The Two Types of Financial Aid: Free Money v. Self-Help Aid

Your financial aid options may seem complicated, but all aid packages can be broken into two types, one of which requires an investment on your part. These two types of financial aid are:
  • Gift aid: This aid is generally grants and scholarhips that you do not have to repay as long as you meet all of the conditions associated with receiving the award. For example, these awards may require you to maintain a certain enrollment status or GPA and make satisfactory progress toward a degree or certificate
  • Self-help aid: This aid helps you help yourself. Work-study programs fit into this category, as do other earnings and loans
You can find both gift aid and self-help aid from the federal government, state governments, colleges and universities, and private sources. Here's the scoop!

Need-Based and Merit-Based Federal Grants

There are four types of federal grants that could help you pay for college, all of which fall under the umbrella of gift aid that does not need to be repaid:
  • Federal Pell Grant: undergraduates with high financial need may qualify for this popular grant. You may be eligible for funding up to a maximum of $4,310 (in the 2007-08 award year), depending on the cost of attendance at your school.
  • Academic Competitiveness Grant (ACG): if you are an undergraduate and your high school met federally mandated criteria, you may be eligible for this academic grant. These grants are awarded to first and second year undergraduates who have completed a rigorous high school course load and are eligible for Pell Grants.
  • National Science and Mathematics Access to Retain Talent (SMART) Grant: another academic grant, the SMART grant is awarded to third and fourth year undergraduates who choose certain majors and are eligible for Pell Grants. Eligible majors include physical, life, or computer sciences, technology, mathematics, engineering, or a critical foreign language may be eligible.
  • Supplemental Educational Opportunity Grant (SEOG): this need-based grant is awarded by your school to exceptionally needy students up to a maximum of $4,000 per award year.

Student and Parent Federal Loans

Unlike federal grants, federal loans used to pay for school will need to be repaid. Bear in mind, however, that most education loans carry a low, much more manageable interest rate than a traditional loan.
  • Perkins Loans: This popular loan is funded by the federal government and administered by your institution. With an attractive 5% fixed interest rate, colleges and universities award Perkins Loans to the neediest students. The federal government pays the interest while you are in school and during the grace period (generally 9 months) after you graduate, leave school, or drop below half-time enrollment status. Perkins Loans have no origination fees and have a number of loan forgiveness options.
  • Stafford Loans: Federal Family Education Loan (FFEL) or William D. Ford Federal Direct Loan Programs: Most schools participate in either the FFEL program, funded by lending institutions, or the Direct Loan Program, funded by the federal government and some schools participate in both programs. These low-interest loans are available to both students and parents. All student Stafford loans disbursed after July 1, 2006 have a fixed interest rate of 6.8% and parent Stafford oan interest rates depend on the program. Both Stafford loan programs offer students and parents a variety of repayment options.

    • Students have a 6-month grace period after they graduate, leave school, or drop below half-time enrollment status before they have to begin repaying the loan. Parents must begin repayment approximately 60 days after the loan is disbursed. The federal government provides funding for the Direct Loan program and lending institutions such as banks and credit unions provide funding for FFEL loans.
Both Stafford Loan programs offer:
  • Student subsidized loans, which require that you demonstrate financial need. The federal government pays the interest that accrues while you are in school and during the 6-month grace period after you graduate, leave school, or drop below half-time enrollment status.
  • Student unsubsidized loans, which do not require that you demonstrate financial need. Interest accrues from the time of the loan disbursement, and repayment of the principal can be deferred until 6 months after you graduate, leave school, or drop below half-time enrollment status. You must pay the interest on your loan or defer it until repayment begins but deferred interest is added to the loan principal.
  • Parent Loans for Undergraduate Students (PLUS) , which are available to parents of dependent students. For loans disbursed after July 1, 2006, the interest rate is fixed at 7.9% for Direct PLUS Loans and 8.5% for FFEL PLUS Loans. Parents or guardians must demonstrate creditworthiness to receive a PLUS Loan, and repayment begins immediately after the final loan disbursement.
  • Graduate PLUS Loans, which are available to graduate students through both the FFEL and Direct Loan programs. Students must be enrolled at least half time and have borrowed their annual maximum for both subsidized and unsubsidized Stafford Loans.

Federal Work-Study Program

If you are offered a Work-Study award as part of your financial aid package, you are eligible to apply for Work-Study positions both on-campus and off-campus with nonprofit organizations. Like a regular job, you receive a paycheck for the hours you work, which you can use for any of your educational expenses. In order to focus on your studies, the Work-Study program permits you to work a maximum number of hours each month through this program.

Aid from State Governments

You may be able to obtain financial aid from your state government to attend school in-state and some states offer programs to assist state residents who attend out of state. Some state programs require a separate application in addition to the FAFSA, and may have different deadlines and requirements. Contact the financial aid offices at your potential schools for more details about the assistance programs available from your state.

Institutional Aid

Colleges and universities often compete to bring you to their school using institutional funding. As part of your application process, be sure to contact each school's financial aid office to make sure you understand the deadlines and qualifications to be eligible for institutional aid. For graduate students, many schools offer teaching assistantships and research fellowships to help students pay their cost of attendance. Contact each school's graduate department for more information.

Private Funding

Do your research to find private sources that offer grants, scholarships, and loans. The Web is a perfect research tool to find resources to help pay for your education. Be sure to use free search sites instead of paying for services that offer the same results. In your local area, check out professional organizations, religious and community groups, the military, service organizations, your employer, local government, or even private donors.