Federal Funding 101
Do you know your federal funding inside and out?
November 19, 2012
With the reelection of President Barack Obama—to the ire of many, and the rejoice of others—he has promised to roll back tuition at many colleges, by working with congress, increase funding for federal student aid, and strengthen community colleges.
Obama has declared higher education a “necessity”, and plans to work to make it a reality for everyone. He also declared that community colleges “provide lifetime employability”. But what does that mean for you, the future and current college student?
First, let’s take a look at what federal aid is already available.
There are three major types of federal aid: loans, grants/scholarships, and work-study.
With federal loans, they are just like any other loans: they must be repaid. But federal loans are much more attractive: their interest rates are much lower, and depending on your income level, your interest may be waived while still in school.
There are also grants, which do not need to be repaid, (unless, in most cases, you drop out) and can be based on financial need. Scholarships also fall under this category, and are usually based on merit, whether it be academic, athletic or etc.
Finally, there is work-study, which is where a student works for their money through a part time job or community service.
Federal loans come in various forms: direct subsidized, direct unsubsidized, direct PLUS, and Direct Consolidation.
Direct subsidized loans are given to undergraduate students who demonstrate financial need. Whether or not you demonstrate financial need is determined through filing a FAFSA next year, starting January 1, 2013. The government will pay for the interest on these loans while you are in school at least half-time, within six months of leaving school, and during a period of deferment. (Deferment is when you postpone your loans temporarily.)
Direct unsubsidized loans are a little bit different. While the interest is still relatively low, and the US Department of Education is still your lender, interest is not covered by the federal government. If you choose to defer or postpone payments, interest will still accumulate. With unsubsidized loans, you do not have to demonstrate financial need, and it is available to undergraduate and graduate students.
PLUS loans are federal loans that are made to graduate or professional degree (e.g. law, medical degrees). The interest rate is fixed at 7.9%, and the maximum amount that can be borrowed is the student’s cost of attendance, and the borrowers must have a decent credit history.
A Direct Consolidation Loan is basically a combination of all of the above: it allows you to combine all of your loans into one single monthly payment.
Work-study is available to all students: graduate, undergraduate, and professional. But federal work study is only enforced by schools that participate in the Federal Work-Study Program. If you are interested in this program, contact your college’s financial aid office. Financial aid offices administer this aid, and also help you apply for the above federal loans.
When it comes to federal grants, there are also many options. There is the Pell Grant, and Federal Supplemental Educational Opportunity Grant.
Pell Grants are typically are given to undergraduate students. But, you are not eligible to receive a Pell Grant if you have been incarcerated or have been convicted of a sexual assault or offenses. Whether you receive a Pell Grant is also dependent on your financial need, cost of attendance, and whether you are a full or part time student in college.The Federal Supplemental Educational Opportunity Grant is dependent on the amount of “aid” your college receives, and the availability of funds. But not all colleges participate. You must apply to this at your own college, at your financial aid office.
Whether all of these programs will remain funded and backed, we can only wait and see. But, hopefully, these loans, grants, and possible sources of funding will be another take out another chunk of that massive boulder known as college tuition.