Federal Grants & Loans for College Students

Instructor: Dana Dance-Schissel

Dana teaches social sciences at the college level and English and psychology at the high school level. She has master's degrees in applied, clinical and community psychology.

Many federal loans and grants are available to college students to help pay for their education. This lesson will examine federal loans and grants and will end with a quiz to test what you have learned.

The Cost of Higher Education

College is expensive. Current estimates place the cost of attending college at just below $32,000 a year for private schools and about $9,000 a year to attend a public school. The rates for out-of-state students are even higher! These rates are expected to continue to increase.

So, how do students go about paying for school? Due to the rising costs associated with college, most students usually need some financial aid or help to pay for higher education. The United States Department of Education offers many loans and grants to assist students in funding their education. The road to accessing these programs begins with the FAFSA.

Free Application for Federal Student Aid

FAFSA stands for the Free Application for Federal Student Aid. This application is usually the first step toward obtaining federal loans and grants. Students are required to complete the online form using both demographic and financial data.

Demographic data refers to information about the student such as name, address, and social security number. Financial data is collected to determine the level of need. Information about income, bank accounts, and assets will be required here. Students may also have to include the financial information about their parents if they still depend on them for financial support.

All of this information reported on the FAFSA helps the US Department of Education determine how much financial aid a student is eligible for to pay for college. Now that we know how to apply for federal loans and grants, let's look at the different types available to students.

Types of Federal Aid

Federal loans are offered by the government to allow students to borrow money for college. Federal grants are another option to help pay for college. Let's take a closer look at the differences between federal loans and federal grants.

Federal Loans

The William D. Ford Federal Loan Program of the United States lends money to students to help them pay for higher education. This money must be paid back by the student with interest. Interest is the cost of borrowing the money. Federal loans come in three types: Stafford loans, Perkins loans, and PLUS loans. Let's compare the three.

Stafford Loans

Stafford loans are offered to students who demonstrate financial need on the FAFSA. With Stafford loans, the US Department of Education lends the money directly to the student to pay for college. Stafford loans must be repaid, but they are usually deferred, or payable after the student graduates.

Stafford loans are either subsidized or unsubsidized. This refers to the interest due on the loan. The US Government pays the interest for the student for a fixed period of time with a subsidized Stafford loan. With unsubsidized Stafford loans, the student pays all of the interest on his or her own.

Perkins Loans

With Perkins loans, the school lends the money directly to the student. This type of loan can be used in addition to Stafford loans. Unlike Stafford loans, Perkins loans are not need based. That makes Perkins available to most students regardless of financial need. Perkins loans charge interest and it is not subsidized or deferred.

PLUS Loans

PLUS loans may become necessary after the maximum loan amounts have been reached with Stafford and Perkins loans, or when the student does not show much financial need. Instead of lending the money to the student, though, the US Department of Education lends the money to the parents of students or to independent graduate students. This means that parents must apply for the loan and are responsible for the repayment of the amount borrowed.

PLUS loans are usually harder to get and require more information and financial documents to prove credit history. These types of loans may lend more money than Stafford or Perkins loans because the maximum loan amount is equal to the actual cost of attendance. For example, if you want to attend a private college that costs $45,000 a year to attend and do not qualify for need-based loans, you could borrow the full amount needed through a PLUS loan! PLUS loans do not offer deferred or subsidized interest.

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