Student Financial Aid In The United States - Student Finance

Student financial aid in the United States is funding available to individual students attending a post-secondary educational institution to cover costs associated with attending. These costs include, but are not limited to, tuition, fees, room and board, transportation, and books. Financial aid is available from federal, state, educational institutions, and private agencies (foundations), and can be awarded in the forms of grants, education loans, work-study and scholarships. Please note that in order to apply for any federal financial aid students must first complete the Free Application for Federal Student Aid (FAFSA).

Types of financial aid

Grants

Grants are a form of financial aid that normally does not have to be repaid. Sources of educational grants can be the U.S. Department of Education, state agencies, the educational institution, and private agencies. Grant eligibility is determined by financial need, academic merit, and sometimes both. The application process is set by the agency providing the funds, however, for most agencies do rely on data submitted to the U.S. Department of Education via the FAFSA. The results will have influence on determining eligibility and how much an individual is eligible to obtain.

The most sought after grants are listed below:

• Federal Pell Grant, the largest of the federal grant options and based on an individual’s EFC (estimated family contribution) as determined by the FAFSA.
• Federal Supplemental Educational Opportunity Grant (FSEOG), federal grant program that is need-based, but directed towards students whose FAFSA results exhibit exceptional financial need, such as being among the lowest Expected Family Contribution (EFC).
• Institutional Grants, grants provided by educational institutions. Some institutional grants are based on academic achievement (merit awards or merit scholarships), while others are based on financial need, and some are a combination of the two.
• Private and Employer Grants, grants provided by the private sector, for students who meet specific criteria for eligibility related to the private organization.
• State Grants, public funds received from state agencies that are completely separate from those listed in the federal sector. These grants vary by state and awarded based on financial need.

Education loans

An education loan is borrowed by the student (or parent) in order to pay for educational expenses. Unlike scholarships and grants, this money must be repaid with interest. Educational loan options include federal student loans, federal parent loans, private loans, and consolidation loans.

Federal student loans are loans directly to the student; the student is responsible for repayment of the loan. These loans typically have low interest rates and do not require a credit check or any other sort of collateral. Student loans provide a wide variety of deferment plans, as well as extended repayment terms, making it easier for students to select payment methods that reflect their financial situation. There are federal loan programs that consider financial need. For more information on federal student loans please visit: https://studentaid.ed.gov/sa/types/loans.

Federal parent loans are a federally funded loan option if the student is dependent on his or her parents. Parent Loans allow parents to take out loans and the parent is responsible for repaying these loans. The parents use these loans to pay for educational expenses on behalf of the student. For undergraduate students there is the Parent Loan for Undergraduate Students or PLUS Loan available. This loan allows parents to borrow up to the total cost of attendance, considering the difference caused by any other financial aid. Eligibility for the federal parent loan is largely dependent on a credit check done on the parent. Form more information on federal parent loans please visit: https://studentaid.ed.gov/sa/types/loans/plus.

Private loans are offered by private lenders (financial institutions). Heavily advertised, they should be used only as a last resort, after exhausting federal student loans. They have dramatically higher interest rates, have fewer repayment/deferment options, and are not supervised by any agency.

For information comparing federal loans to priviate loans see: https://studentaid.ed.gov/sa/types/loans/federal-vs-private.

Consolidation Loans combine several student and/or parent loans into one lump sum amount, which is then used to pay off the balances on the other loans. They are an option for those who find themselves struggling with multiple payments for a variety of loans. Consolidation loans are available for most federal loan types, and some private lenders offer private consolidation loans for private education loans. There is no additional cost to consolidate loans.

Work Study

The Federal Work-Study Program is a form of financial aid that can be used not only as a means of maintain a stable bank account, but to also earn money toward paying off tuition. Work study jobs allow students to get jobs within their field or given interest, and are more flexible than off-campus part-time jobs because they are designed to accommodate student schedules.

