Financial Aid, Scholarships, & Student Loans 101 Course
Section 1: Introduction
Why We Created This Course
We started LendEDU to help college students and graduates reduce the costs of higher education. We know that financial aid and education finance aren’t the most entertaining topics in the world. We also know that a lot of students and graduates struggle to understand financial aid, scholarships, and student loans. We created this course to help students like ourselves understand the basics of financial aid, scholarships, and student loans without wasting time.
After finishing this course you will have the basic knowledge you will need to properly use and manage financial aid, scholarships, and student loans. We hope that you enjoy our course and you find the sections easy to swallow. At the end of each section you can take a short quiz to review the information covered.
Cost of College
Understanding how much college will cost you is crucial in planning out your finances to pay for it. While it is easy to look at tuition costs, room and board, and book fees, there are lots of other expenses that many people don’t consider. Here we outline the major costs of college. Keep in mind that these prices will change based on what college you attend and where it is located. Below we outline the average annual costs of different types of college across the nation. Be sure to check your specific college website to see how much it actually costs.
Understanding Your Costs
Tuition—This is what the college charges you just to take classes. Tuition is usually paid per credit hour or at one general price if you are a full-time student. Some colleges, for example, may charge you the same price if you fall into the range of 12-17 credits. In these cases, it is smart to take as many credits as possible to get the most out of your money.
Books—The costs for books represent the average amount that is paid over an entire year (or two semesters) for books and other required materials. Required software and other technology costs are also included in this price but a personal computer or laptop is not.
Room and Board—This consists of where you will be living (i.e. your dorm, apartment, house, etc.) and how much food will cost you. This also varies as there is always a range of prices for housing and meal plans. Once you go off-campus, you have a lot more control over how much you pay. There is always a large range of prices for off-campus housing depending on how nice the place is and its location. In addition, once you move off-campus you are generally not required to purchase a meal plan anymore. Shopping at a grocery store often is much cheaper than eating at dining halls.
Transportation—The above costs account for both transportation to and from college and any costs for getting around campus while you’re there. This is also highly variable depending on how close you live to your campus, how good of a transportation system your college has, and how many times you go home each year.
Other Expenses—Many colleges estimate how much their students will spend on things that they don’t charge you for. Some of these may include entertainment and personal items. This also will vary depending on how lavish of a lifestyle you live and what you like to do for fun. The cost of college is a huge thing to consider when choosing your school. It is important to try and estimate how much it will cost you in total—not just what the price of tuition is. In the next section we will go over some of your options for financing your education.
Section 2: Financial Aid 101
What is Financial Aid?
Financial aid is any form of assistance that helps students and their families pay for college. The aid may cover help cover tuition, room and board, books, transportation, and personal expenses. There are various forms of financial aid that students can obtain. These include scholarships, grants, student loans, work-study programs, and more. Every college has a Financial Aid Office that helps students find and acquire all of these forms of financial aid. In the following sections we will go over these forms of financial aid in more depth.
Filing the FAFSA (Video)
You may have heard of FAFSA? But unless you’ve actually filled it out before you may be a bit overwhelmed. The Free Application for Federal Student Aid, or FAFSA, is the form the U.S. Department of Education requires to determine your Expected Family Contribution (EFC). The government conducts a “need analysis” based on financial information, such as income, assets, and other family information.
Most Universities and Colleges require all of their students to submit the FAFSA to attain financial assistance such as college-sponsored financial aid including grants, educational loans, and work-study programs. Before submitting the FAFSA the applicant can select the financial aid offices that should receive their application. Once the FAFSA application has been submitted, the financial aid offices selected will be able to view the results.
To qualify for Federal financial aid students must:-Be a U.S. citizen, a U.S. national, or an eligible non-citizen-Have a valid Social Security Number-Have a high school diploma or GED-Be registered with the U.S. Selective Service (if you are a male age 18 to 25)-Not owe refunds on any federal student grants-Not be in default on any student loans-Have not been found guilty of the sale or possession of illegal drugs during a period when you received federal student aid.
Explanation of EFC (Video)
The constantly rising cost of college is tough for students and their families. These days, most families will be eligible for some type of financial assistance that could help pay for school.With limited resources available for families, the expected family contribution or (EFC) figure was created and designed to help. The U.S. Department of Education defines EFC as, “An index number that college financial aid staff use to determine how much financial aid you would receive if you were to attend their school.”
