If you or someone you know is on the way to college, that’s great news! However, it’s no secret that the cost of a college education is higher than ever, and very few people can afford it without the help of financial aid. Navigating the financial aid system isn’t as easy as it should be, so here are a few things you should know before you start:
What is need-based vs. merit-based aid? Some schools offer both need- and merit-based aid. Merit-based aid is based on the school’s determination of a student’s exemplary academic or athletic performance while need-based aid is a function of the school determining how much money a student “needs” depending upon his family’s financial situation.
What is the FAFSA? FAFSA stands for the Free Application for Federal Student Aid. It is a government application that asks for information on income, assets and debt for both the student and, if he is a dependent, his guardians. In order to qualify for any loans from the government, you must fill out this form. Additionally, most colleges require that you fill out the FAFSA in order to qualify for any need-based aid that they provide. It is easiest to fill out the FAFSA with your tax return on hand as many of the questions refer directly to it.
What does the “Expected Family Contribution” mean? The EFC is determined by the information you fill out on the FAFSA, including income, assets, size of your family and the number of family members you have in college. It is not necessarily the amount of money you will have to pay for college as there are other options for borrowing to fund the gap between your EFC and the cost of attending your college.
What type of government aid is available? The United States government offers aid to all students, regardless of need, without requiring credit checks. They guarantee Stafford Loans offered through private lenders at an annual interest rate of 6.8 percent. The government sets borrowing limits for these loans each year, and the loans can either be subsidized (the government pays interest while the student is in school) or unsubsidized (the student pays interest while in school but can defer the payments until graduation). The government also provides funds for Perkins Loans where the school acts as the lender. The current annual interest rate on these loans is five percent.
What if I need to borrow more than the government limit? If you need to borrow more money than what the government offers, you can explore private lender options through banks like Citibank or Chase. These typically have varied interest rates and loan lengths and depend on your credit history.