Navigating the world of financial aid can sometimes feel like deciphering a foreign language. Whether you’re a student, parent, or educator, understanding key financial aid terms is crucial to making informed decisions about college funding. In this article, we’ll demystify the jargon and break down the top 10 financial aid terms you should know. Equip yourself with this knowledge, and you’ll be one step closer to mastering the financial aid process.
The following is a helpful list of terms to understand when applying for financial aid or speaking to someone in obtaining funding for your educational goals:
- Financial Aid: Whenever we talk about financial aid, we’re referring to the funds from federal, state, or private sources that help cover educational expenses. This aid can come in several forms. Scholarships and grants, which are fantastic because you don’t have to pay them back. Then there are loans, which do require repayment. Another option is work-study, where students can work jobs on campus to earn money while studying.
- Free Application for Federal Student Aid (FAFSA): Think of the FAFSA as your gateway to financial aid. Managed by the U.S. Department of Education, this form (available both online and in paper) is crucial for determining your funding eligibility. If you’re looking into financial aid, most colleges recommend completing the FAFSA.
- Expected Family Contribution (EFC): EFC gives you an idea of how much your family should pitch in for your education. This number is calculated based on the tax information provided by your family.
- Need: Simply put, ‘Need’ is the difference between the cost of attending college and your EFC. It determines how much financial aid you can receive.
- Student Aid Report (SAR): Once you’ve filled out the FAFSA, you’ll receive the SAR. This report provides a summary of the data you submitted and outlines your financial aid eligibility.
- Pell Grant: Specifically designed for undergraduate students, the Pell Grant is a federal initiative that offers need-based aid. If you qualify, the best part is that you won’t need to repay it, making it an excellent choice for many families with moderate incomes.
- Direct Loan Program: Previously referred to as the Stafford Loan, the Direct Loan Program provides federal loans at low interest to students. These come in two flavors: subsidized (need-based and interest-free while studying) and unsubsidized (non-need-based with interest accruing during study years).
- Parents Loan for Undergraduate Students (PLUS): The PLUS loan is a federal solution for parents aiming to support their child’s education. It lets them borrow up to the full cost of attendance, minus any other aid received.
- Perkins Loan Program: Offered to both undergraduate and graduate students, the Perkins Loan is need-based and managed by the college’s financial aid office. With a fixed 5% interest rate and no interest accrual during study years, it’s a favorable choice for many.
- Federal Work-Study (FWS): The FWS program promotes part-time employment for students in need, typically on their college campuses. Federally funded, it offers students a practical way to earn money while pursuing their studies.
If you’re venturing into the world of higher education, understanding these terms can make your financial planning journey smoother and more transparent. In addition to these terms, visit our Fund College page for more detailed information. It has information on Need-based or Non-need based Financial aid resources, scholarships, grants, and employment.