Scholarships

Scholarships, similar to grants, do not need to be repaid. Scholarships come from state, educational institutions, and private agencies. Scholarships can be awarded based on merit, financial need, student characteristics (such as gender, race, religion, family and medical history, and the like), creativity, career field, college, athletic ability, amongst other categories.

There are search engines available to find scholarships such as Peterson’s, Unigo, Fastweb, Cappex, Chegg, The College Board, Niche (formerly known as College Prowler), Scholarships.com, Collegenet.com, and Scholarship Monkey.

Financial Aid Application Process

Application Process for Need-based Aid

To qualify for need based loans a student must depict a significant amount of financial need, which is determined by the federal government based on applications like the FAFSA and the loan applications themselves. In order to qualify for need based financial aid, students are typically required to submit financial aid applications, including the FAFSA and CSS Profile.

Need-based aid

Need-based financial aid is awarded on the basis of the financial need of the student. The Free Application for Federal Student Aid application (FAFSA) is generally used for determining federal, state, and institutional need-based aid eligibility. At private institutions, a supplemental application may be necessary for institutional need-based aid.

A recent trend shows that what is purely need-based aid is not entirely clear. According to the National Postsecondary Aid Survey (NPSAS), SAT scores affect the size of institutional need-based financial aid. If a student has a high SAT score and a low family income, they will receive larger institutional need-based grants than a student with a low family income that has low SAT scores. In 1996, public higher education institutions gave students with high SAT scores and a low family income $1,255 in need-based grants. However, only $565 in need-based grants were given to students with low SAT scores who had low family incomes. The lower a student’s SAT score, the smaller the amount of need-based grants a student received no matter what their family income level was. The same trend holds true for higher education private institutions. In 1996, private institutions gave students with high SAT scores and a low family income $7,123 versus $2,382 for students with low SAT scores and a low family income. Thus, “institutional need-based awards are less sensitive to need and more sensitive to ‘academic merit’ than the principles of needs analysis would lead us to expect.” It has been found that increasing an SAT score in the range of 100-200 points can result in hundreds of dollars more in institutional grants and on average substantially more if one is attending a private institution.

While providing financial information to the government is a reasonable expectation to calculate a student’s financial need, it does not necessarily follow that colleges should have access to this information. Providing that information to schools may be problematic because schools learn about students’ other sources of funding and may adjust their financial aid packages accordingly. There is an asymmetric information problem since schools have full knowledge of their customers' ability to pay while students and their families have little information about costs that colleges face to provide their services. That is, when planning for the next academic year, a school will know its current and projected costs as well as each student’s ability to pay after receiving state and federal grants. According to the Center for College Affordability and Productivity (CCAP), “If the federal or state authorities increase financial support per student, the institution has the opportunity to capture part or all of that increased ability to pay by reducing institutional grants and/or raising their charges for tuition, fees, room, or board.” Importantly, it also notes that “the exception to this general pattern is modest aid targeted at only low-income students, like the Pell grant.” The center uses data about net proceeds (tuition plus room, board and other fees) as a percentage of median income to show that financial aid practices have not been effective in decreasing prices in an effort to increase access. Net proceeds at public four-year institutions rose from 15% to 20% of median income from 1987 to 2008. In that same time, productivity has declined in the form of lighter teaching loads for professors and increased expenditures on administrative staff.

Non-Need Based Financial Aid

Non-need based loans are available for students and families who cannot afford to pay the entire cost of college. These loans are directed toward those individuals and families who did not qualify for need-based loans due to the amount of their personal assets. There is usually a higher interest rate associated with non-need based loans. Because these loans are not need-based, the U.S. government does not pay the interest for the student while enrolled in school; they are often referred to as unsubsidized loans. The Unsubsidized Stafford Loan and Grad PLUS loan are non-need based loans available for both undergraduate and graduate students who do not qualify for need-based financial aid.

Even though these loans are not subsidized, interest rates are set by Congress, the programs are closely supervised, and they provide many protections that private loans rarely offer.

