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Financial Aid: The Good and the Bad

For many parents and students, graduating from high school is a momentous occasion. But it also has a tinge of apprehension with it. While the kids can hardly wait to start a new chapter in life, the parents may be more concerned about their precious kinds leaving the nest.

And of course, the dreaded question. How will you pay for college?

College education in the United States is by no means cheap. It has one of the highest tuitions charges in the entire world. The average tuition fee in a public school is about $8,202, while in a private school, it is approximately $21,189. Experts believe that this figure is expected to rise more than four times in the next decade.

So it is no surprise that more and more families are applying for financial aid to fund their children’s education. 

According to the National Center for Education Statistics, financial aid seekers witnessed a high percentage of 85 percent recipients in the 2016-17 academic session. On the other hand, the percentage of the 2000s was 75 percent.

Having access to a money pot for your children’s education is a great relief. But is it all peaches and roses about financial aid? Surely, there must be a catch when so much money is involved? 

We find out the good and the bad about financial aid in this post. 

What is Financial Aid?

Financial aid, or student financial aid, to be precise, is a fund that can be obtained by students. It is exclusively for students who are undergoing a post-secondary education in the United States. 

It can be obtained from a number of sources. It can be from the federal and state governments, as well as educational institutions and some private organizations. 

Student financial aids are reserved for students with American citizenship. However, some institutions also offer financial assistance to international students, mainly Mexican and Canadian students.

Types of Financial Aid

There are four significant types of student financial aid in the United States: grants, educational loans, scholarships, and work-study.

Grants

In the United States, grants are funds that are non-repayable. Applicants typically submit a proposal to the would-be funder. It can be initiated by the donor or the applicant. This type of financial basis is based on the financial needs of the student rather than on merit. 

Grants for students are available from a number of places, including the government, universities, and colleges, as well as trusts, which may be public or private. 

Some of the most popular grants available for students include Pell Grant and Federal Supplemental Educational Opportunity Grant.

The Good

The best thing about grants is that they are non-repayable, which means they are free money. But that is not all. Grants are highly sought after in the student community for a number of reasons. 

We discuss them in further detail below.

  • Offered by a number of institutions – Educational grants are provided by a number of departments of the government. They are also available from most of the tops universities and colleges in the country. Grants can also be obtained from private and public trust funds. 
  • Need-based – This means grants can be used to fund innovative researches and critical recovery initiatives. To know the complete list of programs that are supported by grants, refer to the Catalog of Federal Domestic Assistance (CFDA).
  • Two ways to apply – Unlike most types of financial aids, there are two ways you can apply for grants, which makes them more flexible. 

    One, you can apply for the grants by writing up a proposal on your own initiative. It is typically called grant writing. Getting the right proposal will depend on specific criteria, including credible information about the proposal and nailing the appropriate language for the intended audience, among others. 

    The second way you can apply for grants is by responding to the Request for Proposal from the potential funder. In this situation, the donor solicits proposals, typically at the beginning of the academic year.
  • Transferable – If the student who has the grant transfers to another educational institution, the grants can be transferred. 
  • Flexible criteria – To qualify for grants, there are a number of rules that you need. But the conditions differ from one funding institution to the other. In most cases, the federal and state governments’ criteria are different from an employer and private funders. This gives you more flexibility and increases the chance of qualifying for the grants. 

The Bad

What could be possibly wrong with grants, you might ask? It is practically free money that funds your college degree. But it is not without disadvantages. 

  • Not a quick process – If you thought that grants would be available within a week of application, you would be disappointed. Grants come with a distinct lifecycle, and it is not disbursed before the lifecycle is complete. 

    According to Grants.gov, grants have a lifecycle that includes the pre-award phase, award-phase, and post-award phase. There are a number of steps within each phase. So it can take anywhere from six months to a year for a grant to be released.

    The lifecycle of grants is also different from one project to the other. It is not uncommon for some grants to be released after more than a year. 
  • Need-based – The negative aspect of need-based grants is that you cannot apply unless you have specific needs. The need is determined by the FAFSA or Free Application for Federal Student Aid. This applies to whether the grant is from federal or state government or educational institutions. 
  • Only for American students – The majority of educational grants in the United States are exclusively for students who have American citizenship. This includes the Pell Grant, Perkins Loan, SEOG Grant, and Stafford Loan. 

    This puts a lot of international students at a disadvantage. However, the case may be different for international students who are graduates.  
  • Some grants have to be repaid – Not all types of student grants are non-repayable. Although they usually have lower rates of interest than other types of financial aid, such as a student loan, some grants do have to be repaid. 

