Guide to Financial Aid for Online Students

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Receiving a bachelor's degree can increase your overall net worth by $800,000. With statistics like these, it becomes clear that money you put into your education will pay off exponentially.

Education is the fastest route to a successful, reasonably paying career. Unfortunately, many prospective students are discouraged from earning a degree due to the financial sacrifices that have to be made. Today, the average cost of college exceeds $7,000 per year. That is a huge chunk of change for any one person to be responsible for paying.

What everyone should know, however, is that paying for school is not an impossible feat. Financing an education is actually something just about everyone is able to do with the right planning and foresight. Luckily, there are billions of dollars given each year in financial aid. One simply needs to find them.

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How to Apply for Financial Aid

There are many different options from which a prospective student can choose to cover his or her tuition bills. Scholarships, grants, and loans are a few of the most common ways students pay for school; however, each type of financial aid option has specific student qualifications. The following tips will help you sort through the financial aid process.

  • Start early. The financial aid process can take months. Don't expect to be able to apply for loans and scholarships last minute. You will not get the same results. Further, if you are rejected from a financial aid option, allowing yourself time to apply for another one is an excellent way to ensure you get the money you need. Most financial aid applications are accepted between January 1st and June 30th.
  • Get information from schools that you are interested in. Many schools have counselors who will help you find the financial aid options you need.
  • Talk to your local librarian. Librarians are trained to assist individuals in the process of seeking out financial aid. If you are not currently enrolled in a high school with counselors, checking out the library is an excellent alternative.
  • Fill out a FAFSA form (Free Application for Federal Financial Aid). This will provide schools with the information they need to make decisions about loans and scholarships.
  • Accurately report your total family income. Be honest. Lying will get you nowhere.
  • Make sure you photocopy the application forms you fill out so that you have a record of them for your personal files.
  • Review all application deadlines. Put them on a calendar. Getting rejected from a scholarship simply because you didn't read the fine print is a huge waste of your time.
  • Look into alternative loans and scholarships. Getting help from the school of your choice can be easy and informative, but it's always a good idea to look into other options. Check out the Perkins Loans and Stafford Loans.
  • Have somebody close to you look over your application. Make sure there are no mistakes before you turn it in.
  • Remember that the money you borrow must be repaid. Do not use it frivolously, and don't take out more than you need.

Types of Financial Aid

On any given day, there are over 15 million people in America pursuing a degree at some level of postsecondary education. Half of these students cannot pay for school on their own, and therefore, must depend on financial aid in order to earn their degree. Fortunately, there are many forms of financial aid available to students.

Many students applying to college get an acceptance letter along with a financial aid offer. This means that a college or university has figured out, according to the family's income, how much money a student will need to pay for college. Unfortunately, too many of these students sign at the bottom of the page without knowing what the offer really entails for their financial future. The loan offer may have a poor interest rate, no grace period, or very harsh penalties. Before signing any student loan agreement, do the following:

  • Read everything. Don't be an uninformed borrower.
  • Look at other options before locking yourself into a loan.

If you know financial aid is something you will need in order to achieve your educational and career goals, it's important to plan ahead and consider the pros and cons of each option available.

Financial aid can be broken up into two categories: need-based aid and non-need-based aid. Need-based aid is for those individuals who cannot afford to go to college. Those receiving non-need-based aid are usually recipients due to some sort of merit such as academics, sports, or extracurricular activities. Aid can come in many different forms. These are some of the most common forms:

  • Fellowships: Academic fellowships are available to students as a way to help fund a specific area of study or research. Although fellowships are a form of "gift aid" and do not need to be repaid, they must be used for the attainment of a certain academic goal, such as the funding of a semester-long research project. This makes fellowships a better option for upper-level undergraduate or graduate students than for younger students, who may not have yet chosen a specific career path.
  • Grants: Federally funded grants are another form of "gift aid" that usually don't have to be repaid, as long as the recipient meets a set of minimum academic requirements. Like scholarships, grants can be used to pay for anything academically related, including tuition, fees, books, or housing costs. Pell Grants, SMART grants, Academic Competitiveness grants, and Supplementary Education Opportunity grants are all available for students through the federal government; however additional state-sponsored grant programs may be available for certain students as well.
  • Loans: Federal and private student loans are generally the least popular of the financial aid options due to the fact that they must be repaid. Although interest rates and repayment rules vary depending on the lender, federally funded loans are typically the most popular for students because of their low interest rates and flexible repayment schedules. Although a number of private lenders offer education loans as well, these are usually seen as the less favorable option.
  • Scholarships: As one of the most common forms of financial aid, scholarships can be based on need or merit. Because they are known as "gift aid," scholarships don't need to be repaid, making them a very attractive option to students looking for a way to pay for their education. In addition to those scholarships that are given out by the US Department of Education and universities themselves, thousands of scholarships are given out each year by private organizations who aim to recognize students who have special skills, excel in extracurricular activities, have a financial need, or have specific career goals.
  • Work Study: Often included as part of a federal financial aid package for undergraduate students, work study is a government program that pays students to work part-time at their university during the academic school year. Students can use these funds to pay for whatever they wish, rather than just academic-related expenses, and are often given a more flexible schedule during peak periods such as midterms and finals to allow ample time to study.

What Is the FAFSA and Why Do I Need It?

FAFSA stands for Free Application for Federal Student Aid. It is used to figure out how much money a family is expected to contribute to the cost of any accredited postsecondary education. The government then uses these results to figure out what grants, work study, and loan amounts a student should be given.

The grants involved in this process are the Federal Pell Grants and the Minnesota State Grants.

  • The Federal Pell Grant is open to all students whose families' have an income that is less than $60,000. However, most are awarded to individuals with family incomes that are less than $30,000. The amount given can be anywhere from between $609 to $5,350.
  • The Minnesota State Grant is given to low-income families who are Minnesota residents. Forty-four percent of these grants are awarded to families who make less than $20,000. Seventeen percent go to families with incomes over $50,000. In order to receive this grant, the FAFSA must be turned in 30 days prior to the start of the school's first day.

All scholarships must be applied to separately from the FAFSA.

It is extremely important that students fill out the FAFSA when applying to colleges. Even if you think your family is able to pay the tuition of the college of your choice, you never know what the government will determine, and you could save thousands of dollars. Remember: Pay attention to due dates and the fine print. You do not want to miss out on an opportunity to receive extra money.

Are There Ways to Qualify for Financial Aid Without the FAFSA?

If students want to qualify for need-based financial aid in the United States, they almost certainly need to fill out a Free Assessment for Federal Student Aid (FAFSA) form. The federal government uses FAFSA to estimate how much a student's family (or him- or herself) should be expected to contribute to his or her college education. Pell Grants and subsidized Stafford and Perkins loans are awarded to students whose FAFSA shows that they are deserving enough.

Universities and colleges around the country also rely on FAFSA for information about how much students and their families can be expected to pay for college, though they may also require current and future students to fill out additional paperwork as well. Most schools offer their own financial assistance to needy students, and FAFSA helps them determine who is the most deserving of that aid.

Filling out a FAFSA may not be necessary for all types of aid, especially those types that are not based on need or family income. For students seeking scholarships or certain types of private educational loans, for example, FAFSA may be recommended but not required.

When it comes to the merit-based scholarships that many institutions commonly hand out, a student's award may be given without taking into account his or her FAFSA whatsoever. Among the other types of scholarships that do not require a FAFSA to apply are those given based on athletic ability, special interests, or success in a particular major or academic area of study. For the majority of scholarships handed out by private or non-profit organizations, a student's FAFSA is not taken into consideration.

Also, for those who plan on obtaining private loans to cover the costs of their education expenses, filling out a FAFSA may not be necessary. While the FAFSA is required to obtain federal funding, there is no such requirement for education loans handed out by banks and other private lenders. For these types of financial aid funds, students or their parents must fill out a separate set of paperwork specified by the lender.

Although a FAFSA may not be an absolute requirement for every student, it is strongly advised that those who think they may need financial aid funding go ahead with the process and fill it out. Doing so can only benefit students in the long run, since many may find out that they are eligible for financial aid funding that they didn't even realized they would qualify for.

The Ins and Outs of Student Loans

Student loans are often a necessity to cover the costs of college or university tuition. After graduation, however, many students are unprepared to cope with the sometimes convoluted nature of payback options.

Most college loans do not need to be paid back while a student is in school or even for months after graduation, but when payments are required, it is imperative that students make timely payments. From loan deferment to consolidation, below are some of the options graduating college seniors have when it comes to student loans.