There are also non-need based grants and scholarships that consider merit rather than financial need. These awards are granted by the college or university as well as outside organizations. Merit-based scholarships are typically awarded for outstanding academic achievements and maximum SAT or ACT scores. However, some scholarships may be awarded due to special talents like athletic scholarships, leadership potential, and other personal characteristics. In order to be considered for such awards some institutions require an additional application process while others automatically consider all admitted students for their merit-based scholarships.

Non-need-based aid versus need-based aid

With the yearly rising cost of tuition, room and board, and fees among schools across the nation, low-income students are finding it harder to pay for their education. In an attempt to help students meet the high, costly demands of college, schools have increased merit-based grants, for students with outstanding academic position, involvement in organizations, or high athletic talent. The issue is that these reasons for awarding scholarships take away from low-income students who often do not meet these merit standards. In other words, funds for merit-based scholarships are taking away from the already small amount of federal aid available to low-income students who simply cannot pay for college without some kind of financial aid.

In recent years, government has responded to the financial crisis students are facing and therefore passed legislation that boosted the value of grants for low-income students and trimmed subsidies for private education lenders. Schools have also taken action for the sake of students. Harvard University, a well-known costly but wealthy institution that had previously cut tuition for students whose families earned less than $60,000 a year, proceeded to cut costs by nearly fifty percent for those students whose families earned between $120,000 and $180,000 a year. Institutions will consider students' financial needs as well as their academic merit standing when applying for financial aid. Merit-based aid and need-based aid have been linked together for many financial aid scholarships. This relationship is beneficial as it underlies that one form of financial aid, particularly merit-based, is not completely taking over need-based aid. Statistics do show results of studies performed f rom 1992-2000 that the increase in financial aid awarded was based entirely on merit. However, when viewing numbers of both merit-based and need-based aid closely, the differences are not significant.

Common financial aid misconceptions

There are several misconceptions surrounding financial aid.

• It is sometimes believed that students should not apply for financial aid until they have already been accepted by, and have decided on, the college or university of their choice, or until taxes have been filed. This is a serious error that may have significant negative impact on the aid the student receives. While most federal student aid is unlimited (the Perkins Loan is an exception), institutional aid is not, and may have all been tentatively distributed before the student decides on a college. To maximize eligibility, the FAFSA should be submitted, using estimated income figures and a tentative list of colleges, as soon as the application becomes available, usually January 1.
• Not enough aid is available to make college financially possible. While this is sometimes true for expensive colleges, financial aid will cover most or all of the cost at a community college or other low-cost school. This is even more true in states, such as New York, that have significant state financial aid.
• The application process is too complicated. While the process can be complicated, the less income and assets a student and/or family has, the simpler it is to apply. Many high schools provide assistance.
• Low high school grades will prevent a student from getting financial aid. This is only true for merit-based aid. For Need-based aid, by far the largest type, once a student is admitted to a college the high school grades are irrelevant.
• Financial aid is only available to the most needy students. Merit-based aid is available to all. Many middle-class families do not know that they may qualify for some Need-based aid. The well-to-do can receive unsubsidized federal loans, which are available regardless of Need.

Graduate and professional students

The following types of federal financial aid are available to graduate and professional students::

• The William D. Ford Federal Direct Loan (Direct Loan) Program: Eligible students may borrow up to $20,500 per school year. These loans are unsubsidized; Congress has determined that subsidized loans (no interest while enrolled) are only available to undergraduates. Graduate and professional students enrolled in certain health profession programs may receive additional Direct Unsubsidized Loan amounts each academic year. These federal loans, although unsubsidized, are far superior in interest rate and repayment terms to private student loans.
• Federal Perkins Loan (Perkins Loan) Program: This is a school-based loan program for eligible students with exceptional financial need. Students may qualify for a Perkins Loan of up to $8,000 each year depending on financial need, the amount of other aid received, and the availability of funds at the school. Each college has a set amount of Perkins Loans for its students; there has been controversy over the formula that is used to apportion the loans to colleges.
• Teacher Education Assistance for College and Higher Education (TEACH) Grant: The TEACH Grant Program provides grants of up to $4,000 a year to students who are completing or plan to complete coursework needed to begin a career in teaching. The TEACH Grant is different from other federal student grants in that it requires students to take certain kinds of classes to get the grant, and then to do a certain kind of job to keep the grant from turning into a loan.
• Federal Work-Study (FWS) Program: The Work-Study Program provides part-time jobs for undergraduate and graduate students with financial need. This program allows students to earn money to help pay education expenses. The program encourages community service work and work related to a student’s course of study.
• Federal Pell Grant: A Pell Grant, unlike a loan, does not have to be repaid. Most graduate and professional students are not eligible for Pell Grants, but those enrolled in a post-baccalaureate teacher certification program are eligible.