Educational Loans

Educational loans can be obtained by the student or the parents of the student to fund the child’s education. Unlike grants and scholarships, educational loans must be repaid, along with interest. 

There are different types of educational loans. They are:

  • Federal student loans
  • Federal parent loans
  • Private loans
  • Consolidation loans

The Good

Educational or student loans have witnessed a steady rise since the last decade. It is because of their accessibility. Apart from this, there are other advantages to this type of financial aid. 

  • Accessibility – Student loans are available from the federal government and educational institutions, as well as private lenders. This type of loan also does not require a lot of conditions, such as good credit and a co-signer. This makes them accessible to all students irrespective of their financial history.
  • Lower rate of interest – Student loans typically have lower rates of interest. The average rate of interest of student loans as of 2017 was 5.8%. 
  • Longer time to repay – Federal student loans have a repayment term that can be anywhere from 10 to 30 years. However, this duration may be different if your lender is private. 
  • Options – There are different options when it comes to student loans. This includes federal student loans, subsidized loans, unsubsidized loans, parent loans, private loans, and consolidation loans. 
  • Builds your credit score – If you secure students loans, it is a fantastic way to establish good credit score and history. Good credit scores are essential for securing other types of loans, as well as your overall finances in the future. 

    However, it only works if you make the payment on time. Otherwise, it can negatively affect your credit scores. 

The Bad

The distinct disadvantage of student loans is that they need to be repaid with interest. Apart from this, there are other drawbacks to this type of financial aid.

  • Short grace period – Student loans have a grace period of six months. This is not the worst, but it is not a sufficient time for graduates to land a steady job and have a decent income. 

    Since you have to start making payments as soon as the grace period is over, finding a steady job during this period is paramount. Otherwise, it will have a negative effect on your finances in the long run.
  • Debt trap – After you start earning, you will have to make payments every month. Unless you have a reasonable budget and a solid financial plan set in place, you can be caught in an endless cycle of earning and paying your debt without making any good progress. 

    As a result of this, you will end up struggling with a lot of problems, including finances, as well as physical and mental health problems. 
Source: DigitalRalph on Flickr

Scholarships

Scholarships are also non-repayable funds. Unlike grants, scholarships are often merit-based, although they can also be need-based on certain occasions. Scholarships may also be based on age, gender, race, and abilities. 

They can come from the state government, educational institutions, as well as private organizations. 

The Good

The best thing about scholarships is that they are also a non-repayable type of financial aid. Unlike some type of grants that need to be repaid, scholarships are entirely free. 

Apart from this factor, other benefits of scholarships include:

  • Based on merit – Scholarships are given out for achievements. The achievement can be in academics, sports, and music, among others. 

    There are specific scholarships that may also be based on financial need, race, gender, and religion as well. This is a great advantage, as all students, irrespective of socio-economic and financial backgrounds have a fair shot of applying for the scholarship. 
  • Choose your college or university – Another advantage of earning a scholarship is that you get to be selective about your college or university. Educational institutions will be falling over themselves to have you if you win a scholarship. 
  • Recognition – Apart from the financial boost for your education, earning a scholarship is a testament to your talents and gifts. Educational institutions recognize your abilities, and it is definitely a way to stand out from your peers. 
  • Adds weight to your resume – When you have a scholarship, it adds a lot of credibility to your resume. This can be a significant boost to your career. It separates your resume from the rest of the applicants when you apply for jobs as well. 

The Bad

Scholarships come with monetary benefits, but you also get recognition. Can there be anything wrong with it? Find out below.

  • Tough to secure – For every scholarship, there are hundreds, if not thousands of applicants. Each applicant is exceptionally gifted and talented. This makes the competition very stiff, and chances of standing out from the rest of the applicants are tough. 

    Apart from the applicants, the terms and conditions of securing scholarships are very particular. It is not uncommon for some applicants to miss out just because the terms and conditions were not fulfilled. 

    The system is not entirely free of bias as well. Deserving candidates may also stand a chance of missing out on the scholarship. 
  • Not without pressure – Educational institutions and other firms do not hand out free money without expecting anything in return. The pressure to deliver stellar performance and prove your worth can be crushing. 
  • Uncertainty – Just because you earned a merit scholarship does not mean it is the answer to your life. It is not uncommon for scholarships to get withdrawn before the academic session is completed due to a lack of funds. 

