Financial Aid 101

What is financial aid anyway?

By SHARE

FAFSA, EFC, Stafford, PLUS—Huh? Colleges seem to speak a foreign language when the subject turns to money. But the basics are simple.

Financial aid is simply money that helps you pay for college. There are three kinds:

Grants

Grants, also called scholarships or gift aid, are the best kind of financial aid. They are free money that you don't have to pay back. Generally, grants are awarded for one of three reasons:

Need: The student has qualified as financially needy, usually by filling out the Free Application for Federal Student Aid (FAFSA), or the CSS Profile.

Merit: The student is being rewarded for good grades, athletic skill, musical talent, etc.

Employment benefit: The student or the parent qualifies for tuition assistance through an employer. Many universities, for example, give employees' children a break on tuition.

Loans

Loans are debts that you have to pay back and are obviously not as good grants. Some loans, such as federal Stafford and Perkins loans for students, are considered financial aid because taxpayers subsidize the rates so that students can borrow at a lower cost than they would get from a bank. A few charities and schools are even offering college loans at zero percent interest. The federal government calls its PLUS loans for parents financial aid. But many counselors note that some parents with good credit can borrow more cheaply from banks than from the PLUS program.

Work-study

The federal government subsidizes some campus and nonprofit jobs for students. Generally, work-study jobs are awarded only to students who the college says are financially needy. The jobs typically don't pay especially well. Students may find better-paying jobs off campus. But work-study jobs have advantages. Their earnings don't reduce the student's future financial aid awards. Their schedules coincide with the school's. They are typically on campus, which reduces any commute hassle. And they are typically limited to fewer than 15 hours a week, so they jibe with studies showing that students who work between five and 15 hours a week actually get better grades than those who don't work at all or work more hours.