Understanding Student Loans & Financial Aid

By Tammi Ewards on August 22, 2019

There are many different types of financial aid assistance, so students who need financial aid assistance have many options to consider. Knowing the options can help students make smart financial decisions in the months leading up to college.

Student Loans

Loans come in different forms and can come from different sources. The amount of money a student can borrow and the repayment terms will depend on credit ratings, the amount of tuition charged by the school and other factors. Exploring the options before taking out a loan is important because student loans stay with the borrower for a very long time. Getting the best deal possible can lead to a better quality of life after graduation.

Federal Loans

Two of the most common types of federal loans include Direct Subsidized and Direct Unsubsidized. Subsidized loans are awarded based on financial need. The school the student is attending determines the amount that the student can borrow, and at certain times during the life of the loan, the U.S. Department of Education will pay the interest on the loan.

Unsubsidized loans are awarded regardless of financial need. Like Direct Subsidized loans, the school determines the amount that the student can borrow. Unlike with Direct Subsidized loans, the borrower is the only person who pays the interest on Unsubsidized loans.

Both types of loans have strictly controlled annual borrowing limits. In addition to Direct Subsidized and Direct Unsubsidized loans, there are a few other federal loans that students may benefit from:

  • Direct Plus: PLUS stands for “Parent Loan for Undergraduate Students.” The Direct PLUS loan is a loan to parents who wish to borrow money to pay for their child’s education. PLUS loans cannot be repaid by the student or transferred to the student at a later time; these loans are always the responsibility of the parent who borrows the money. PLUS loans require parents to have a good credit history.
  • Direct Consolidation:  Direct Consolidation is a method by which the student can consolidate eligible federal loans into one loan with one single, monthly payment. Consolidation takes the average interest, calculated by the weighted average of all the consolidated loans, then rounds that number up to the nearest .125 percent. Consolidated loans can be spread out over a 30-year period, resulting in a lower monthly payment. Consolidated loans can also lock in the rate, even if variable interest rate loans are included in the consolidation.
  • Federal Perkins: Students who have exceptional financial need may qualify for Perkins loans. These low-interest-rate loans are available to qualifying undergraduate and graduate students, provided that their school participates in the Federal Perkins Loan program. Schools that participate in the Federal Perkins program may have limited funds, so even students who qualify for a Federal Perkins loan may not be able to get this kind of loan if the funds are not available. Interest rates for the Perkins program are kept at 5%.

Private Student Loans

Federal loans have borrowing limits, and scholarships are often only partial awards. As such, private loans are often used by students to fill in the gaps. Private loans have loan terms specifically designed for students and may include deferment of payments, hardship deferments, forbearance options, and other convenient features. However, private loans may also have variable interest rates that can make it difficult to predict monthly payments.

Private loans are dependent upon the borrower’s credit, and for young borrowers who have little or no credit history, a cosigner may be needed. When an individual applies for a private loan, the lender will pull the credit information of the borrower and the cosigner. Borrowers are allowed a two-week grace period to shop around and get different loan offers, but after that time every application and instance of pulled credit will have a negative impact on the borrower and cosigner’s credit score.

Many private lenders do not cap borrowers in the same way as federal loans. As a result, students who borrow privately must be careful to establish a budget and borrow only what is necessary.

Federal Grants

Grants are financial awards that are given to students to help them pay for college. Unlike loans, grants do not have to be repaid. Grants can come from the federal government, the school or from other sources. Some grants are need-based, while others are merit-based.

Federal Supplemental Educational Opportunity Grants

Federal Supplemental Educational Opportunity Grants, known as FSEOG, are awarded to students who have the most financial need. FSEOG can award a student between $100 and $4,000 yearly, though the amount awarded depends on the availability of funds. These grants are administered by the school, but not all schools participate in this program.

Teacher Education Assistance for College and Higher Education (TEACH)

TEACH grants are administered to students who agree to teach in low-income areas following graduation. These grants can come to an amount of $4,000 each year. Students who receive TEACH grants must sign an agreement stating that they will teach in a high-needs field working for an elementary school, secondary school or educational service agency that serves students from low-income families. This work must be done four out of eight years following graduation or departure from college. Students who fail to meet this agreement will have their grants turned into a federal unsubsidized loan with interest charged.