Work-Study

It is also called the Federal Work-Study (FWS) Program. As the name suggests, it is available from the federal government. The funds are typically used for funding post-secondary education.

This is another type of financial aid that allows students to work while they are still in school. It applies mainly to on-campus jobs. Similar to grants and scholarships, funds under the FWS Program are non-repayable. 

The Good

The program allows students to pay for their education and also gain experience at the same time. Some advantages of the FWS Program are:

  • Non-repayable – A great advantage of this program is that the fund does not have to be repaid. Instead, it allows you to pay for your education without any financial burden.
  • Available for all students – Unlike some types of financial aids, FWS Program can be obtained by students who have American citizenship, as well as international students. 

    International students must belong to a particular category, including refugees and victims of human trafficking, among others. To know the full list of these designations, visit the U.S. Citizenship and Immigration Services (USCIS) website.
  • Gain experience – Apart from providing financial help, the FWS Program encourages applicants to participate in community service works. Since the course, as well as part-time employment, are related or in the same field, it prepares you for the job after graduation. 
  • Application is not complicated – Students who wish to apply for the FWS Program can do so at their own school. Expression of interest while applying for the FAFSA is a way to be eligible for the program. But students who did not do so can still apply for the program as well.

    The only thing you should be concerned about is the deadline. It varies from one institution to the other, so you need to be alert. Applications for FWS Program are typically set on an earlier date than FAFSA. 
  • Flexibility in working hours – Understand that jobs under the FWS Program are part-time jobs. Your employers will understand that you can commit to the job only when you are not attending school. 

    However, this does not mean that you can pop up anytime you want to work. You need to be really smart about time management. 

The Bad

FWS Program comes with some drawbacks which include:

  • Low wages – Students who qualify for the program are paid the minimum wage. However, this is not competitive by any means. 

    Keep in mind that this is different from one institution to the other. Some jobs definitely carry more wages than others, but generally, jobs under this program are below the amount that is paid in the market. 
  • Limitation on working hours – All jobs under the FWS Program have a cap called the Maximum Earnings Level. This level is different for different quarters, semesters, and years. Once this level is achieved, you will not be eligible to work. 

    For most colleges and educational institutions, the Maximum Earnings Level is 20 hours per week when the session is active. During the summer and school break, this duration is extended to 40 hours per week.
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What Else You Need to Know About Financial Aid

At a casual glance, financial aid is a savior for cash strapped students. But as you might have gathered by now, all is not glossy about it. 

Some other areas about the financial aid you need to be aware of include:

FAFSA

Filling out the Free Application for Federal Student Aid is a mandatory requirement for availing any kind of financial aid. This is administered by Federal Student Aid, and it will determine all aspects of the aid. It is the most critical document that needs to be completed by the applicant and his or her family. 

Most financial aids, except the scholarships, work on a first-come, first basis. FAFSA is typically made available on January 1 of every year. So the earlier you fill out the forms, the better your chances of qualification. 

Deadlines Must Be Met 

Financial aid funders and sponsors work strictly according to the deadlines. It is more stringent when it comes to federal and state governments. 

Every year, there are hundreds of applicants for financial aids. So it pays to be on time. The earlier you apply, the more chances you have of qualifying. Applicants who apply soon also have more opportunities for landing loans with more money. 

FAFSA forms for the next academic session can be applied as early as October of the preceding year. The best source of information for the dates and datelines is the guidance counselor of your school. 

Federal Loans vs. Private Loans

Federal student loans have some unique benefits that cannot be said for private loans. It includes lower and fixed interest rates, the longer duration for repayment, and the possibility for loan forgiveness. 

Private loans, on the other, do not have these benefits. Although they are readily available, they also do not have any of the benefits of federal loans. Private loans can supplement your federal financial aid in case you still need some boost. 

However, application for private loans should be considered as a last resort. 

You Can Appeal for an Offer

It is not uncommon for students to receive lesser funds than they anticipated. When it happens, you can explain your situation to the college. 

If your situation is unique and your funds are not enough to cover your expenses, adjustments can be considered. It will be done after your case is reviewed on a case-by-case basis. 

You can make an appeal to your school directly in such a case. 

Photo by Andrew Neel on Pexels.com

Financial aid does come with some drawbacks, but it is definitely worth considering. It is an excellent way to boost your education and get the degree of your choice. 

Some types of financial aids have more advantages than others. But the bottom line is to consider your financial health, as well as your capabilities, before you apply for financial assistance. 

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