What Is The Difference Between Financial Aid And A Student Loan?
A student loan is one of the many options you have to fund your education. The terms “Financial Aid” is used to broadly cover the following
- Scholarships
- Federal Grants
- Federal Work Study Programs
- Federal Student Loans
- Private Student Loans
We have detailed articles here at Studentelligence.com explaining each of the above at great length. Do take the time and go through each. If you are beginning to explore financial aid we recommend that you always look at scholarships and grants as your first option for funding your education. The reason we recommend this first is that scholarships and grants do not require to be paid back. The money you get as part of a scholarship or grant is yours to keep and to use for your education related expenses.
Most often you will find that only a portion of your education related expenses will be met by scholarships and grants. It is then that you need to look at federal student loans to cover the rest of the costs. Finally you should only turn to private student loans only when you’ve exhausted all other options listed. Good luck !!
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A student loan is one form of financial aid – the term "financial aid" simply refers to any source of money (other than from your own pocket) that is used to pay your educational expenses.
Common forms of financial aid include loans, grants, scholarships, stipends and work study.
Grants, scholarships, stipends and work study are funds that do not need to be repaid, a loan, obviously, is a form of financial aid that you repay later.
The federal government is the number one source of financial aid to college students in the US – they offer loans, grants and work-study.
Federal loans come in two forms – Stafford loans and Perkins loans. Perkins loans are only available to students who come from households with very limited means, but Stafford loans are available to almost everyone. Most of the government’s financial aid comes in the form of Stafford loans.
The two best known Federal grants are the Pell Grant and the FSEOG Grant – both of these are forms of "need-based" aid, which means, again, that only some applicants are able to qualify. Your eligibility for federal grant funds is determined by the information that you provide on the Free Application for Federal Student Aid, or "FAFSA". When you complete that form, the US Department of Education will analyze your information and compute a number known as your Expected Family Contribution, or "EFC". It’s your EFC score that will be used by the financial aid office at your school to determine what forms of financial aid you are qualified for.
If your EFC score is low enough, you may also be offered a work-study option – that’s simply a very part-time job that will allow you to earn some money to cover part of your college expenses. Many students in the work-study program get jobs on campus, while others find opportunities in tutoring programs that are run in conjunction with the local school system.
Always begin your quest for "financial aid" by applying for, and taking advantage of your federal aid eligibility. Some of that aid (the grants and work-study) is "free" money that you won’t need to repay, and the Stafford and Perkins Loan programs are the cheapest forms of educational borrowing that you can find anywhere. Thanks to the government’s administration of the Stafford program, the interest rates on Stafford loans are low and fixed, and you don’t need a credit history, credit check, or income to qualify. You won’t be obligated to repay your loans until 6 months after you finish (or leave) school, and you have the right to postpone payments if you experience financial hardship when you get out of college.
Scholarships are offered by states and by individual scholarship granting organizations. Your financial aid department will have books filled with scholarships that you might be eligible to apply for. Check with them, but keep in mind that scholarships are awarded on a competitive basis, and are usually awarded to recognize outstanding academic potential, so your transcript and major are all important.
If you can not find enough federal, state and institutional aid and/or scholarships to cover your entire Cost of Attendance, you may need to turn to the private sector for so-called "alternative" educational loans. These are unsecured bank loans, and applicants are only accepted if they have the income and/or substantial positive credit history to satisfy the lender’s very conservative lending standards. Most student applicants do not qualify on their own, and the lenders almost always require a cosigner on an educational loan. Your cosigner must be exceptionally credit worthy, and the decision to cosign creates an extreme and risky legal obligation – so anyone approached as a potential cosigner should think long and hard before agreeing.
For more info, read through this Department of Education brochure I’ve attached – it’s called Funding Education Beyond High School: The Guide to Federal Student Aid. It’s easy to read, and it has information about the entire financial aid system – how to apply – who qualifies – how much is available – and what to watch out for.
Good luck to you!
student loans are financial aid. Not all financial aid is in the form of loans, there are also grants that dont need to be paid back.