Federal Pell

Federal Pell Grants are the largest source of federal grants administered to students. Pell Grants are based solely on financial need and are given to undergraduate students only. Pell Grants are capped but can be awarded each academic year. Qualifying students maintain eligibility for their grants only by staying enrolled in a non-foreign school and by reapplying for the Pell grant each year.

Iraq and Afghanistan Service Grants

Iraq and Afghanistan service grants are given to certain qualifying students who have had a parent or guardian die in Iraq or Afghanistan following the events of 9/11. Among other qualifications, the student must be under 24 and enrolled in school when death occurs.


Scholarships are given to students based on merit or talent. Students applying to art scholarships can win scholarship awards based on their portfolio and previous work in art. Many art scholarships are given to students on the condition that they will remain active in art throughout their time in school. Many art scholarships are given to students of a specific ethnicity or who live in a specific area of the country, have an interest in pursuing art in a professional capacity and who face specific social or academic challenges. A few national art scholarships include:

Some of the best regional scholarships for art include:


A fellowship is a form of financial support that is given to graduate students pursuing a degree in graduate studies. Fellowships are merit-based awards that are given to students who are involved in full-time study.

Visiting Fellows

Visiting art fellows are fellows who come from overseas for arts education. Visiting fellows often bring families with them when they come. Visiting fellows are invited to campuses to enrich the student life on campus and contribute to the cultural diversity at the school.

Resident Fellows

Resident fellows are students from another school who are given fellowships to come and visit at a university outside their academic enrollment. Resident art fellows usually stay for a limited period of time and come to enrich their artistic experience before returning to their normal school.

Research Fellows

A research art fellow is a visual art student who is focusing on research that will inform and enrich their artwork. Once the fellowship is over, the artist then returns to his or her normal academic program with a richer, fuller understanding of art.

Work Study

Work-study positions are given to students with financial need. The Federal Work-Study program allows students to work in positions on campus to earn money for their education. Typically, the school attempts to arrange a work-study position that relates to the area of study for the student. For example, an art student may take a position working in the office of the art school at the university, or they may accept a position maintaining the supplies in the painting department.

Understanding Your Financial Aid Options

Many students will feel overwhelmed by the sheer number of options available to them when they start to apply for financial aid, but most fall under three broad categories: federal, state and private.

Federal Financial Aid

The federal government gives out more than $150 billion in student aid each year. Federal student aid is often the first option that students explore when researching financial aid packages. It is the preferred financial aid option for a variety of reasons.

  • The federal government does not require the student to start repayments until school has ended.
  • Federal aid does not require a credit check.
  • The interest rate on federal aid is low and fixed.
  • Federal student aid does not require a cosigner.
  • Students are not penalized for prepaying.
  • Students may be eligible for some kind of loan forgiveness if they choose a career in public service.

In order to apply for federal student aid, the FAFSA must first be filled out. The FAFSA is the gateway to nearly all types of student aid, so any student hoping to receive federal student aid must fill out this form. In addition, the FAFSA may be used by state and other organizations when deciding who is awarded scholarships, fellowships and so on. As a result, the FAFSA is filled out by the majority of students, even by those who do not qualify for federal student aid.

State Financial Aid

State scholarships are often administered with the hopes that students will go into high-needs fields, and thus many state scholarships stipulate that the student must work a certain number of years in specific fields in order to get the scholarship. State scholarships are often need-based and merit-based. State-sponsored financial aid programs are given to long-time state residents who stay in-state when they go to school. This is one way that states are able to keep their talented and intelligent citizens within their borders.

Private Loans

Private loans are often the last source that students turn to for financial aid. Private loans can help students who have exceeded their federal financial aid and can also help students who need financial aid but do not qualify for federal aid. Some of the concerns of private loans include:

  • Interest rates may be variable.
  • Some private loans require the student to start making repayments while still in school.
  • Private loans can require a cosigner and credit check.
  • There can be prepayment penalties on private loans.
  • Private loans are not subsidized.
  • Private loans may not come with forbearance or deferment options.

