your family for decades to come.

The first thing to realize is that you may not want to take all of the financial aid that is offered to you. Among the different types of financial aid that you may apply for are loans, scholarships and grants. Scholarships and grants are basically free money, which means you get it for going to college and you generally never have to pay it back (be sure to read the fine print). However, there may be specific requirements for receiving the money (e.g., your major, your income level, your family’s legacy at a specific college), for not having to pay it back (e.g., graduating, post-graduate employment restrictions) and for getting it more than once if it is renewable (e.g., maintaining a certain GPA minimum). This is the money you want if you have a choice.

Simply put, loans are like credit cards. Eventually, you have to pay it back with interest. There are two different types of federal student loans: subsidized and unsubsidized. Generally speaking, avoid UNsubsidized loans if you can. These are loans that start charging you interest immediately while you are still in school. Subsidized loans are a much better option. You do not start to accrue interest on subsidized loans until you are in the “repayment period,” which will not begin as long as you enrolled in school at least “half-time” (i.e., part-time with a minimum course credit load determined by your level of study, which differs for undergraduate and graduate school). Loans for college that are not from the government are usually more costly in the end and often have higher interests rates.

In addition to these financial aid options, there are paid internships, work study and employment. Each opportunity has its own requirements and application process, so talk to people and do your due diligence to find funding opportunities. A lot of information is available online and at your college.

For more information on the student loan debt problem, read “Searching for Relief: Desperate Borrowers and the Growing Student Loan ‘Debt Relief’ Industry,” and see recent data and studies from the Project on Student Debt.

For examples of people with astronomical debt and the significant impact it’s having on their lives, visit the Debt Project. You will be surprised at how many people are struggling with debt from student loans.

Helpful Tip: Learn as much as you can about the different types of aid before accepting it. Get familiar with the terminology that is used (e.g., “repayment period,” “half-time” vs. “full-time,” “subsidized” vs. “unsubsidized”). Ask questions of financial lenders and do your own research!

Warning: Be sure to go to www.fafsa.ed.gov to complete the application. There are a lot of companies and scammers with websites pretending to be the FAFSA. If the website you go to does not end with “.gov” then it is not a government website! You should never pay anyone to complete this application because it is a free application, and there are many free resources to receive help including on the FAFSA website.