Navigating The Financial Maze

Whether you are soon to be high school graduate ready for college, or a seasoned professional looking at a graduate degree or certificate to boost career goals, everyone has similar questions: How can I pay for college? How does financial aid work? Few students, working or not, can afford to pay cash for classes, fees, books and living expenses. The solution for this lack of money is a concept known as financial aid, which is a combination of loans, grants, scholarships, work assistance and any number of other programs. When added together, students can take the classes they need and finance their education. It all boils down to alternate sources of funds to assist you in paying for school.

FAFSA Application

fafsa poster

Financial aid begins when you file your FAFSA application. FAFSA stands for Free Application for Federal Student Aid. The FAFSA application must be submitted well in advance of starting classes for possible financial aid amounts to be determined. For example, students that plan to begin classes in September for the fall semester would need to have completed and submitted the application earlier in the year, preferably by February. The financial information can be submitted on a rolling basis throughout the year. However, earlier applications may be eligible for more money because there is more available to distribute. Also, this extra time allows applicants to apply for a wider array of loans or grants that they qualify for. Unless you are on a substantial athletic or academic scholarship, this is the most common source of funds for students in need of assistance.

What You Will Need to Apply

You will need to gather quite a bit of financial information in advance to complete a FAFSA. The following summary applies to both independent and dependent students. Dependent students are classified as those students wholly reliant on their parents or guardian(s) for their support and will need the information required on the FAFSA for their parents or guardians as well as themselves. If you are not sure whether you are a dependent or independent student, the FAFSA has a checklist to make that determination.

Certain information must be provided to the government to complete a FAFSA application:

  1. Social Security number or Alien Registration Number, if not a U.S. citizen
  2. W-2s and income tax returns
  3. Bank statements
  4. Investment records and untaxed income records
  5. A Federal Student Aid identification number to sign electronic documents

Once applicants have completed the FAFSA, the government shares this information with all of the schools that the applicant has applied and designated on the FAFSA. The individual school's Financial Aid office will determine how much financial aid the applicant is eligible to receive.

This determination takes into account the Cost of Attendance, also known as COA and includes books, tuition and fees, and the amount of family contribution.  The Expected Family Contribution (EFC) considers student and parent income, assets, family size and other family members attending school at the same time. The law establishes the formula for determining EFC, which is not how much money your family will or must pay. It is an estimate of potential contribution from the individual or family.

Determining Financial Aid

Each school will then determine the number of financial aid applicants can receive based on subtracting the known Cost of Attendance from the Expected Family Contribution. This difference is defined as financial need and is the amount of need-based assistance you are eligible to receive. As an example, if the COA for a particular school is $20,000 and you have an EFC of $15,000, you qualify for $5000 in need-based aid. Need-based aid comes from a variety of federal financial aid programs.

Need-Based Financial Aid Programs

Federal aid programs

There are four primary federal need-based financial aid programs:

Pell Grant 

Typically gets awarded to undergraduates or a graduate in a teacher certification program. Student eligibility depends upon the cost of attendance, financial need, and whether the student’s attendance status is full or part-time. Pell Grants do not require repayment from the student. They are primarily a gift.

Direct Subsidized Loan

Also known as a Stafford Loan, is a loan subsidized by the federal government for students with financial need. The interest on the loan will be paid by the federal government only if the student enrolls for at least half-time and pursues a degree. This benefit extends for six months after leaving school. The Stafford loans may have better interest rates. These loans require repayment after the six month grace period is complete according to the loan terms signed at the time of issuance by the student.

Perkins Loan

I​​​​s only for students with exceptional financial need. It has low fixed interest rate and is available to undergraduate, graduate and professional students. Students should check with their individual school’s office of financial assistance since not all schools participate in the Perkins Loan program. The school lends the students the money, and the student makes payments back to the loan service provider or to the school itself. The availability of funds at the school and students' financial need determines the amount of funds available to the student need.

Federal Work Study

The program ensures part-time employment to undergraduate, graduate and professional students in need while enrolled in a school that allows them to earn money to help pay educational expenses. The program guidelines encourage work related to the student’s course of study or community service work. As with the Perkins Loans, not all schools participate in the program and students should check on participation with the financial aid office.

Non-Need-Based Programs

non based programs

While these loans and grants account for the majority of need-based financial aid, there are other options if a student still requires additional money. These sources are classified as non-need-based, and the amount available varies, calculated by subtracting the total financial aid already awarded to a student from the cost of attendance. This amount includes any private scholarships or school sources the student may have already received.  In the earlier example, that student was eligible for $5000 in need-based aid. The $5000 is subtracted from the $20000 cost of attendance leaving $15000 in non-need-based assistance available. It does not take into consideration the estimated family contribution, only how much aid the student has gotten to this point.

There are several sources of non-need-based aid:

Direct Unsubsidized Loan

Requires the student to pay the interest on the loan during all periods or defer interest payments until leaving school, in which case the interest will be added to the principal when payments begin. Delaying payment results in higher payments than the need-based subsidized loan. The advantage of the Direct Unsubsidized Loan is that it does not require the student to demonstrate need and is available to both undergraduate and graduate students.

Federal PLUS Loan

Allows graduate or professional students, as well as parents of undergraduates, a chance to borrow money from the US Department of Education to pay for college or career school. A significant restriction here is that the student or parent must not have an adverse credit history. A low credit score due to bankruptcy, excessive debt or failure to pay debts could disallow access to this type of loan. The total loan amount is the cost of school attendance minus any financial aid already received.


Also known as The Teacher Education Assistance for College and Higher Education, provides help paying for college if the student intends to become a teacher in a high-need field in a low-income area. The grant will require the student to take certain types of classes in specific degree fields to receive the grant. Students then must teach in designated areas for a specified amount of time following graduation, or the grant will convert to a repayable loan. This repayment will include interest charged from the date the student received funds through the TEACH Grant. This type of financial aid requires specific commitment and consideration before acceptance.

Final Considerations

graduation day

After all of these programs are completed, students will hopefully have enough money to take the classes and earn the degrees that they want. Financial aid is no longer a mystery, and the question of “How does financial aid work?” has been answered. Once all of these programs are exhausted, if students find that they do not have the funds, a final option to consider may be a personal bank loan.

College degrees can open up many careers and opportunities not available to those without degrees. However, embarking on a college degree is a huge financial and emotional undertaking, as well as the time needed to complete classes. Persistence and determination are key factors for success. Those considering college degrees should assess their willingness to take on the financial burden and the immense time requirements necessary to finish. Many people feel a personal sense of accomplishment when done, and they will then have credentials to apply to a wide variety of career fields. 

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