Postgraduation Grace Period

Most students are not fortunate enough to say that they will be jumping straight into a job after graduation. Some will go onto graduate school, and others will wade into the working world. Whichever path is taken, students are usually not rolling in money during the immediate months after graduation. For some, it's a nearly impossible feat to start paying back student loans right after graduation. For this reason, almost all student loans offer a period of months in which repayment is postponed.

This grace period, as it is referred to by lenders, varies depending on the type of loan a student takes out. Some offer a three-month grace period, while others allow students to take up to nine months before they are expected to make regular repayment installments. Government loans, such as the Stafford and Perkins loans, allow six-month and nine-month grace periods, respectively. Some lenders do offer extensions on a grace period because of financial hardship, but these are granted on a case-by-case basis.

The grace period also differs in the way student loan interest is paid. Some lenders add the interest to the amount owed during the grace period, while other types of loans pay the interest during these months.

Student Loan Deferment

A deferment in the student loan world means that in certain, pre-approved circumstances, a student can opt to temporarily stop making payment installments to their outstanding debt. A deferment is a right all loan holders can take advantage of if the situation is approved by the lender. When a student is in deferment, he or she has the choice to make interest payments on loans, or allow the interest to build onto the principal. This is how deferment differs from forbearance, in which loan holders must pay the interest. Some loans, such as the subsidized Stafford Loan, do not accrue interest during a deferment period. In this case, the government pays the outstanding interest. Most loans, however, will accrue interest during deferment.

Not every situation deems a loan holder eligible for deferment. There are only a few circumstances, which must be proved and documented for the lender, that qualify someone for deferment. Furthermore, each type of loan has its own deferment guidelines. A circumstance in which just about every lender will allow deferment is if a person decides to go back to school on a more than half-time basis. Once accepted, and a loan holder is attending classes, the lender will put the deferment into action. Some other instances when deferment could be allowed is if a loan holder decides to join a governmental volunteer service such as AmeriCorps or the Peace Corps, or if a person can prove financial hardship or an inability to find a job.

How long can I defer my student loan payments?

The length of time students can defer their loans depends on the type of loans that they have. Subsidized loans, such as Stafford and Perkins loans, can be deferred for up to six months after graduation. These loans can also be deferred if students have part-time enrollment status at a college or university. Students can also receive deferment for up to three years due to the inability to find full-time employment or demonstrable economic hardship. These special deferments require applying to the appropriate group -- the school, lender, or agency that made the loan. Students must continue to make payments on their loans until approval for deferment is received, or they risk defaulting.

Some active duty military personnel may also qualify for deferment. Soldiers who are on active duty during a war, a military operation, or national emergency may defer their loans for a total of three years.

Unsubsidized loans, such as PLUS loans may be deferred as well, however the process differs from subsidized loans. With subsidized loans, the government pays the interest on the loan while it is being deferred. In the case of unsubsidized loans, interest accrued during the period of deferment is added to the principle amount and must be paid back after deferment has ended.

Student Loan Forbearance

Forbearance is similar to deferment, but in forbearance a loan holder is still required to pay the interest that accrues on their outstanding balance. Also, forbearance is granted by the lender; no loan holder has the right to forbearance, as in deferment. The process begins when a lender gives permission to a loan holder to postpone payment of the loan principal. There are, however, only specified reasons a lender will allow forbearance. Financial hardship, teaching in a teacher-shortage area, or an unusual life circumstance are the main reasons for forbearance.

Lenders are very particular about giving permission to forbear a loan. A person must have a good history of repayment and cannot be in loan default to be eligible. Some of the most common conditions in which forbearance is granted are if a loan holder is unable to work due to poor health or personal problems, is serving a medical or dental internship or residency, or is serving in a governmental volunteer service position. Each candidate for forbearance is considered on a case-by-case basis. Loan holders should check with their respective lenders for details on how to apply for forbearance.

Student Loan Cancelation

Student loans are just what they sound like -- something that is loaned out and must be given back. However, there are a few situations in which certain types of loans can be canceled, and thus, not paid back. The Perkins Loan, for example, might qualify for cancellation if the loan holder works as a teacher in a low-income school for five or more years. This condition is special to the Perkins Loan and does not necessarily apply to all types of loans. Some Stafford loans may also qualify for this type of cancellation.

