Students across the country rely on various forms of financial aid to help them further their education. According to the Education Data Initiative, 84 percent of students receive some form of financial aid. Financial aid can come from many sources including grants, loans, and scholarships. A large portion of financial aid is determined by students filing their FAFSA each year. In fact, approximately 20 million FAFSAs are processed annually.
Grants and Scholarships
Grants and scholarships are types of financial aid that typically don't require repayment. Because this aid doesn't need to be paid back, students are advised to prioritize grant and scholarship applications.
There are approximately five million scholarships available to college students each year, and these scholarships total around $24 billion. Sixty-three percent of all undergraduates receive at least one grant or scholarship. Although scholarships can be competitive, smaller scholarships for $500 or $1,000 offer much less competition than larger awards – and small amounts can add up! Scholarships may be merit-based, need-based, based on extracurriculars, or based on several other factors. Scholarships are free money for college or career school – find and apply for as many scholarships as you can!
Grants, on the other hand, are typically need-based, although they may also take into consideration race or academic performance. A Pell Grant is a federal subsidy usually awarded to undergraduate students for post-secondary education awarded based on financial need, and do not have to be repaid except in rare cases.
Most student loans come from the federal government, but many private and financial organizations offer student loans as well. Student loans generally begin accruing interest immediately, except for subsidized federal loans, which don't carry interest until a student is out of school. Federal student aid is used to pay for tuition, fees, books and supplies, room and board, transportation, and even daycare for dependents. But it's important to keep in mind that this money is a loan, and you are expected to repay whatever you borrow. If you must borrow loans to pay for school, you're not alone: most students borrow money to pay for college at some point during their education. Postsecondary students typically borrow at least $15,000 to pay for classes.
College affordability is a growing concern among students, parents, and education policymakers. As a result, the federal government has launched several loan forgiveness programs. Initiatives like the Public Service Loan Forgiveness (PSLF) program or utilizing an income-based repayment plan are great resources to make higher education more affordable and loans easier to pay back. If you are employed by a U.S. federal, state, local, or tribal government or a not-for-profit organization, you may be eligible for the PSLF Program. Income-based (IBR) or income-driven (IDR) repayment plans may make a borrower eligible for loan forgiveness after several years of regular payments.
Additionally, in response to the COVID-19 pandemic, the U.S. Department of Education (USDE) has temporarily deferred student loan repayment. In December 2021, USDE extended the pause through May 1, 2022. The pause includes the following relief measures for eligible loans: a suspension of loan payments, a zero percent interest rate, and stopped collections on defaulted loans. Learn more here.
If you're curious about how financial aid works, talk to your high school guidance office or prospective college financial aid office. Many colleges offer free help to students figuring out their financial aid needs. Even if you aren't ready for college yet, it's never too early to start planning!