Introduction – What Is My Financial Aid Package?

The combination of grants, loans, and other stuff that you are offered is called your aid package.

Grants

Grants are simply beautiful. The college receives a check, and they inform you that your tuition bill has been reduced.

Pell Grants are the only program in which a financial aid officer has no discretion. These grants are based strictly on a student’s Expected Family Contribution as figured by our worksheet. Pell Grants come automatically to students who qualify.

If your EFC is low enough, you will receive a Pell Grant. If your EFC is above the cutoff limit, you don’t. The cutoff limit changes each year. The maximum Pell Grant one can receive is $5,350. Usually Pell Grants are paid directly to your college, which credits your account. You do not have to repay this money. A Pell grant is automatically given to a student who qualifies. The financial aid officer starts with this grant then adds money from other sources over which he has some discretion.

Supplemental Grants

Supplemental grants also come with no strings and are handed to students with a large need. These grants are sometimes called Supplemental Educational Opportunity Grants (SEOGs). SEOGs or supplemental grants are campus-based aid programs. In a campus-based program, the government sends a lump sum to each college, which then distributes the money as it sees fit, following the government’s rules. Every accredited college in the country, public and private, can have access to the government’s campus-based programs.

The rules say SEOGs are for students with exceptional financial need. Then, they allow each college financial aid office to define exceptional. By law, a SEOG must be at least $100 and no larger than $4,000. Like the Pell grant, a supplemental grant usually is credited to the student’s account.

Low-Interest Loans

Many people borrow 80% of the cost of a house or car without a single complaint. Why then do so many people complain when it comes to borrowing for a college degree or education?

Perkins Loans

Perkins is a continuation of one of those campus-based aid programs. The government gives a lump sum to each participating college, which then lends it to students. The rules say Perkins Loans go only to students with exceptional Need, but again, each financial aid director can define exceptional. Also, the higher the school’s tuition, the higher your need, and thus, the more likely you are to get a Perkins Loan.

A Perkins Loan is the most attractive of all student loans because of its low interest rate – 5%. However, this loan is also the smallest. The maximum you can borrow in Perkins is $3,000 for each undergraduate year, up to a total of $15,000; for graduate or professional students, it $5,000 per year, up to $30,000. The college has its choice of paying you the money or crediting it to your account.

You have nine months after you leave college to start repaying the loan (called your grace period). You can take up to ten years to pay it in full. Many colleges sell their loans to banks, to keep the money circulating faster. If you’re at one of those colleges, you’ll hear from the bank shortly after the college tells it you’re no longer a student. You and the bank will then work out a repayment schedule.

Stafford Loans

Stafford Loans are by far the largest program of financial help to college students. The Stafford Loan has also become one of the largest sources of confusion to students applying for aid because of all the other names that go with it. You may hear a Stafford described as a Direct Loan or FFEL (pronounced fell) Loan or a Ford Loan.

Now for another potential source of confusion. You’ll often hear a Stafford Loan described as a subsidized Stafford or an unsubsidized Stafford. They are two entirely different things. Subsidized loans are loans where interest payments are deferred until you are out of college.

Subsidized Stafford Loans are what most people in the work force mean when they talk about their student loans. The aid director will gather all the other money he can find for a student from government programs and his own school’s resources. If the student has any need remaining, she’ll be offered the chance to obtain a Stafford. But need is essential. Subsidized Staffords can only be used to meet a student’s need – the difference between the college’s costs and the Expected Family Contribution (EFC).

Stafford Maximums

STUDENT LEVEL

MAX. COMBINED

MAX. SUBSIDIZED
Dependent Freshman

$5,500

$3,500
Dependent Sophomore

$6,500

$4,500
Dependent Jr./Sr.

$7,500

$5,500
Independent Freshman

$9,500

$3,500
Independent Sophomore

$10,500

$4,500
Independent Jr./Sr.

$12,500

$5,500
Graduate/Professional

$20,500

$8,500
Medical

$40,500

$8,500

The interest rate is adjusted annually, but can go no higher than 8.25% (percent). Repayment starts six months after you graduate or stop attending school. You don’t need to worry about the interest till then; the government pays it for you.

You have ten years to repay your Stafford Loan, but that’s flexible too. The law allows you to negotiate with the bank for a longer period. You also have the option of making fixed monthly payments or income-sensitive payments that fluctuate with the amount of money you earn.

Unsubsidized Stafford – Not Need Based

Any student attending college at least part-time is eligible. It’s a loan you can go for if all the other aid you’re offered leaves you still wondering where you’ll get some money. The interest rates and the flexible repayment options are the same. You use the same application form, too.

This Stafford is called unsubsidized because no one is paying the interest for you while you’re in college. The responsibility is yours. You either can pay it as you go, or let it accumulate, adding to the principal until you leave school. The unsubsidized Stafford is the least attractive government loan, but it’s definitely better than private loans.

PLUS Loans

The full name is Parent’s Loan for Undergraduate Students. If your Expected Family Contribution is a little more money than your parents actually expect to contribute, PLUS is their chance to borrow some of it at a below-market interest rate. The rate is adjusted each year, but cannot exceed 9 percent.

Your parents can borrow the difference between the cost of your college and the amount of financial aid you receive. Your need is not an issue. In other words, if the cost of a year at Strayer University is $10,000, and the school offers you $5,000 in aid, your parents can get a PLUS loan for the other $5,000. The money goes directly to the college, copayable to the parent. There’s no grace period and repayment starts immediately.

If your financial aid package doesn’t meet your full need, most colleges will send you information about applying for a PLUS loan. If you don’t receive such information, ask your financial aid office.

If You Don’t Have Good Credit

The good news is that a bad credit rating doesn’t hurt you in qualifying for most student loans. If you or your family has had trouble paying some bills, or even filed for bankruptcy, your spotty history won’t be checked to decide whether you get a Stafford or a Perkins Loan. The only credit problem that will disqualify you for those types of loans is defaulting on a previous student loan. If you’re in default, you are ineligible for any future loans.

The only qualifications for a subsidized Stafford or Perkins is attendance (carrying at least six credits) at an accredited college and financial need. For an unsubsidized Stafford, even need isn’t essential. You not be asked for your credit history as port of a Perkins or Stafford application.

The only federal loan program in which poor credit can hurt is the PLUS loan for parents. A credit history is part of the PLUS loan application, and the borrower’s credit will be checked.

Other Need-Based Aid – Special Circumstances

If you’re a special kind of student, you may find that Congress has created an aid program targeted to people just like you. If you qualify, your financial office will be happy to let you know.

Veterans: Government education benefits of up to $350 a month are available for military veterans who have three years active duty, or two years active duty and four years in the reserves.

Veterans’ dependents: Dependents of veterans killed or permanently disabled by a service-related injury can get $404 a month for education expenses until age 26.

Nurses: Government-subsidized loans are available, at 5 percent interest, for nursing students with a need. Loan ceilings are $2,500 the first year and $4,000 each year thereafter. If a student qualifies and does not get her full need covered from other sources, financial aid officers at schools with nursing programs can include the loans as part of a student’s aid package.

Pharmacists: A government program called Health Education Assistance Loans is designed mainly for graduate and professional students, but this program also offers low-interest loans to undergraduates studying pharmacy.

Native Americans: Grants from the U.S. Bureau of Indian Affairs are available to students with a need who are more than 25 percent Native American, Eskimo, or Aleut.

Further Reading: