Do you understand the definition of financial aid?

The term “financial aid” goes hand in hand with paying for college. But it can mean different things to different people, and often the term is used in various ways, even by colleges.

“Financial aid” is money that can help students pay for college. Many people think of student loans when they hear the term financial aid, but loans are just one part. In addition to loans, financial aid includes scholarships, grants, and work-study jobs. Scholarships and grants are gifts; they do not need to be repaid. Loans, on the other hand, have to be repaid with interest, while work-study jobs are a work obligation for the student. Aid can be need-based or non-need-based, though most people think of financial aid as being strictly need-based.

Loans. The main sources of loans are the federal government and private lenders. Students with the greatest financial need are eligible for the government’s subsidized Stafford Loan and Perkins Loan (“subsidized” means Uncle Sam pays the interest while the student is in school and during certain other periods); all students are eligible for the government’s unsubsidized Stafford Loan. The loan amounts are capped each year.

For parents, the government offers PLUS Loans, which let parents borrow up to the full cost of their child’s education. Private lenders also offer student loans and parent loans. Generally, the government offers more favorable loan repayment options than private lenders, most notably several income-sensitive repayment options.

Grants & scholarships. Though students with the greatest financial need typically qualify for a federal Pell Grant, the main source of grants and scholarships for the majority of students is colleges. College grants and scholarships can be based on financial need (as determined by the college’s own aid form) or on merit, whether academic, athletic, or some other talent. Colleges vary widely in the type (need-based or merit-based) and amount of grants and scholarships they offer. As your family researches college options, exploring these differences is probably the single biggest thing you can do to optimize your bottom line.

Work-study jobs. The government underwrites work-study jobs for the neediest students, but colleges may also offer campus jobs that are not necessarily based on need.

JON TEN HAAGEN, CFP, RPC

Your Investment Portfolio Repairman

Founder and CEO

Ten Haagen Financial Group

191 New York Avenue

Huntington, NY 11743

631-425-1966

516-658-2827

jonlth@tenhaagen.com

www.tenhaagen.com

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©2014 Broadridge Investor Communication Solutions, Inc. All rights reserved. Reprinted from TenHaagen.com.