The U.S. Department of Education reviews the FAFSA and provides families with their EFC. EFC is influenced by family income and investments. Income means more than a paycheck; income calculations can include Social Security benefits, combat pay, and even contributions to retirement accounts. The amount of money a family can contribute might also be heavily influenced by the number of students in a household attending school in any given year.
While many families have only one child to send to college, those with multiple students in college could see their EFC drop as a result. For more information, head to the resources section at LendEDU.com
Explanation of Cost of Attendance
Cost of Attendance, or COA, is an estimate of how much it would cost to attend a college for a single year. This includes tuition, room and board, books, transportation, and any other personal expenses. Colleges typically update their COA figure every year to reflect price changes.
Colleges will look at the difference between your COA and your EFC, to determine how much financial aid you need. The higher your college’s COA and the lower your EFC, the higher the financial aid package you will receive, and vice-versa.
It is important to keep in mind that the COA is the total amount it will cost to attend college. This does not take into account any aid you will receive including scholarships, grants, and education tax benefits. A more useful value to look at is your Net Price for attending college. This is the COA minus any aid you receive. This is the total amount that you and your family will pay out-of-pocket. Just because one college has a higher COA than another, doesn’t necessarily mean that you will end up paying more to attend.
Types of Federal Financial Aid (Video)
A grant is a sum of money awarded to you based on financial need or other criteria, such as academic merit or athletic ability. In this latter case, these funds are sometimes referred to as scholarships. Grants are usually the best form of aid because you don’t have to pay it back. There are many sources of grant and scholarship aid including the federal government, state agencies, colleges and universities, and private organizations.
Pell Grants are the United States’ largest need-based grant program. They are awarded by the U.S. Department of Education based on the results of the FAFSA. The average family income of Pell Grant recipients is below $20,000. For the 2015-16 school year, the maximum annual Pell Grant one can receive is $5,775. Also, you can only receive a Pell Grant for 12 semesters, or about 6 years.
In contrast, loans are forms of aid that must be paid back. There are many types of loans including Direct Stafford, Perkins, Parent Plus and alternative private loans. Some states also sponsor loan programs. These funds must be paid back with interest. Usually repayment begins after you have completed school and a grace period, but sometimes it is expected right away. We will explain all of the different types of loans in-depth in the Student Loans 101 course.
Section 3: Scholarships 101
What Are Scholarships?
Scholarships are a form of financial aid to help students pay for their education. The main benefit of scholarships is that there is no repayment required. There is a seemingly endless supply of scholarships from thousands of different organizations and they are awarded for a variety of reasons. Typically, students can quickly apply for scholarships online. Most scholarship applications will require your GPA and basic background information. Some may also request an essay or letters of recommendation. Check out LendEDU's Scholarships section for more information!
- There are over 3 million scholarships available in the world.
- Over $50 billion in scholarship money awarded annually.
- In 2012, full-time undergraduates at public, four-year institutions earned an average of $5,750 in scholarship money.
- In 2012, full-time undergraduates at private, four-year institutions earned an average of $15,680 in scholarship money.
- Only around 0.3 percent of students receive full-ride scholarships.
Types of Scholarships
These scholarships are awarded by meeting certain standards that the providing organization sets. Most of these scholarships are based on academic achievement but some are awarded for other things such as musical or athletic talent, leadership qualities, or extraordinary dedication to community service. Merit-based scholarships are awarded by both schools and independent organizations.
These scholarships are based on the financial standing of the student’s family. To apply for most of these need-based scholarships, students and their family must complete the FAFSA. Schools may provide additional scholarship money based on your family's EFC. Sometimes schools will require additional forms, such as a federal tax-return slip, to better analyze a family’s financial situation. These scholarships are different from grants, however. The FAFSA is mostly used by the government to provide these grants, which are different than need-based scholarships.
Privately Offered Scholarships
There are tons of private scholarships that are offered for almost any reason imaginable. Some examples include grades, community service, leadership, or heritage. Also, there are private scholarships offered to only the local community and others that may spawn out to the entire nation. Organizations may offer these scholarships for a variety of reasons. Some may genuinely want to help students that represent the values of their company while others may be looking for PR for their business in order to generate traffic or make money. Regardless of their intention, private scholarships are a great way to reduce how much money you’ll end up paying for your education.