Graduate students may also be eligible for these financial aid programs:

• Aid from other federal agencies (i.e., research grants or fellowships)
• State aid (i.e., state loans)
• Institutional aid (i.e., institutional scholarships or graduate assistantships/fellowships)
• Non-institutional scholarships

International students

There is little financial aid is available for foreign students, with the unique exception of Canadian and Mexican students. A majority of aid is awarded as grants, scholarships, and loans that come through public and private sources which restrict their awards to American citizens. That being said there is financial aid still available for international students.

There are colleges and universities that offer aid to international students. To find out if the school in question offers such assistance inquire to the financial aid office of the institution. Some schools offer grants, loans and jobs, and give anywhere from 15 to 150 awards to foreign students. For example, schools such as Harvard, Princeton, University of Pennsylvania, University of Miami, Ithica College, Cornell University, Johns Hopkins, University of Chicago, and University of Oregon all offer packages to foreign students. Graduate students may have more luck with financial aid. This is because graduate and teaching assistantships are offered on the basis of academic achievement, regardless of citizenship. Although International students are not eligible for the US government aid programs like the Pell Grant, SEOG Grant, Stafford Loan, Perkins Loan, PLUS Loan, and Federal Work study, many schools will ask international students to submit a FAFSA so that they may use the dat a for assessing financial need.

There is also assistance a student can seek from their native country. Canadian students attending colleges in the USA may obtain loans through the Canadian government’s Ministry of Skills, Training, and Labour. Alternative loans Canadian international students may apply for are the Canadian Higher Education Loan Program, Global Student Loan Corporation (GLSC), and International Student Loan Program (ISLP). Financial Aid for European Students can be looked by using Noopolis, a database in Italy run by CNR (the Italian equivalent of the US’s National Science Foundation). It has information regarding financial aid for Italian citizens to study abroad. There are also U.S. Educational Advising Centers throughout the world that assist prospective students by answering the questions they have about studying in the United States.

College cost calculators

Post-secondary institutions post a Cost of Attendance or Price of Attendance, also known as a "sticker price." However, that price is not how much an institution will cost an individual student. To make higher education costs more transparent before a student actually applies to college, federal law requires all post-secondary institutions receiving Title IV funds (federal funds for student aid) to post net price calculators on their websites by October 29, 2011.

As defined in The Higher Education Opportunity Act of 2008, the net price calculator’s purpose is:

“…to help current and prospective students, families, and other consumers estimate the individual net price of an institution of higher education for a student. The net price calculator shall be developed in a manner that enables current and prospective students, families, and consumers to determine an estimate of a current or prospective student’s individual net price at a particular institution.”

The law defines estimated net price as the difference between an institution’s average total Price of Attendance (the sum of tuition and fees, room and board, books and supplies, and other expenses including personal expenses and transportation for a first-time, full-time undergraduate students who receive aid) and the institution’s median need- and merit-based grant aid awarded.

Elise Miller, program director for the U.S. Department of Education's Integrated Postsecondary Education Data System (IPEDS) stated the idea behind the requirement: "We just want to break down the myth of sticker price and get beyond it. This is to give students some indication that they will not necessarily be paying that full price."

