Basics of Financial Aid

Student Loan is one of the most popular forms of financial aids. Most of the American students require financial help to continue their higher education. A study conducted in the year 2002-2003 academic year, indicates that students would receive over $70 billion as financial aid and U.S. Government is going to be the biggest source for the same.

Once a student manages to get his/her admission into any institution, he / she looks for appropriate options of financial aid. The procedures for attaining financial aid are given below.

Free Application for Federal Student Aid (FAFSA)

In order to qualify for the Federal Student Aid, one has to fulfill the criteria in respect of Free Application for Federal Student Aid (FAFSA). Financial Aids such as 'Pell and FSEOG Grants', 'Perkins Loans', 'Stafford Loans', 'PLUS Loans' and 'Federal Work Study' require a FAFSA filing for the eligibility. The FAFSA then examines the students' family status and determine if any particular student is eligible for the aid. The loan is then sanctioned as per the guidelines of the U.S. Department of Education.

Family of the interested student is required to file FASA at the end of each calendar year. After eight weeks of submission of the details, the government submits a Student Aid Report (SAR). On the basis of this report, the student's family is entitled to get the financial aid. The copy of the amount that student is entitled to receive is sent to the institution where the student intends to take admission.

Scholarship Search

During the time frame when the student awaits the result of FAFSA, he/she may look for Scholarships or Fellowships for Graduate Study. Students need not wait for long to search for scholarship, instead they can start searching according to their wish, though it can be finalized in the next academic year. 

Types of Loans

Every student dream to complete their higher education with the help of scholarship money, but unfortunately they had to face the reality. They had to borrow or utilize their assets to obtain higher education. The most popular loan programs which the students can borrow are discussed briefly:

Perkins Loan
It is the most affordable federal loan with the lowest interest rate of 5 %. But it is available to the students based on SAR that is given by the government only to the needy students. It has a limit of $4000 and is borrowed in the student's name irrespective of the credit worthiness.

Stafford Loan
This loan is like the Perkins Loan, it can also be borrowed in the name of the student. A dependent undergraduate can borrow an amount upto $2625, for the first year, as a sophomore an amount of $3500 and as a junior or senior an amount of $5500 whereas an independent undergraduate receives additional amount of $4000, for the first two years and $5000, for the last two years at an interest rate of 8.25%. In this case, it is important to note that the federal government may subsidize some amount of interest. 
An unsubsidized loan is not awarded on the basis of need. If the students qualify for an unsubsidized loan, interest will be charged until the loan is disbursed in full. A student may choose to pay the interest or allow it to accumulate. If the student allows the interest to accumulate, it will be capitalized i.e. the interest will be compounded and will increase the amount to repay. If the interest is not accumulated and paid as it appears then the repay amount will be less. 

Plus Loan
Plus Loan i.e. Parent Loan for Undergraduate Students is a loan for parents of the dependent students. It has a slightly higher interest rate as compared to the Stafford Loan, but limited to the cost of education, which is not covered by the other forms of aid. The parents who borrow this type of loan shall have to qualify for the minimum standards of credit worthiness.

The Award Letter

The institution to which the student is admitted will issue their respective award letters, which list all the aids the student is eligible for and the expected family contributions.