Types of Federal Student Aid

There are three types of federal student aid:

1. Grants are financial aid that doesn't have to be repaid (unless, for example, you withdraw from school and owe a refund).

2. Work-study allows you to earn money for your education.

3. Loans allow you to borrow money for school. You must repay your loans, with interest.

You apply for all three types of aid by filling out just one application: the Free Application for Federal Student Aid (FAFSA).

Grants

There are two types of grants:

1. Federal Pell Grants

2. Federal Supplemental Educational Opportunity Grants (FSEOGs).

Generally, to receive a grant, you must be an undergraduate student (someone who hasn't earned a bachelor's or graduate degree). You can be enrolled full time or part time.

How much can you get?

1. Federal Pell Grants - Award amounts can change yearly. For the 2007-2008 award year (July 1, 2007 to June 30, 2008), grants will range from $400 to $4,050.

The amount you receive depends not only on your financial need but also on your costs to attend school, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less. You can receive only one Pell Grant in an award year, and you can't receive Pell Grant funds from more than one school at a time.

2. Federal Supplemental Educational Opportunity Grants (FSEOGs) - Awards range from $100 to $4,000 a year.

FSEOGs are awarded to undergraduate students with exceptional financial need - those with the lowest Expected Family Contribution (EFC) numbers. Federal Pell Grant recipients receive priority for FSEOG awards.

What's the difference between these grants?

If you're eligible for a Federal Pell Grant, you'll receive the full amount you qualify for - each school participating in the program receives enough funds to pay the Pell amounts for all its eligible students. The amount of other student aid you might qualify for does not affect the amount of your Pell Grant.

Receiving other aid might reduce the amount of your FSEOG award. Also, each school participating in the FSEOG program receives a certain amount of FSEOG funds each year from the U.S. Department of Education. The school's financial aid office decides how best to award those funds. When all FSEOG funds are used for that award year, no more FSEOG awards can be made for that year - that's why not everyone who qualifies for an FSEOG might get one.

How will you be paid?

Your school can credit your grant funds to your school account, pay you directly (usually by check), or combine these methods. Also, with your permission, schools can credit your bank account. Schools must disburse funds at least once per term (semester, trimester, or quarter). Schools that don't use formally defined, traditional terms must disburse funds at least twice per academic year.

Federal Work-Study

1. Provides part-time jobs allowing you to earn money to help pay for school;

2. Encourages community service work and work related to your course of study, whenever possible;

3. Is available to undergraduate and graduate students; and

4. Is available to full-time and part-time students.

How much can you make?

You'll be paid at least the minimum wage, but you might receive more, depending on the type of work you do. You'll be paid by the hour or you might receive a salary. Your school must pay you directly at least once a month.

Can you work as many hours as you want?

No. The amount you earn can't exceed your total Federal Work-Study award. Also, when assigning work hours, your employer or financial aid administrator will consider your class schedule and your academic progress. Just as is true with the FSEOG program mentioned earlier, each school participating in the Federal Work-Study program receives a certain amount of Work-Study funds each year from the U.S. Department of Education. When all Work-Study funds are used for that award year, no more Federal Work-Study awards can be made for that year. So, you might receive less funds than you qualify for.

Where are the jobs located?

You can work either on or off campus. If you work on campus, you'll usually work for your school. If you work off campus, your employer will usually be a private nonprofit organization or a public agency, and the work performed must be in the public interest.

Your school might have agreements with private for-profit employers for Federal Work-Study jobs. If so, your job must be as relevant as possible to your course of study. If you attend a career school, there might be further restrictions on the jobs you can be assigned.

Loans

1. Loans are borrowed money you must repay, with interest.

2. Both undergraduate and graduate students can receive loans.

3. For some loans, you don't have to demonstrate financial need.

4. The amounts you can borrow depend in part on your grade level in school.

Federal Perkins Loans

These loans are offered to students who demonstrate the greatest financial need; Federal Pell Grant recipients get top priority. You can be enrolled full time or part time. Each school participating in the program receives a certain amount of Perkins funds each year from the U.S. Department of Education. When all those funds are used for that award year, no more Perkins Loans can be made for that year. You repay these loans to your school.