The template was developed based on the suggestions of an IPEDS’ Technical Review Panel (TRP), which met on January 27â€"28, 2009, and included 58 individuals representing federal and state governments, post-secondary institutions from all sectors, association representatives, and template contractors. Mary Sapp, Ph.D., assistant vice president for planning and institutional research at the University of Miami, served as the panel’s chair. She described the mandate’s goal as “to provide prospective and current undergraduate students with some insight into the difference between an institution’s sticker price and the price they will end up paying.”

To meet the requirement, post-secondary institutions may choose between a basic template developed by the U.S. Department of Education or an alternative net price calculator that offers at least the minimum elements the law requires. A recent report issued by the Institute for College Access and Success, "“Adding it all up 2012: are net price calculators easy to find, use and compare?”, found key issues with the implementation of the net price calculator requirement. In “Adding it all up,” the authors state, “this report takes a more in-depth look at the net price calculators from 50 randomly selected colleges. While we found some positive practices that were not evident at the time of our previous report, net price calculators are still not reliably easy for prospective college students and their families to find, use, and compare”.

After the requirement came into effect, the free website CollegeAbacus.org began creating a system that would allow students to enter the personal information once, and then use and compare net-prices of multiple schools. The Gates Foundation's College Knowledge Challenge announced College Abacus as one its winners in January 2013; the $100,000 grant from the Gates Foundation will enable College Abacus to expand from its beta version with 2500+ schools to a fully comprehensive version with all the colleges and universities in the United States.

Debt vs. grants

No-loan financial aid

In 2001, Princeton University became the first university in the United States to eliminate loans from its financial aid packages. Since then, many other schools have followed in eliminating some or all loans from their financial aid programs. Many of these programs are aimed at students whose parents earn less than a certain income â€" the figures vary by college or university. These new initiatives were designed to attract more students and applicants from lower socioeconomic backgrounds, reduce student debt loads, and provide the offering institutions with an advantage over their rivals in attracting commitments from accepted students. Most students prefer no-loan financial aid as a way to relieve the amount of debt they are in after college

The following colleges and universities offer such no-loan financial aid packages as of March 2008:

Loan cap

Some universities have opted to have a "loan cap" program, which is a maximum loan â€" either per year or for the four years combined â€" designed to reduce the cost of attendance for low-income and middle-class students. The following schools have a loan cap program:

Effect of financial aid on enrollment

In a study on the correlation between the price of higher education and enrollment rates, Donald Heller finds that the amount of financial aid available for students is a strong factor in enrollment rates.

Different factors have different effects on financial aid:

• Decreases in the amount of financial aid leads to decreases in enrollment. However, different types of financial aid have differing effects. Grant awards tend to have a stronger effect on enrollment rates.
• Changes in tuition and financial aid affect poorer students more than they affect students with higher incomes.
• In terms of race, changes in financial aid affects black students more than it affects white students.
• Changes in financial aid affect students from community colleges more than students from four-year schools.

Need-blind admissions

Need-blind admissions do not consider a student’s financial need. In a time when colleges are low on financial funds, it is difficult to maintain need-blind admissions because schools cannot meet the full need of the poor students that they admit.

There are different levels of need-blind admissions. Few institutions are fully need-blind. Others are not need-blind for students who apply after certain deadlines, international students, and students from a waitlist. Some institutions are moving away from need-blind admissions so that they can fulfill the full need of the students that are admitted. Meeting the full-need will probably increase the funds for financial aid. For example, Wesleyan University is only need-blind if it has enough money to satisfy the full need of admitted students.

Issues related to financial aid

Outside the United States

Many national governments provide student financial assistance subsidies, i.e., student benefit, for students attending a university, although proposed policies to change such subsidies have engendered considerable debate in places, such as Canada, the United Kingdom, Germany, the Netherlands and Scandinavian countries. The heavy reliance on private subsidies, as in the United States, is not as widespread, although this may be changing.

In Germany, the main source of financial aid is provided by the Bundesausbildungsförderungsgesetz, colloquially known as BAFöG.