Federal And State Student Financial Aid : Problems And Opportunities

BY BRANDON KING

Students are faced with a plethora of options ranging from good (scholarships) to exploitative (high interest private loans). This article will help you sift through the often overwhelming number of options out there when it comes to student aid and enable you to decide which, if any, is right for you.

Financial aid comes in many shapes and sizes, from grants and scholarships to low-interest loans to work-study programs. If you are a student attending a post-secondary educational institution in America, you’ll find financial aid provided by educational institutions, private companies, and federal and state agencies or foundations.

Most students will want to exhaust both federal and state options before considering loans from a private company, which charge higher rates of interest. Understanding this is important.

Financial Aid Opportunities for Students: Financial aid is designed to help a student cover costs ranging from tuition fees to housing and other important expenditures incurred while they are completing their education.

When applying for federal financial aid, you must complete the Free Application for Federal Student Aid (FAFSA) as a first step. You may then qualify for some of the below opportunities:

1. Grants: Grants come from several government departments, public and private trusts, colleges and universities in the United States. However, getting a grant is not that easy.Eligibility is determined by one’s academic merits and financial need. Some grants provided by the government are:

• Federal Pell Grant: This grant is based on the estimated family contribution (EFC) of an individual, which is determined by the FAFSA.
• Federal Supplemental Educational Opportunity Grant: The FSEOG is for students whose FAFSA results show exceptional financial requirements, like being among the lowest EFC.
• Institutional Grants: These grants are offered by educational institutions and are typically based on a student’s academic achievements. Other grants that are based on financial need or a combination of both academic results and financial requirements.
• State Grants: These grants are based on a student’s financial requirements and vary by state.
• Private and Employer Grants: These grants are given to the individuals eligible to work in a private organization.
• TEACH: The Teacher Education Assistance for College and Higher Education grant is given to students who took additional classes and performed a particular job to get the grant.

2. Education Loans: An education loan is different from the grants or scholarships as the money has to be repaid after a certain period with (often high) added interest. Under education loans, students have several options like private loans, federal student loans, federal parent loans and loan consolidation.

• Federal student loan programs: This loan is given directly to the student, and he/she is responsible for repaying the amount with interest after a given period. The federal student loan programs have low rates of interest, and do not require any form of collateral or credit check. To make it easy for the students to pay their loans, this program offers several extended repayment terms and deferment plans.
• Direct Subsidized Loans: Some students try to get direct subsidized loans because of the low amounts of paperwork involved. But, the students can only borrow the amount they actually require for their school. Any additional expenditure is not covered by the loan.
• Federal Parent Loans: As the title suggests, these are federal loans that are given to the parents of students who are still dependent on their parents. Variations of this are the PLUS Loan or Parent Loan for Undergraduate Students.
• Private Loans: In addition to the above loans, private loans are provided by financial institutions like banks and other private lenders. You can expect much higher rates of interest on these loans and fewer deferment or repayment options. Use only as a last resort.

Getting an education loans is nothing, but investing in your future. There is a myth that education is not a sound investment, when actually education is the best investment an individual can make. However, students should be very careful while making this investment. They should be well informed of the institutions that offer such loans, their terms and conditions, etc.

3. Scholarships: Scholarships can be from state, educational institutions, private agencies and websites. A quick search for private scholarship opportunities returns results like this, this, and this. Like grants, these do not need to be paid back, and are awarded based on several factors like merit, creativity, etc. Students can easily search for the scholarships on search engines like Google using queries like: “scholarship” “apply now”.

Problems with Federal and State Financial Aid

You know the old saying that nothing in life is free? This definitely applies to most forms of financial aid. Be careful that you aren’t selling your tomorrow just to make today a little bit easier.

An additional complication of financial aid is that many students who are enrolled in internet courses or distance education programs have restricted eligibility or are not eligible at all for federal student loans. Too often, the only type of loan available to students in such scenarios comes from private companies that charge exorbitant interest rates.

Graduate students, unlike undergraduate students, are only eligible for unsubsidized loans. However, they can also borrow Graduate PLUS loans, which depend on the credit rating of the student, have higher rates of interest than undergraduate financial aid, and accrue immediately.

One last option for students seeking a private loan to consider is Sofi, which is a private lender that offers lower interest rates and more favorable repayment terms than competitors like Sallie Mae.

Brandon King is an entrepreneur who moved to China after graduating university in the middle of the Global Financial Crisis. He runs an HR company that specializes in helping people pursue job opportunities in Shanghai, China.