Stafford Loans

These loans are for undergraduate or graduate and professional students and are made through one of two U.S. Department of Education programs:

1. William D. Ford Federal Direct Student Loan Program - referred to as Direct Loans or Direct Stafford Loans. Funds for Direct Loans come from the U.S. Department of Education and are delivered to you through your school. You repay these loans to the Department.

2. Federal Family Education Loan (FFEL) Program - referred to as FFEL Stafford Loans or Federal Stafford Loans. Funds will come from a bank, credit union, or other lender that participates in the program. You repay these loans to your lender or its servicing agent.

Whether you borrow a Direct or a FFEL Stafford Loan depends on which program the school you attend participates in. Most schools participate in one or the other, although some schools participate in both. It's possible for you to receive FFEL and Direct Stafford Loans, but not both types for the same period of enrollment at the same school.

For both types of Stafford Loans, you must be enrolled at least half time. You don't have to demonstrate financial need but, if you do, the government will pay the interest on your loan during certain periods.

PLUS Loans

These are loans parents can take out for their dependent undergraduate children who are enrolled as at least half-time students. The loans are made through the Direct Loan and FFEL programs and are known either as Direct PLUS Loans or FFEL (or Federal) PLUS Loans.

How do you apply for a Perkins or Stafford Loan?

You just need to complete the Free Application for Federal Student Aid (FAFSA). But, you will need to sign a promissory note, a binding legal document that says you agree to repay your loan according to the terms of the note. Read this note carefully and save it.

Subsidized Stafford Loan

If you demonstrate financial need, you can receive a subsidized Stafford Loan to cover some or all of that need. If you get a subsidized loan, the U.S. Department of Education pays the interest while you're enrolled in school at least half time, for the first six months after you leave school, and during a period of deferment - a postponement of loan payments.

The amount of your subsidized loan can't exceed your financial need.

Unsubsidized Stafford Loan

You might be able to receive loan funds beyond your subsidized loan limit or even if you don't have demonstrated financial need. In that case, you'd receive an unsubsidized loan. For this type of Stafford Loan, you're responsible for the interest from the time the loan is disbursed to you until it's paid in full. The government does not pay your interest.

Talk with the school(s) you're interested in to find out what kind of Stafford Loan you can get and how much you qualify for.

How will you get your loan funds?

1. Perkins - Your school will either pay you directly (usually by check) or credit your account. Generally, you'll receive the loan in at least two payments during the academic year.

2. Stafford - Your school will disburse your loan in at least two installments; no installment will be greater than half the amount of your loan. If you're a first-year undergraduate student and a first-time borrower, your first disbursement can't be made until 30 days after the first day of your enrollment period.

Your Perkins or Stafford Loan money must first be used to pay for your tuition, fees, and room and board. If loan funds remain, you'll receive them by check or in cash, unless you give the school written permission to hold the funds until later in the enrollment period.

Other than interest, is there any charge associated with these loans?

1. Federal Perkins Loans - No.

2. Direct and FFEL Stafford Loans - Yes, you'll pay a fee of up to 4 percent of the loan, deducted proportionately from each loan disbursement. Because of this deduction, you'll receive slightly less than the amount you're borrowing.

When do you start repaying your loans?

After you graduate, leave school, or drop below half-time status, you must begin repayment. You have a period of time, however, called a grace period, before you must start making payments.

1. Federal Perkins Loans - The grace period is nine months (if you're attending less than half time, check with the financial aid administrator at your college or career school to determine your grace period).

2. Direct or FFEL (Federal) Stafford Loans - The grace period is six months.

How much time do you have to repay?

1. Federal Perkins Loans - Up to 10 years

2. Direct and FFEL Stafford Loans - Your repayment period varies from 10 to 30 years depending on whether the loan is a FFEL or a Direct Stafford Loan and depending on which repayment plan you choose. When it comes time to repay, you can pick the plan that's right for you.