In order to obtain these scholarships, most will simply require an application. Some may only take a few minutes while others are quite in-depth. Many organizations may also interview selected applicants to gain a better understanding of their personality or motivations. Make sure to keep track of application deadlines and know the requirements for each. One simple way to organize potential scholarships is to create an Excel spreadsheet with the name of the scholarship, the awarding organization, the deadline, and the requirements. Prioritize your applications by your perceived chances of winning each. For example, you are much less likely to a secure a nationwide scholarship from a well-known brand such as Coca-Cola than a local scholarship targeted at your specific demographic.
How to Find Scholarships
There are tons of resources to help you find scholarships. Here at LendEDU we have an entire section of our website dedicated to scholarships. We have posted over 100 articles about different scholarships categories with specific scholarships you can apply for in each.
Besides what we have here at LendEDU, there are many other websites that have great scholarship searches. College Board offers one that allows you to narrow your search by many different categories like ethnical background, disabilities, religious affiliation, other special conditions, and much more. In addition, most high schools have resources on their website with lists of local scholarships that you can apply for.
Scholarships Application Tips
Many scholarships will require an essay from their applicants. Even if you aren’t the best at writing, most organizations care more about what you say, not necessarily how you say it. A passionate and interesting story will always beat out a boring, yet grammatically correct essay. Here are some tips for writing your essays:
Outline your essay. Structuring your essay will ensure that it flows well and makes sense to the reader.
Use real examples. If you choose a topic that actually affected you it will be easier to write and will seem much more personal.
Highlight your growth. If talking about a difficult time in your life make sure to show how you overcame it and how it has shaped you.
Proofread. Ur essay, should, be easy to read, and shouldnt be be with lots of errors or else how good your story is doesnt matterr one bit.
Get a second pair of eyes on it. Have a teacher or parent review your essay for both grammar and to make sure it makes sense.
Letters of Recommendation Tips
Many scholarships will also requirement one or more letters of recommendation. People who write these should be able to attest to your work ethic, character, or academic accomplishments. Here are some tips for your letters of recommendation:
Choose the right people. Follow all guidelines on who the letters of rec can be from. It is always safe to choose a teacher who you have a strong relationship with whose class you did well in.
Make it easy on the writer. Tell the writer what the letter should include, when you need it by, and who to send it to. Many people may even prefer if you created an outline for them to follow.
Provide examples. Give the writer a list of your activities and accomplishments that they could include in their letter.
Thank the writer. Make sure to follow up with the recommender to show your gratitude for their help.
Avoiding Scholarship Scams
Scholarships are opportunities that plenty of college kids look out for and try hard to win; after all, they can save a ton of money and reduce the need for student debt. Unfortunately, this creates quite an opportunity for scammers to steal personal information, sometimes even money, from desperate college students looking for free money. A scholarship scam can happen to anyone, and there are plenty of them out there. Looking at some of these tips should help you spot these scams before they take advantage of you.
Application Fees. If a scholarship application requires a fee of any sort, then just forget about it. Do not enter or submit any personal information into the application despite whatever promise is made or however big the scholarship award is. Scholarship applications don't cost money, so if one of them is charging you, then it's a scam.
Randomly Awarded Scholarships. If you see a random email telling you that you've just won a scholarship you never heard of, then it's a scam. Scholarship opportunities don't just come out of the blue, and an unsolicited email is certainly a huge red flag. Scholarship organizations don't search for applicants or reach out to them; contrarily, students are expected to find the scholarship themselves. Just know that a random scholarship email is probably a phishing attempt for your personal information.
Scholarships Requiring Financial Info. In any case or situation, if a scholarship application or organization asks for your financial information such as a bank account number, then it's more than likely a scam! Something like a bank account number is practically gold to a scammer, so if you're asked for yours by an innocent-looking scholarship group, then they may be up to no good. A reputable scholarship organization does not need your bank account information; it would most likely send funds directly to your school after verifying your attendance.
Section 4: Student Loans 101
What are Student Loans?
A student loan is a form of financial aid that helps students pay for their education. Lenders give borrowers money and, in-turn, charge an interest rate on their loan. Borrowers usually aren’t required to start paying the loans back until after graduation.
Student loans have a large range of amounts, interest rates, and repayments plans depending on the lender and borrower. They may cover any parts of college—tuition, room and board, books, transportation, living expenses, and more. Though there are many negative connotations with student loans, when it comes down to it, it is truly an investment for your future. If you can obtain a higher education, you will have many more opportunities for the rest of your life.
The average borrower from the Class of 2016 had an average student loan debt balance of nearly $30,000.
Federal Student Loans (Video)
A Stafford Loan is a federal student loan offered by the Department of Education to undergraduate and graduate students. Stafford Loans provide students with financial aid to help pay for the cost of their education including tuition, books, and living expenses.
