Those two little words, “financial aid” can be music to a parent’s ears. I know they were to mine. But I had no idea the different types of aid available or the varying awards that colleges can make when they offer admission.

I was surprised to find that private colleges tend to be generous with their merit aid because they have institutional funds available; while public universities will offer less aid because of their strict budgets and large student populations. That’s why private colleges can often cost less than a public university even though their price tags are higher.

When my daughter applied to college we knew we were going to need help paying for it. Since we were not in the financial category that would receive federal grants, we hoped for other types of aid in the form of college grants and scholarships. Some of the colleges she applied to were private universities and some were public. When accepted, she received varying degrees of financial aid awards from the different colleges, both public and private.

One state university offered her aid in the form of student loans, but no grants or scholarships. Another private college offered her a full-ride in the form of a four year scholarship meeting 100 percent of the financial need. Her first choice college, a private university, offered her student loans, work study and parent loans, which did not meet the balance of our EFC (Expected Family Contribution). This is called “gapping” and colleges often do this to students who are accepted but do not qualify for merit aid. The college she chose offered a combination of awards: college grants, honor scholarships, student loans, and work study that met the difference between the cost of the college and our EFC. It wasn’t the full-ride or her first choice, but it was her second choice and was a perfect fit for her.

What types of financial aid are available?

There are two basic types of aid: need-based, and non-need based. Need-based aid is comprised of grants and scholarships that are issued based on the family’s ability to contribute to education costs. Non need-based aid is allocated solely based on availability, not need.

Understanding all the different types of financial aid might seem overwhelming for parents. But the easiest way to understand financial aid is to break it down into simple categories: federal aid, state aid, college aid or merit aid, and private scholarships.

 What is federal aid?

The U.S. Department of Education awards about $150 billion a year in grants, work-study funds, and low-interest loans to more than 15 million students. Federal student aid covers such expenses as tuition and fees, room and board, books and supplies, and transportation.

Federal student aid includes:

Grants

Grants from the government are provided based on financial need or special circumstances and generally do not have to be repaid. The amounts of these federal grants vary based on the actual need and the cost of the college. These grants rarely pay for the entire cost of the college and are just one portion of the federal aid package.

Loans

Believe it or not, colleges consider loans to be financial aid. They often use loans to fill in the gap between your EFC (Expected Family Contribution) and the cost to attend the college. Although it’s not the most favorable means of filling the gap, colleges use it quite often.

If your student needs loans to pay for his education, be aware that not all college loans are equal. There are two types of government-based loans: subsidized and unsubsidized. Subsidized loans have lower interest rates and are awarded based on the student’s financial need with interest deferred until after graduation. Unsubsidized loans are awarded without regard to financial need with interest payments beginning immediately and regular payments after graduation. Following is a brief description of each:

• Stafford Loan–Government based loans that are either subsidized or unsubsidized.
• PLUS (Federal Parent Loans for Undergraduate Students)–This loan is for creditworthy parents with payments beginning 60 days after it is disbursed with relatively low interest rates.

For more in-depth, detailed information about government education loans, you can visit http://www.finaid.org/loans/. 

Work Study

This is a campus-based program that uses federal dollars distributed to the colleges. If your student has demonstrated need, this might be awarded and your college student will work on or off campus and be paid the amount of funds provided for work study. The entire amount awarded does not reduce the college bill immediately in one lump sum, although Net Price Calculators on college websites and financial aid award letters sent to admitted students may subtract the total award as financial aid. Students receive their award in the form of a paycheck from their college as they work. The funds your student receives for this will be taxable.

Do states award financial aid?

Many states use the FAFSA to determine eligibility for their financial aid programs, but some states have additional requirements and some offer a separate application for individuals who cannot submit a FAFSA, typically due to citizenship requirements.

State deadlines to submit the FAFSA and be eligible for state aid are often much earlier than the federal FAFSA deadline.

Each state distributes this money differently. Some states provide the aid directly to students while others distribute it indirectly through the colleges and universities.

States offer many different kinds of financial aid. The most common types of aid are need-based grants, but some states also offer merit-based grants, scholarships, educational loans and tuition waivers.

It’s not that difficult to find out about your state’s financial aid opportunities. You can search on your state’s education website or you can use this easy map guide provided by U.S. News and Education.

Do colleges award their own aid?

Yes. In addition to federal and state aid, colleges often award aid to students who are offered admission. This aid comes in the form of grants and/or scholarships. These awards can be need-based or non-need based and can often subsidize a huge portion of the college cost.

Based on your FAFSA and the CSS Profile results (if applicable), the school financial aid office may automatically consider your student for these awards when assembling the financial aid package. In other cases, your student may need to fill out additional forms and/or submit applications and other materials (such as transcripts, essays, portfolios, etc.) in order to be considered.

How do private scholarships factor into financial aid?

In addition to the above types of aid, there are a multitude of private scholarship awards available for students who take the time to apply. But will private scholarships reduce your financial aid award? They might. The government takes student awards into consideration when offering aid. However, students should not be deterred by this. The effects are not likely to be great. Many schools use student scholarship money to offset loan eligibility, not grant awards. Students who receive little aid can benefit greatly from outside private scholarships.

Do colleges award financial aid automatically to accepted students?

No. In order to qualify for financial aid from the college, you must complete the FAFSA, and for some private colleges the CSS Profile, every year your student is attending. No FAFSA = no financial aid. Colleges use the figures on the FAFSA to determine federal aid eligibility and also determine college aid as well. Even if you don’t think you will qualify, fill it out. Most students qualify for some form of financial aid and since it’s free to complete, you have nothing to lose and everything to gain.