Students who apply for private loans must understand the terms of the loan and should read the fine print carefully before agreeing to take out a loan, as this can affect the student’s future after graduation.

Financial Aid From Private College & Universities

Some private colleges in the United States provide grants to meet the demonstrated financial needs of their undergraduate students. These colleges are often very costly, so many students will graduate from these schools with debt despite the grants they are awarded. Students who get good financial aid packages from their colleges should strongly weigh the overall cost of tuition against the financial aid package provided by the college before deciding whether attendance at that school is realistic.

Applying for Financial Aid – Understanding FAFSA

Applying for financial aid is a complex process that requires a great deal of student research. Students are encouraged to get started early to ensure that they have enough time to explore all possible avenues.

FAFSA is one of the terms that students become familiar with early on in the student loan application process. The FAFSA is the first stop for borrowers who hope to receive grants, loans, scholarships and more. Understanding FAFSA and its role in the financial aid process can help students on the journey to getting the right financial aid for their needs.

What Is FAFSA?

FAFSA stands for Free Application for Federal Student Aid. This form is the default application for a variety of federal student financial aid. The FAFSA is also used for some state and private grants, scholarships and other financial awards.

Who Is Eligible for FAFSA?

In order to be eligible for FAFSA, the student must:

  • Be a US citizen or an eligible noncitizen.
  • Have a Social Security number (with a few exceptions).
  • Have a high school diploma, have completed homeschooling or have a GED certificate (with a few exceptions).
  • Be enrolled as a regular student seeking a degree or certificate in an eligible program.

Students must also maintain academic progress and not owe a refund on a federal grant or be in default of a federal student loan. Students who are convicted for certain crimes involving illegal drugs while receiving federal student aid may not be eligible. Students who are male and not currently on active duty in the U.S. Armed Forces must register with the Selective Service System.

FAFSA Forecaster

The FAFSA4Caster is an online form that students can fill out to forecast the amount of financial aid they’ll be eligible to receive based on their financial need. This can be filled out years in advance for students who are planning their college savings and trying to determine how much additional financial aid they’ll need to find in order to go to school.

Filing Your FAFSA Application

The FAFSA can be filled out online. Students who wish to do this will need an FSA ID. This enables the student to save progress online and fill out the form in multiple sessions. The student will need to gather many documents before the form can be successfully filled out. These documents include:

  • Driver’s license number
  • Social Security number
  • Tax information
  • Savings information
  • Information about untaxed income

Dependent students will also need this information from their parents. If the student has a spouse, information about the spouse will also be needed.

The Federal Student Aid Information center provides online assistance for students who have questions about the FAFSA. In addition, any student can contact the Financial Aid Office of the school where they are applying for more information about filling out these forms. Students who fill out the form must list schools that should receive their FAFSA information. These schools will use the information on the FAFSA to make financial aid determinations for the student. Students seeking more information about FAFSA can take a look at our Guide to FAFSA Application.

Student Aid Report (SAR)

The Student Aid Report is a document that gives basic information about your eligibility for federal student aid. The SAR also answers questions about a student’s financial aid. The SAR is either sent over email or standard mail and arrives within two weeks after filling out the FAFSA.

FAFSA Deadline

The online FAFSA application usually opens on October 1 of the year prior to the academic year when the student will need financial aid. The FAFSA usually closes on June 30 of the academic year when the financial aid is needed. For example, a student who is applying for financial aid for the 2017-2018 academic school year will have access to the FAFSA starting on October 1, 2016. The FAFSA for that school year will close on June 30, 2018.

Different entities may have different deadlines for receiving the FAFSA. While the Federal deadline for the FAFSA may be on June 30 at the end of the academic year, state and college deadlines are usually much sooner. Students who plan to apply for financial aid from their state or private college will need to track each deadline that applies to them. State deadlines can be found on the FAFSA website.