There are two types of Stafford Loans available to undergraduate and graduate students. The first is the Subsidized Stafford Loan. Subsidized Stafford Loans are awarded on the basis of financial need, and carry the benefit of subsidized interest. The federal government pays the accrued interest while a student is in school.
Unsubsidized Stafford Loans are not need-based; meaning any student who submits FAFSA is eligible to receive aid. However, because these loans are unsubsidized, the student is responsible for paying any interest that is accrued while in school.
For the 2014-2015 academic year, the federal government set the interest rate for subsidized and unsubsidized Stafford loans at 4.66% for undergraduates. Graduate students will pay a higher interest rate of 6.21%.
To apply for a Stafford Loan, the applicant needs to be a United States citizen, must have a Social Security Number, and a high school diploma or GED.
The Federal Perkins Loan Program provides assistance to qualifying students who can demonstrate financial need and who are seeking a higher degree through an approved postsecondary school.
Perkins loans have low fixed interest rates and manageable repayment terms. Similar to other types of federal loans, Perkins Loans can be used to cover education-related expenses such as tuition, textbooks, and housing costs.
Perkins loans are designed for low-income students enrolled in an undergraduate, graduate, or vocational program at an institution that participates in the Perkins Loan Program. Not every school offers Perkins loans to its students so you should consult with your financial aid office to find out if the program is in place.
In comparison to other federal loan programs, like the Direct PLUS and Stafford Loans, very few Perkins loans are issued to students each year. Only $500,000 in new Perkins Loans were issued in 2014, with an average loan amount of $1,700.
Borrowers are responsible for repaying a Perkins loan with an interest rate of 5%. The repayment period of a Perkins loan is 10 years.
Borrowers can apply for a Perkins loan by filling out the FAFSA.
As parents, the task of saving for college is becoming more difficult by the day. Keeping up is tough. To help parents contribute to their son or daughter’s education the federal government created the PLUS loan.
A PLUS Loan is a student loan offered to parents of students, graduate students, or professional students enrolled at least half time in eligible programs at participating and eligible post-secondary institutions.
In most cases parents must pass a simple credit check. The credit check only tests for adverse credit history, such as default on a prior federal student loan, not for a favorable credit score or debt-to-income ratio.
PLUS Loans are available to cover up to the full cost of attendance, minus any financial aid received by the student. For example, if college costs $22,000/year and the student has been offered a financial aid award of $12,000, the parent is eligible to request a PLUS Loan of up to the amount of $10,000 for that year.
Stafford Loans offer lower interest rates than PLUS Loans, so it’s usually best to maximize Stafford Loan limits before using the PLUS Loan.
Private Student Loans (Video)
With the rising costs of education, many students find themselves looking for the best private student loans to help cover the cost. A private student loan is a financing option that can either supplement or replace federally guaranteed loans such as Stafford loans, Perkins loans and PLUS loans. Although traditionally unsecured, these loans are becoming increasingly secured, so that the borrower must offer collateral or a have a qualified cosigner.
Interest rates are set by the financial institution that underwrites the loan. Interest rates offered are typically based on the perceived risk that the borrower may be delinquent or in default of payments of the loan. The underwriting decision is complicated by the fact that students often do not have a credit history that would otherwise indicate creditworthiness. As a result, interest rates may vary considerably across lenders. Cosigner credit worthiness may be a big determinant of approval.
Because private student loans are subject to special treatment in the event of a personal bankruptcy, students may not incur a total debt in excess of the cost of attendance, taking into account scholarships, fellowships, federal loans and private loans.
Before using private student loans, borrowers should research federal student loan alternatives.
Student Loan Interest Rates (Video)
There are a few key differences between variable and fixed interest rates. Below, we will explain each to clear up the confusion.
A variable interest rate student loan has an interest rate that has the potential to change over the term of the loan. Variable interest rates are calculated based off an underlying interest rate index. As market interest rates move up and down, the interest rate you pay on a variable interest rate loan can also vary. As a borrower, you are directly exposed to these changes.
A fixed interest rate student loan is pretty straightforward. Over the course of the loan you will pay the same interest rate no matter what. If you are offered a 5% interest rate for 15 years, you will pay 5% in interest every year for 15 years. In comparison to variable interest rate loans, fixed interest rate loans will generally have a higher interest rate at the time of borrowing.