The choices are:

1. A 10-year plan with a minimum monthly payment of $50;

2. A graduated plan with a monthly payment that starts out low and then increases gradually during the repayment period;

3. An extended plan that allows you to repay your loan over a longer period; or

4. A plan that bases the monthly payment amount on how much money you make. (Direct PLUS Loan [parent] borrowers are not eligible to repay their loans under this plan.)

You'll get more information about repayment choices before you leave school and, later, from the holder of your loan.

What if you have trouble repaying your loan?

Under certain circumstances, you can receive a deferment or forbearance on your loan.

1. Deferment - Your payments are postponed. Interest does not accumulate unless you have an unsubsidized Stafford Loan. If you have an unsubsidized Stafford Loan, you must pay the interest. You must meet specific conditions to qualify for a deferment. For example, you can receive a deferment while you're enrolled in school at least half time. You'll receive more information before you leave your college or career school, and you'll also get information from the holder of your loan.

2. Forbearance - Your payments are postponed or reduced. Interest continues to accumulate, however, and you are responsible for paying it, no matter what kind of loan you have. Your lender usually grants forbearance if you don't qualify for a deferment.

Deferment and forbearance periods don't count toward the amount of time you have to repay.

You must apply to the holder of your loan for either deferment or forbearance. Note that you must continue to make payments until you're notified your request has been granted. If you don't, you might end up in default.

What is default?

Default occurs when you don't repay your loan according to the terms you agreed to when you signed the promissory note for your loan. Defaulting on a student loan has very serious consequences. Listed below are some of them:

1. You'll be ineligible for additional federal student aid.

2. You'll be ineligible for deferment or forbearance on your loan.

3. Your credit record will be damaged, which can interfere with buying what you need, like a car.

4. You might have trouble getting a job.

5. Legal action can be taken against you to recover what you owe.

The last thing you want to do is default! If you ever have trouble making payments, contact the holder of your loan right away to discuss options to help you out.

Are there any situations where your loan could be canceled?

Your loan can be canceled for certain specific circumstances, such as your death or total and permanent disability. You also might qualify to have your loan canceled because of the work you do once you leave school (teaching in a low-income school, for example). You'll receive more information on cancellation provisions before you leave your college or career school.

Note that your loans can't be canceled because you're having financial problems. Also, they can't be canceled because you didn't complete the program of study at your school (unless you couldn't complete the program for a valid reason - because the school closed, for example). Cancellation is not possible because you didn't like your school or program of study, or you didn't obtain employment after you finished your program.

What are PLUS Loans?

Parents who have an acceptable credit history can take out a PLUS Loan (either a Direct PLUS Loan or a Federal Family Education [FFEL] PLUS Loan) to pay the education expenses of their children. Your parents can borrow for you if you're a dependent student enrolled at least half time in an eligible program at an eligible school.

How do your parents get a loan?

1. Direct PLUS Loan - Your parents must complete a Direct PLUS Loan application and promissory note, contained in a single form you can get from your school's financial aid office.

2. FFEL PLUS Loan - Your parents must complete and submit an application, available from your school, lender, or the guaranty agency in your state. After the school completes its portion of the application, it must be sent to a lender for evaluation. Your parents generally will be required to pass a credit check. If they don't pass, they might still be able to receive a loan if they can demonstrate that extenuating circumstances exist, or if someone they know - who can pass-agrees to endorse the loan and promises to repay it if your parents don't.

For either a Direct or a FFEL PLUS Loan, you must meet the general eligibility requirements for federal student aid and your parents must also meet some of these general requirements. For example, they must be citizens or eligible noncitizens and may not be in default or owe a refund to any federal student aid program.

Do your parents get the money or do you?

Your school first receives the loan funds and might require your parents to endorse a disbursement check and send it back to the school. The school then applies the money to your tuition and fees, room and board, and other school charges. If any loan money remains, your parents receive the amount as a check or in cash, unless they authorize the funds to be released to you. The remaining loan money must be used for your education expenses.

When do your parents begin repaying the loan?

Generally, the first payment is due within 60 days after the loan is fully disbursed. There is no grace period for these loans. Interest begins to accumulate at the time the first disbursement is made, so your parents will begin repaying both the principal and interest while you're in school. Your parents must pay the interest on their PLUS Loan if they have a deferment or forbearance.