College cost and affordability. Part 2

Part 2 of our college affordability series.

What types of financial aid, including loans, are available for undergraduates?

There are several types of financial aid programs. The most common financial aid programs are those offered by the federal government. The main federal programs are as follows:

Pell Grant and Supplemental Educational Opportunity Grant (SEOG)

The Pell Grant is available to undergraduate students. It is an entitlement program, which means the grant is available to all students who qualify.

The SEOG is reserved for undergraduate students with the most financial need (Pell Grant recipients are given priority). The SEOG is a campus­ based program, which means that each college receives a limited amount of money for this program and the FAA at each college decides which students will receive this grant. Once the funds are awarded, there are no more until the following year. This is an example of a first ­come, first ­served program.

Stafford Loan, Perkins Loan, and PLUS Loan

The federal Stafford Loan is a low ­interest loan made to both undergraduate and graduate students. The interest rate is set each June.

A Stafford Loan may be subsidized or unsubsidized, depending on whether you have a financial need. With a subsidized federal Stafford Loan, the federal government pays the interest on the loan while you are in school, during deferment periods, and for six months after you leave school. Like the Pell Grant, the subsidized Stafford Loan is an entitlement program and is thus available to all students who qualify. With an unsubsidized federal Stafford Loan, you (not the federal government) are responsible for paying the interest during the school year and deferment periods.

Regardless of whether the loan is subsidized or unsubsidized, there are limits on the amount of money that can be borrowed each year, as well as limits on the total debt that may be incurred.

A Perkins Loan is a low ­interest loan available to both undergraduate and graduate students with the lowest EFCs. Like the SEOG, the Perkins Loan program is campus ­based, which means each college receives a certain amount of money for this program, and you borrow the money directly from the college. When the funds run out, there are no more until  the following year. This loan is subsidized; that is, the federal government pays the interest while you are in school, during deferment periods, and for nine months after you graduate.

The PLUS Loan is a non ­need­ based program; that is, you can qualify without financial need. The loan is for parents with good credit histories who want to help pay for their child’s education and for graduate and professional students. Borrowers are eligible to borrow up to the full cost of their education, minus the EFC and any other financial aid received. This loan is obtained through financial institutions.

Work­ study

The federal work ­study program is a need ­based program that subsidizes jobs for both undergraduate and graduate students. Like the SEOG and Perkins Loan, the federal work­ study program is campus­ based. The funds are distributed  on a first ­come, first­ served basis. Often, these jobs involve community service work and can be related to your course of study.

Do colleges award financial aid resources in a specific order?

Generally, yes. Colleges usually fulfill a student’s financial need by awarding financial aid resources in the following order:

  • Federal Pell Grant (for those students who qualify) State grant
  • Federal Stafford Loan (subsidized first)
  • Company and organization scholarships and grants, military financial aid programs, or any other outside financial aid resources
  • Perkins Loan, SEOG, or federal work ­study (funds for these programs are allocated to colleges by the federal government for allocation to students; whether a student receives any of these funds depends on timing of application, financial need, and availability of funds)
  • College grant or tuition discount (at the college’s discretion)

Although this is the typical order, it may vary according to the availability of funds at a particular college and/or the particular student’s merit. The more merit a student has, the better types of financial aid he or she will likely receive (e.g., less loans, more grants).