Understanding Federal Financial Aid and The FAFSA Part 4

Free Money For College Or A Loan?

Your financial aid package may consist of a variety of financial aid opportunities including: grants, work-study, and federal loans.⁹

Grants and Scholarships: This is considered “free” money, meaning it doesn’t need to be paid back. Pell Grants are a popular, need-based federal financial aid grant.

Work-study: This is money that needs to be earned by working part-time while enrolled at school.

Federal Loans: You are required to pay back federal loans with interest. The most common federal educational loans are Direct Stafford Loans.

A Direct Subsidized Loan is for students with demonstrated financial needs. You are not charged interest while enrolled in school at least half-time. A Direct Unsubsidized Loan, however, accumulates interest from the time it’s first paid out to you. So, if you don’t pay off any of the accruing interest while in school, your principal, and therefore your loan repayment (and loan principal) will be higher than the amount you originally borrowed after leaving school when the loan goes into repayment. (For more information on lowering your loan repayment costs, see our previous StraighterLine Report, “It Pays to Develop an Interest in Interest.”)

Other Federal Loans include Federal Perkins Loans for those students with exceptional financial need, and Direct PLUS Loans for Graduate and Professional Degree students.

Once you understand your financial aid options, it’s time to choose the college that’s right for you and your situation. Consider the FAFSA as the key to unlocking the mystery that is financial aid. When it comes down to it, financial aid is not complicated. How you fit the cost of college into your life can be met by a series of steps. The important thing is to know which step to take when. Pay attention to your personal goals and determine which school and school’s financial aid package can help get you your college degree most efficiently, and cost-effectively.