College Planning

Understanding Your Financial Aid Options for College

This article explains three types of financial aid that can help students plan for college: scholarships, federal loans, and private loans. It notes their differences and how to apply for each.

Financial Aid Explained

Planning for College? Here's an overview of student financial aid options to get you started.

As the cost of a college education in the United States continues to rise, most students find they must stretch to make ends meet. Fortunately, there are a number of ways to get financial aid while in school. The National Center for Education Statistics estimates that roughly 85 percent of students received some sort of financial aid in 2011. Most of this aid comes from one of three different categories.

College Grants and Scholarships

Scholarships and grants should be the first place to look for financial aid because you don't need to pay this financial aid back. Grants and scholarships are similar: they both give out money to help students pay for their education. Scholarships generally reward an achievement like good grades, while grants tend to be for financial need.

One of the largest grants in the country is the Pell Grant, which comes from the federal government. This program offers up to $5,645 for students from low-income families. State and local governments give out grant money to students as well. You can check with your school's financial aid office to see if they offer any grants or scholarships. Are you a member of any groups like a church, charity or other major organization? These groups also often provide money to help members pay for school.

Federal Loans

If you still need money after grants and scholarships, you could also pay for college with federal student loans. When you take out a student loan, you or your child will eventually need to pay the money back with interest. One way to borrow money is by taking out government student loans.

To apply for a federal loan, you need to complete the Free Application for Federal Student Aid form, also known as the FAFSA. On this form, you'll need to list your expenses and other sources of money to pay for college so the government can estimate how much aid you'll need. There are three main types of federal loans: Stafford Loans, Perkins Loans and Parent PLUS Loans.

Stafford and Perkins Loans are made directly to the student while Parent PLUS loans are made to both the student and his or her parents. After applying, the government will tell the applicant how much can be borrowed through each program.

Private Loans

One other way to get money for college is through private student loans. These are loans for college from a bank that don't involve the government or your school. Private lenders usually charge a higher interest rate on student loans than the government. Private lenders also have stricter lending standards so a student won't qualify for a private loan without a strong credit score. Most students will need someone with an established credit history to co-sign their private loan, usually their parents.

The one advantage of private loans is that they have fewer restrictions on how you can use the money. While federal loans might only give out enough to cover clear school-related expenses like tuition, private loans don't have these same requirements. It might be easier to get money for expenses like room and board or a study abroad program through a private lender.

Types of Financial Aid:

A look at the percentage of students receiving college financial aid and the type of aid they receive:

SOURCE: U.S. Department of Education, National Center for Education Statistics. (2013). The Condition of Education 2013 (NCES 2013-037)

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This article is for information and educational purposes only; does not necessarily represent the opinion of Protective Life; and, is not intended to serve as financial aid planning for college but, instead, to supplement other information specific to your situation. Protective Life does not offer financial aid products. For information about Protective Life and its products and services, visit