More dire conditions that could allow for a loan cancelation are permanent disability or death. If a loan holder is deemed too disabled to work because of an accident or other unfortunate life situation, he or she may have their loan canceled. This condition is decided on a case-by-case basis. Also, in the event of a loan holder`s death, a student loan is canceled instead of being passed on to family members. Each loan works in unique ways, so it is best to check with specific lenders for details on cancelation options. Do take note, cancelation is only granted in very specific or dire situations.

Defaulting on a Student Loan

Being in default of a student loan, or any loan for that matter, is considered by lenders to be an act of irresponsibility. Loan holders who have not made payments for over 270 days are considered officially in default of their loan because it is the obligation of any loan holders to repay the money lent to them. Most student loans are generally not discharged or canceled under bankruptcy. Therefore, in the case of financial disparity, lenders will go to many lengths to collect money from loan holders in default.

Some of the consequences that default loan holders may endure include being reported to a credit collection agency and credit bureau, having part of their personal paychecks withheld for loan payments, having collection costs added to the outstanding loan, and being taken to court. Statistically, most loan holders who go into default are those who started school, but never finished their studies with a degree.

It is in your best interest, as well as your credit's best interest, to never allow yourself to enter into default. Default will follow you around for years to come and will make simple credit checks difficult and frustrating. If you feel that you may enter into default, contact your lender immediately and begin brainstorming other options. The longer you wait, the harder it will be to come to a mutually beneficial solution

Tax Benefits for Students

An educated population makes a richer nation, not only financially, but also culturally. This is why many governments are proponents of making it as easy as possible to earn a degree. One of the ways the US government eases the financial burden of its citizens is by providing tax breaks to students while they pay back their loans.

Some of these breaks are reserved only for a particular part of the population, but others apply to all students and even parents who are helping their kids through school. For instance, if you are a student, there is a chance you could get a tax break by choosing a certain type of career. The government designates certain high need career fields, such as teaching and nursing, and offers grant or loan forgiveness for individuals who choose to work in these fields. One example of this is in the teaching profession. Some teachers are able to have their Perkins government loan forgiven if they teach in certain areas of the country.

There are three standard tax incentives for higher education. They are as follows:

  • Hope and Lifetime Learning CreditThis applies to anyone who pays tuition and related expenses for you or any eligible dependent. Different rules apply in each situation, and if you receive this tax break, you cannot use the Lifetime Learning Credit.
  • Tuition DeductionThis again can benefit you, your spouse, or any dependents enrolled in an accredited institution. The tuition break can be up to $4,000.
  • Deducting Loan InterestIt is possible in certain cases to deduct the interest you pay on a student loan. Some of these cases include the following: you paid interest on a qualified student loan in 2008, your filed status is not married, your gross income is less than $70,000, and you and your spouse (if filing together) are not claimed as dependents.

Other tax breaks include special tax credits that are granted to students and parents, tax-free college savings accounts, and loan interest deductions. Make sure to check with a financial aid officer to see if you qualify for any of these breaks.

Resources for Financial Aid Assistance

There are a number of different resources available to help students pay for school. The first place any student should begin his or her search is in a financial aid counselor's office. A university's financial aid officers can offer students a wealth of information on the different ways to pay for school. Counselors, as well as many librarians, generally know the most about scholarships available to students.

For students who prefer to do the research on their own, however, a number of excellent resources exist online. When it comes to government-sponsored loans and grants, the US Department of Education is the one- stop shop for all the information students need to decode the mystery of financial aid. Another great source that is not federally assisted is This is a non-profit website set up by an expert in the field of financial aid.

Other noteworthy websites that offer a wealth of information on financial aid, scholarships, and student loan opportunities include the following:

  • FAFSA: Created by the US Dept. of Education, this site offers information about filling out the FAFSA and applying for other forms of federal aid.
  • Federal Student Aid: Whether you are just starting the college application process or looking at paying back loans after graduation, this site offers a comprehensive guide to all stages in the student aid process.
  • National Student Loan Data System: To retrieve student loan information and find out what options are currently available, check out the National Student Loan Data System.
  • This site offers a complete listing of government-sponsored scholarships, grants, and loans.
  • Sallie Mae: Students who are looking into their educational loan options can do so on Sallie Mae's informational loan website.
  • National Association of Student Financial Aid Administrators: For the most up-to-date information on legislative policy changes regarding student financial aid, check out the National Association of Student Financial Aid Administrators website.
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