Financial aid

Financial aid refers to funding intended to help students pay tuition or other costs, such as room and board, for education at a college, university, or private school. General governmental funding for public education is not called financial aid, which refers to awards to specific individual students. A scholarship is sometimes used as a synonym for a financial aid award.

Types of financial aid

Financial aid may be classified into two types based on the criteria through which the financial aid is awarded: merit-based or need-based.

Merit-based

Merit-based scholarships include both scholarships awarded by the individual college or university and merit scholarships awarded by outside organizations. Merit-scholarships are typically awarded for outstanding academic achievements, although some merit scholarships can also be awarded for special talents, leadership potential and other personal characteristics. Merit scholarships are sometimes awarded without regard for the financial need of the applicant. At many colleges, every admitted student is automatically considered for merit scholarships. At other schools, however, a separate application process is required.

Athletic scholarships are a form of merit aid that take athletic talent into account.

Need-based

Need-based financial aid is awarded on the basis of the financial need of the student.

To receive federal need-based financial aid in the United States, the student must file a FAFSA application. The FAFSA uses a calculation taking into account income and assets to determine a student's "Expected Family Contribution (EFC)" toward his or her college education for that year. Colleges use the EFC to decide what types of financial aid a student is eligible to receive. Students must complete the FAFSA each year in order to be considered for financial aid.

In the United States

The United States government provides need-based financial aid in the form of Federal Pell grants, Federal SEOG Grants, SSIG Grants, Federal Work-Study, Federal Stafford loans (in a subsidized and unsubsidized form), Federal Perkins Loans, and Federal Parent (PLUS) loans. Federal Perkins Loans are made by participating schools per annual appropriations from the US Department of Education, whereas Federal Stafford Loans and Federal PLUS Loans are made by participating lenders under the Federal Family Education Loan Program (FFELP). The US Department of Education serves as a lender and guarantor under the William D. Ford Direct Loan Program. Schools with graduate and/or professional programs may act as a lender under the FFELP (if they met all criteria for the program and made their first loan by 4/1/2006). In order to qualify for federal student aid (except for Federal PLUS Loans), a student must file the Free Application for Federal Student Aid (FAFSA).

State governments also typically provide some types of need- and non-need based aid, consisting of grants, loans, work-study programs, tuition waivers and scholarships. Individual colleges and universities may provide grants and need- and merit-based scholarships. Students requiring financial aid beyond what is offered by their institution may consider a private (alternative) educational loan, available from most large lending institutions. Typically, educational loans obtained through the federal government have lower interest rates than private educational loans.

Institutions may also offer their own student financial assistance, in the form of need-based or merit-based aid, as well as endowed scholarships (with varying need and/or merit-based criteria). Some schools may only require the FAFSA; some may also require an additional need-based analysis document, such as the CSS Profile, to apply for such funds, in order to apply a more stringent need analysis for the rationalization of institutional funds.

Outside the United States

Many national governments provide student financial assistance subsidies for students attending university, although proposed policies to change such subsidies have engendered considerable debate in several countries, such as Canada, Great Britain, Germany, and Scandinavian countries. The heavy reliance on private subsidies, as in the United States, is not as widespread, although this may be changing.

External links

http://studentaid.ed.gov -- The Student Portal web-site of the United States Department of Education

Congressional Research Service (CRS) Reports regarding student financial aid

http://www.fafsa.ed.gov -- The online Free Application for Federal Student Aid

http://www.nasfaa.org - The web-site for the National Association of Student Financial Aid Administrators

http://www.finaid.org -- An often-quoted and thorough source of information and advice about the financial aid process. But be aware that this seemingly unbiased "dot-org" site is owned by monster.com, a commercial entity; and is exclusively sponsored by Citibank, a student lender.