Summary of Federal Financial Aid Programs
Federal Financial Aid can be thought of in two overall categories. You can get federal grants which do not have to be repaid. Most people will still have a financial need in addition to any grant money they may receive. After your grant money you will consider whether to also apply for student loans (which will have to be repaid). There are no income ceilings that stop you from receiving financial aid if you are a higher income family.
Federal Programs: Grants
There are several different grant programs. Most people are aware of the Pell Grant which can be up to $5,775 per year. There are other grant programs, in addition to the Pell Grant:
- Pell Grant
- 2014-2015 maximum award: $5,730
- 2015-2016 maximum award: $5,775
- Federal Supplemental Educational Opportunity Grant (FSEOG)
- max: $4,000 per year
- Academic Competitiveness Grant (ACG)
- max:(year one) $750
- max:(year two) $1,500 (year two)
Understanding The Different Grants
There are several factors that will influence the amount of Pell Grant you are awarded. The FASFA form is your application for your Pell Grant and it contains all of the input factors. These input factors will determine the amount of Pell Grant you will receive. They include your demonstrated need, the cost of the university you will attend, the length of the study program, whether you are full time or just part time student, and the amount of money allocated that year by congress for the Pell program.
The Federal Supplemental Educational Opportunity Grant is awarded on top of the Pell Grant for students with the biggest financial need (from the lowest income families). All of the students who have the most financial need are pooled together and then the University divides up the SEOG money it has been allocated. There is never enough money and you should probably expect to receive $1,000 at the most from the SEOG grant, in fact it could be as little as a couple of hundred dollars. Nationwide something like a million college students are awarded some amount of SEOG each year.
The Academic Competitiveness Grant has a few more qualification requirements the student must meet. This grant only is for college freshmen and sophomores. The student must already be receiving a Pell Grant. Also, an academic achievement level requirement must be met. For freshmen, they must have attended a high school curriculum known as a rigorous secondary school program of study. Such a curriculum generally includes:
- Four years of English;
- Three years of math, including algebra I and a higher level class such as algebra II, geometry, or data analysis and statistics;
- Three years of science, including one year each of at least two of the following courses: biology, chemistry, and physics;
- Three years of social studies; and
- One year of a language other than English;
For college sophomores, they must achieve a 3.0 out of 4.0 or better during their first year to qualify again for the sophomore year ACG grant.
The Federal Student Loan Program
There are a handful of different Student Loan programs to be aware of. The most common is the Stafford Student Loan. The same FAFSA form you filled out to begin with also determines your eligibility for a Stafford Loan. The eligibility requirements are the same as for the Pell grants and other grants. There is an additional requirement that you cannot be in default on any student loans already or else they will not give you another loan.
There are some nice aspects to the Stafford Loans. They have some flexible options when it comes time to repay and setting up your payments. Keep in mind that the student will have to repay this loan, so you do not want to borrow any more than absolutely necessary. One other nice aspect of the Stafford Loan is the low interest rate.
Interest rates for new subsidized Stafford Loans are set by law, as follows:
- For most loans made before July 1, 2006: Variable rate applies (but with an 8.25% cap);
- Stafford loans made beginning July 1, 2006: 6.8%;
- 6.0% for a loan first disbursed between July 1, 2008, and June 30, 2009;
- 5.6% for a loan first disbursed between July 1, 2009, and June 30, 2010;
- 4.5% for a loan first disbursed between July 1, 2010, and June 30, 2011;
- 3.4% for a loan first disbursed between July 1, 2011, and June 30, 2012;
- 6.8% for a loan first disbursed between July 1, 2012, and June 30, 2013;*
- 3.86% for a loan first disbursed between July 1, 2013, and June 30, 2014;
- 4.66% for a loan first disbursed between July 1, 2014, and June 30, 2015;
- 4.29% for a loan first disbursed between July 1, 2015, and June 30, 2016;
- *As of July 1, 2012, graduate or professional students are no longer eligible to receive subsidized loans.(they can still get the unsubsidized Stafford Loans);
Beginning in the 2013-2014 school year, congress tied the rates to the 10-year treasury bond. The rates are determined by adding 2.05 percentage points to the 10-year Treasury rate for undergraduate Stafford loans, 3.6 percentage points are added to the base for graduate Stafford, and it’s an additional 4.6 points for PLUS loans.
In 2014 Congress capped education loan rates at 8.25 percent for undergraduate Stafford loans, 9.5 percent for graduate Stafford loans and 10.5 percent for PLUS loans. The best thing is that for the subsidized Stafford Loan the rate is zero percent until you graduate (or fall below half-time school enrollment status). You accrue/pay no interest while you are actually in school. You only start getting hit with the interest after graduation.
Stafford Loans VS Perkins Loans
One negative aspect of a Stafford Loan is that you will have to pay a 1.5% fee of the loan amount. This money is called the “origination and default fees”. In plain English that means the profit amount that goes to pay the salaries of the loan processing people at the financial institution. Hopefully these fees will be either lowered or eliminated when the Stafford Loans start coming directly from the federal department of education instead of having an extra middle man at your local financial institution involved in the process sucking up part of the money.
The Stafford Loan is the most common, there is also the Perkins Loan. For the Perkins Loan, they are awarded slightly differently. It is also federal loan money to be lent out but the loans are determined by the school itself based on most need. Just about everyone is eligible for a Stafford, but you may or may not have the need level to be able to get a Perkins if you want one. One nice thing about the Perkins is that there is no 1.5% fee you have to pay up front. Also the grace period and repayment period for the Perkins loan are usually longer.
There is one final loan type that you need to be aware of and that is the Parent Plus loan. The Parent Plus is, as the name implies, taken out by the parent and must be repaid by the parent. The first two, the Stafford and the Perkins are loans to the student herself. Some of the same positive aspects apply to the Parent Plus loan. There are flexible repayment options and you get to defer repayment during the time the student is enrolled at least half time in school. Depending on your income level, any interest paid is tax deductible. Two negatives about the Parent Plus are that the interest rate that will kick in on you after the student graduates is slightly higher. Right now it is 8.5%. Also the “origination and default fees” that you get hit with to get the loan are higher, usually 4% of the loan amount.