What are the Most Common Sources of Financial Aid?
Student financial aid is available from a number of sources, including the federal government, state governments, colleges and universities, and other organizations. Students can receive aid from more than one source.
Federal Financial Assistance
The federal government supplies the largest amount of all student aid, about 75 percent or $35 billion annually. The largest and most popular Federal student aid programs are:
Federal Pell Grants
These are need-based grants that were given to just under 3.8 million students for school year 1998-99. In school year 1998-99, the maximum Pell Grant was $3,000.
Federal Direct and FFEL Stafford Loans
Direct and FFEL Stafford Loans are the federal government's main form of self-help aid. Direct Stafford Loans are available through the William D. Ford Direct Loan (Direct Loan) Program and FFEL Stafford Loans are available through the Federal Family Education Loan (FFEL) Program. In 1998-99, approximately 5.4 million students received FFEL Stafford Loans and about 3 million received Direct Stafford Loans.
The terms and conditions of a Direct Stafford or a FFEL Stafford are similar. The major differences between the two are the source of the loan funds, some aspects of the application process, and the available repayment plans. Under the Direct Loan Program, the funds for your loan are lent to you directly by the U.S. government. If your school does not participate in the Direct Loan Program, the funds for your loan are lent to you from a bank, credit union, or other lender that participates in the FFEL program.
The Direct and FFEL programs also offer PLUS Loans for parents of dependent students and Consolidation Loans.
Direct and FFEL Stafford Loans are either subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need. With this type of loan, borrowers are not charged any interest before they begin repayment or during authorized periods of deferment. The federal government "subsidizes" the interest during these periods.
An unsubsidized loan is not awarded on the basis of need. You'll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accumulate, it will be capitalized -- that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount. This will increase the amount of money you have to repay. If you choose to pay the interest as it accumulates, you'll repay less in the long run.
You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.
If you're a regular student enrolled in an eligible program of study at least half time, you may receive a Direct or FFEL Stafford Loan. You must also meet other general eligibility requirements.
If you're a dependent undergraduate student you can borrow up to:
$2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year.
$3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year.
$5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year.
If you're an independent undergraduate student or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to:
$6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (only $2,625 of this amount may be in subsidized loans).
$7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (only $3,500 of this amount may be in subsidized loans).
$10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (only $5,500 of this amount may be in subsidized loans).
For periods of study that are less than an academic year, the amounts you can borrow will be less than those just listed. Talk to your financial aid administrator to find out how much you can borrow.
For a Direct Loan the U.S. Department of Education will pay you through your school. For a FFEL Stafford Loan, the lender will send the loan funds to your school. In most cases, your loan will be disbursed in at least two installments; no installment can be greater than half the amount of your loan.
Federal Campus-based Programs
The federal government provides money to colleges to give to needy students through three federal campus-based programs. These three programs include (1) a grant program (Federal Supplemental Educational Opportunity Grants, or SEOGs), (2) a loan program (Federal Perkins Loans), and (3) the Federal Work-Study Program.
Reprinted with the permission of the U.S. Department of Education.