What is a Cosigner? What are the Risks? (Video)
Many Lenders require borrowers to apply with a cosigner. What is a cosigner? What are the benefits of having a cosigner?
A cosigner is a parent, grandparent, guardian or other adult who is creditworthy and willing to assume legal responsibility for the loan liabilities along with you. In most cases the cosigner must be a U.S. citizen or permanent resident. Cosigners may have to pay up to the full amount of the debt if the borrower does not pay. Cosigners can usually be removed from the loan upon consecutive payments during the repayment period.
Cosigners are taking a risk. In exchange for taking the risk lenders are able to offer borrowers lower interest rates. Lower interest rates can save borrowers a significant amount in interest payments over the term of the loan.
Promissory Notes (Video)
If you have recently applied for a student loan or for student loan consolidation, you were probably asked to sign a promissory note. Here we explain what a promissory note is and what it means for your student loans.
We explain a promissory note, or a “p note,” more informally, as your loan’s contract. Like other lending disclosures, the promissory note is an important document. The promissory note will essentially explain the rules and functions of the loan.
The promissory note records your commitment as a borrower to repay your lender what you have borrowed on your student loan. The promissory will clearly reference the terms and repayment options available and agreed upon by the borrower and the lender.
You should make sure that the terms in the promissory note match your financial objectives before signing. If you ever have a question about how your student loan must be repaid the answer will be housed within the note. More specifically, the promissory note includes both basic repayment details and more financially specific details on how your student loan is structured.
Different student loan lenders may show you your promissory at different points in the application process. Everyone signs a promissory note; it is industry standard.
Explanation of Origination Fees (Video)
Origination fees are an important and sometimes a costly characteristic of consumer loans.
Origination fees are up-front fees charged by a lender for processing a new loan application. These fees are used as compensation for putting the loan in place. Origination fees are quoted as a percentage of the total loan.
An origination fee is similar to any commission-based payment. For example, if a student loan lender takes a 1% fee for originating a loan, they will make $100 on a $10,000 loan, or $200 on a $20,000 loan.
When shopping around for student loans borrowers should look to see if their lender is charging origination fees. Many federally issued loans, including Stafford loans, have up to a 1.0% origination fee for each loan disbursement.
Many private loan lenders have decided to waive origination fees on student loans and student loan consolidation as an incentive to students.
Tips for Responsible Student Loan Borrowing
Though it would be nice to not have to take out any student loans, for many this simply is not possible. If you do have to take out a loan, being responsible about it can help you avoid excessive debt after graduation and will allow for an easy repayment. Follow these tips to help your borrowing process go as smoothly as possible:
- Only Borrow What You Need. Take some time to calculate how much help you truly need to pay your loans. Having extra money may lead to unnecessary spending that will come back to bight you after graduation. As a rule of thumb, you should try to make sure you have less debt at graduation than your annual income at a full-time job. At this rate, you will have your loans repaid within 10 years after graduation.
- Know Your Loans. It is crucial to know your loans inside and out. Keep track of everything from your loans term—or how many years you will repay it over, your interest rate, monthly payment requirements, and the incentives of your loan. Be sure to know your student loan servicer’s contact information if you have any questions. Knowing the details of your loan will give you the best chance of repaying it.
- Only Spend Your Loan Money on Essentials. Often you can spend your student loans on whatever you want. This can be dangerous for irresponsible borrowers, however. Make sure you only spend your money on what you really need such as tuition, books, housing, and other strictly school-related things.
- Live Thrifty While in College. There are endless things to waste money on while in college. When you are surrounded by so many opportunities for entertainment and friends to take part in them with, you may not realize how much money you are spending. Make sure to create a budget for yourself and stick to it. Living like a broke college student now will help you avoid living like one after graduation.
Refinancing and Consolidation
Private student loan consolidation allows borrowers the ability to consolidate and refinance one or multiple loans into one loan at a potentially lower interest rate.
“Consolidating” is the process of combining multiple loans into a single loan and monthly payment. Consolidation is a great tool to use if you would like to lower your monthly payment.
“Refinancing” is the process of reducing the interest rate of an existing loan. Refinancing loans is a great option for borrowers who have good credit and would like to save in interest.
Borrowers can both consolidate and refinance through private student loan consolidation.
There are some borrowers who stand to gain from applying with only one private student loan because they are simply interested in refinancing. Likewise, there are borrowers who are interested in applying with multiple loans even if their interest rate does not change because they are interested in consolidating.
Here at LendEDU we have put together a guide of the top 7 lenders to refinance and consolidate.