Types of College Funding

With college costs rising, parents are often faced with sticker shock when they see how much tuition, room and board will cost. Parents can research funding sources to supplement, as well as visit with college and university financial officers to learn about specific programs.

Financial aid options generally fall into the following four categories:

• Grants. A grant does not need to be repaid and is typically based on financial need. Sources for grants may be the federal or state government, private funding or the college itself. Students need to be aware of the regulations surrounding grants regarding course load, withdrawing from school or increased funding from other sources.
• Scholarships. Like grants, scholarships do not need to be repaid. Many types of scholarships exist such as academic, athletic, artistic, community service or other areas of merit. Some scholarships may be based on a qualified student’s need combined with merit, or just straight merit award. High school counselors often keep files of national, state and local scholarships. It pays to research the types of scholarships available.
• Loans. As with any loan, college loans must be paid back with interest, which varies depending on the type of loan. Federal government college loans offer low interest rates and flexible terms. Private loans offered by banks tend to cost more.
• Work Study. Students may work to help offset the cost of college. The Federal Work Study program enables students to work part-time on campus as a form of financial aid. Thousands of institutions have work study programs, so talk to the college or university financial aid counselor about the program.

Types of Loans (source: consumerfinance.gov)

• Direct Subsidized: A federal loan for undergraduate students. You don’t get charged interest while you’re in school. It is need-based, so whether you qualify depends on your FAFSA information.
• Direct Unsubsidized: A federal loan that any undergraduate or graduate student can get (as long as you haven’t reached your lifetime borrowing limit). You are charged interest while you are in school. To cut costs, pay the interest as you go.
• Direct PLUS: Federal loans for the parents of undergraduate students, or for graduate and professional students. You must pass a credit check to get these loans.
• Private: Loans offered by banks or credit unions. You should shop around for the best offer you can find. Students generally need a parent or other family member to co-sign.

Depending on where you live and other factors, you may have other options. Some states provide low-cost education loans for residents. There are also nonprofits and other organizations that offer low-or zero-interest student loans, often within a specific city or state.

Federal Direct loans are usually the best option because they are less costly and easier to repay. If using a private loan, shop around for the best deal. Don’t use a credit card to finance your education. It is much more expensive than loan options.

For more information, visit consumerfinance.gov