Understanding financial aid: how to get money for college
The price of college has soared in the last 20 years, causing the average student who took out loans to leave school with $29,100 of debt in 2020-2021. Salaries, on the other hand, have been slower to grow. This widening gap has made investing in college much riskier. Most degrees are still worth it – the median earnings of bachelor’s grads are nearly 63% higher than those of people with just a high-school education – but the likely financial return on educational investments has become a much more important consideration. Picking a school that offers a superior financial aid package is an important way to maximize your educational return on investment.
For many Americans the financial aid letter is just as important as the admission letter.
Attending the most prestigious school you’re accepted to does not necessarily correlate to a better return on investment. Instead, to figure out what college will provide the best ROI, you should keep several factors in mind, including median earnings post-graduation and your specific financial aid offer.
What is financial aid and where does it come from?
Financial aid is money that is given or lent to students to pay for school. It can be awarded based on merit or need and can come from the state or federal government, your university, or an outside organization. It includes grants, scholarships, and loans. Most students get financial aid from a combination of sources.
Types of financial aid
Below is a breakdown of the money spent on various forms of financial aid in 2020, including both federal and private sources, for undergraduate and graduate students. All data is taken from CollegeBoard research and the NCES.
Students provided a federal loan41.1%
Average federal loan amount$7,393
Grants are non-repayable money, though there may be strings attached. Grants are usually based on financial need.
A slim majority of students – 51.8% – get federal grants, which average $4,597 per year. Pell grants are one example of a major need-based federal grant, which roughly 1 in 3 students receive. Other federal grants include the Iraq and Afghanistan Service Grant and the Federal Supplemental Educational Opportunity Grant (FSEOG).
Students provided a federal grant51.8%
Average federal grant amount$4,597
Some grants come from your state’s budget rather than the federal government. 35.2% of students get a state or local grant; their average size is $3,859. State grants are usually for students who go to college in their home state, although out-of-state students may be eligible in some cases too.
Students provided state/local grants35.2%
Average state/local grant amount$3,859
Scholarships come from a wide variety of sources, including your school, private organizations, and your local community. Grants and scholarships from schools are sometimes called institutional scholarships, while scholarships from private organizations are called outside scholarships.
Colleges with large endowments, such as Ivy League schools, can be very generous with scholarships. 49.2% of students get a grant or scholarship from their school, and their average size is $11,723. Many students also get outside scholarships; although it is harder to quantify the amounts, these tend to be smaller.
Students provided an institutional scholarship49.2%
Average institutional scholarship size$11,723
Average federal work-study amount per year
Work study roles are designated for students demonstrating financial need and are catered to the schedule of students. Work-study earnings are not counted as income when you file your FAFSA.
Remember that if you are deemed eligible for work study, the onus is still on you to secure a job placement. Because of this, some students who qualify for work study may not actually find a work study position. On average, students who manage to find a placement earn $1,144 per year through work study.
How do I get financial aid?
There are four main places to kick off your search for financial aid. Of these, the most important are the FAFSA, or free application for federal student aid, and the CSS profile, or college scholarship service.
- Fill in the FAFSA – The FAFSA is your key to federal grants and loans. Filling out the FAFSA can be tricky, so be sure to follow best practices.
- Complete your CSS profile – The CSS profile is mainly used by private schools. Based on it, you may be awarded scholarships and grants.
- Search for outside scholarships – Use online databases and investigate resources in your local community to access trait- or merit-based scholarships from outside organizations.
- Apply for private loans – If all else fails you can take out a private loan. Remember that this is a last resort, as federal loans generally have better terms.
Mitigating your college debt burden
College is one of the most important investments you will make, so read through your financial aid offer carefully and think about what you can do to mitigate your debt burden. Your newfound independence provides the perfect opportunity to educate yourself about financial literacy, knowledge that will benefit you throughout your life.
If you’re lucky, your parents may already have a college fund for you: a popular way to save for college is a 529 plan. If you’re less lucky, it helps to scrimp and save. There are many ways to do this, such as buying used textbooks and getting a student job. Little things make a difference in the long run – start saving early, budget carefully, and invest while still in university.
Can I take on paid work while receiving financial aid?
It depends upon which type of aid you’re receiving. If you’ve been given an education grant based on information provided in your FAFSA application, you can earn up to $6,970 for the 2021-22 academic year before it affects your financial aid. Money earned from work-study doesn’t count in the formula used to calculate financial aid. Scholarships aren’t usually impacted but always read the rules.
Does deferring studies affect my eligibility for financial aid?
This will likely depend on your individual situation and any changes to your student aid eligibility status. If you have an emergency situation, such as a long stay in a hospital or a death in the family, chances are you can maintain your aid. If you decide to take the semester off or drop out mid-semester, doing so might affect your financial aid standing. If you find yourself in a situation where you need or want to defer your studies, this is a situation you’ll need to discuss with your school. Try to do so before making a decision.
What situations might cause me to lose my financial aid?
Generally, with most types of financial aid, you need to stay enrolled, be in good academic standing, and maintain a certain level of credit hours. If you default, you’ll typically need to apply to regain eligibility.