Posts Tagged ‘understanding financial aid’
As a high school junior or senior, you’ve probably heard a lot of talk about “financial aid” and “student loans.” Your counselor is on your back about filling out a FAFSA, your parents are asking about interest rates, and all the fancy paperwork with charts and numbers about loans and grants and whatnot makes no sense to you.
It’s no surprise that you aren’t familiar with a lot of the terms being thrown around. As a high school student, you probably don’t have any loans yet. You likely don’t have a credit card yet. You may not even have a checking account or bills to pay. To save you from having to smile and nod through conversations about paying for college, here is a cheat sheet of the most common financial aid terms you need to know.
Financial Aid: Money the government lets you borrow for college if it’s determined your family is unable to afford it on their own. Need is based on your family’s income.
Interest Rate: The cost of borrowing money, expressed as a percentage of the total amount owed. This amount is paid back, on top of your total loan amount. The more money you borrow, and the longer you take to pay it off, the most interest you’ll be paying.
Loan: Money you borrow and will pay back with interest.
Stafford Loan: The most common form of student loan.
Subsidized Loan: A loan the government pays interest on while you’re in school. You’ll be responsible for the rest of the interest once you’ve left school.
Unsubsidized Loan: A loan you’ll pay the accumulated interest on once you’ve left school. You’re responsible for all of the interest.
FAFSA: An acronym that stands for Free Application for Federal Student Aid. Think of it as a long job application you and your parents will fill out together, only instead of applying for a job, you’re applying to borrow money from the government to pay for school.
Academic Year: The school year, usually two semesters (Fall and Spring) or three trimesters.
Borrower: This is you. If you’re borrowing the money, you’re the borrower.
Master Promissory Note: A contract that states you’ll pay back the money you borrow.
Award Letter/Award Package: Documents your college will use to outline how much money you’ll receive for that school in loans and scholarships.
Grace Period: A six month period between when you leave college and when your first student loan bill is due. It’s a time to get your living situation and a job in order before you have to start paying money back.
Work Study Program: A program that helps students earn financial funding through a part-time work program at their college.
Default: Defaulting is officially defined as 270 days without making loan payments when you haven’t qualified for deferment.
Deferment: Pausing your student loans for a six month period when you’re incapable of making payments.
Sure, writing college essays, asking for teacher recommendations, getting the grades, and everything else that goes into your college applications is a pain. But at least it’s a pain point you can precisely target and attack by submitting your applications before the deadlines.
Financial aid, on the other hand, is a much more challenging beast to tame. Getting and understanding your financial aid award is so gosh darn confusing. And it’s not even your fault! It’s the way colleges have traditionally illustrated a student’s financial aid award that’s the problem (one of them at least).
The College Solution‘s Lynn O’Shaughnessy explains that award letters are misleading. They often make parents think that their student received a big scholarship to help pay for college when in fact, the award letter is padded with loans. When it comes time to figure out how much out of pocket a family will have to pay for college by subtracting the awarded aid, students’ families don’t realize that some of that aid includes loans that will accrue interest and push up costs in the longer run.
Yes. This is a bummer. But if you’re in the know, you can make a better decision on where you should enroll if cost is a big factor in your choice. Read in between the lines. Compare your college financial aid awards and make sure you know which includes loans and not just all scholarships and grants.
Don’t not fret (too much). This issue has not gone unnoticed by the Consumer Financial Protection Bureau and the Department of Education, which announced a plan to simplify the aid letters so that families can assess a school’s true cost and make comparisons more easily and knowledgeably. In fact, they want YOUR feedback on the draft of the form.
You can give your feedback here: http://tinyurl.com/3ve57mt
Here is the draft of the proposed financial aid letter. Notice that it provides the total cost of attendance, which is often an evasive subject, the loans are separate from the scholarships and grants, and monthly loan payments following graduation are included.
Would knowing what kind of monthly payments graduation help you make a more informed choice on which college you should enroll in? Leave a comment below on what you think about this issue!
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