How to Find and Win Scholarships

The months leading up to college can be a busy time in the life of a student, so it’s important to take an organized and efficient approach to find and win scholarships. There are a variety of websites online dedicated to helping students find scholarships. In addition, many students can find out information about scholarships from their local library, their parents’ employer, their high school counselor, local businesses, organizations, churches, civic groups, and state and federal agencies.

Contacting multiple sources for information about scholarships is a good way for students to cast a wide net in their search for financial aid. Many scholarships are very specific in their requirements. When looking at websites that provide searches for scholarships, it’s better to conduct holistic searches rather than searches for scholarships that only apply to certain skills and requirements.

Many scholarship applications will require students to write convincing essays that help the student stand out among other applicants. Some students may be able to recycle old school essays and home assignments to use on their applications, but students should carefully consider the requirements of the application before doing so.

In addition, a strong art portfolio is a critical part of most art scholarship applications. Students who plan to apply for art scholarships should begin developing their portfolio months before the time arrives to submit applications. Students should plan to have a mature body of work, showing a wide range of skills. Many schools and organizations will accept color prints or slides. Photos of portfolio pieces should be taken with professional-grade photography equipment. Each photograph or slide should accurately represent the color, size, and level of detail found in the original piece. To ensure that the portfolio is strong, students are encouraged to seek guidance from their art instructor and fellow artists. Seeking constructive feedback before submitting the portfolio with scholarship applications will help ensure that the portfolio is as strong as possible.

Finally, many students will find it difficult to keep track of all of their scholarship applications unless they keep a spreadsheet or a binder of information that can help them sort their applications. Deadlines must be tracked carefully. Keeping a calendar, day planner or project planner with deadlines listed will help students stay on top of the application process.

University Scholarships

Most universities will give scholarships to students who can demonstrate academic achievement in specific subjects or who possess a specific talent or skill. If awarded, these scholarships often require the student to maintain a certain level of academic achievement and may also require the student to remain active in the sport, activity or academic subject that relates to the scholarship. To find out more about scholarships from the college or university that you plan to attend, contact the school’s financial aid department.


There are many foundations that award scholarships to students seeking financial aid, but students must search long and hard to find these foundations. Internet searches are valuable, but sometimes calling local and state foundations can yield more information. Each foundation’s scholarship application will have different requirements, and filling out these applications can be very time-consuming. Students who set aside enough time to explore their options and fill out applications with accuracy will have the most success. Before beginning each application, read the scholarship requirements thoroughly to ensure that the criteria can be met.

Community Organizations

Community organizations like art groups are also common sources of art scholarships for students. Students who aren’t sure which community organizations might have scholarships available for students can turn to their school guidance counselor for good ideas.

Other sources of information include local community portals, media websites, teachers and recent graduates. Local scholarships often yield better results than national and regional websites, because the pool of applicants tends to be smaller and the chances of winning are often greater.

Scholarship Application Tips

Following smart application strategies can yield positive results when applying to scholarships. The following tips can help students find success:

  • Choose Wisely: Small scholarships can yield big bucks! Larger scholarships are more competitive and will attract more applicants, while smaller scholarships are often overlooked by students.
  • Follow the Deadlines: Scholarships have clear deadlines. Applying on time is critical for ensuring consideration by the awarding organization.
  • Stay Organized: Keep detailed spreadsheets and information about each scholarship. Update the spreadsheet as new scholarships are discovered and as progress is made on each application.
  • Check the Details: Each scholarship will have detailed instructions. Specifics like essay word count requirements and formatting requirements are critical and should be followed. Students who fail to follow these rules risk having their application disqualified. Students are advised to read and reread all instructions before submitting an application to help ensure consideration.
  • Spend Time on Your Essay: Writing an interesting, creative and thoughtful essay is a good way for a student to distinguish his or her application from other applications.

Applying for and Paying Back Loans – Determining Your Needs

Students who budget carefully, calculate future repayment costs, borrow only what is needed and stick to their financial plan may find paying back these loans more realistic than students who borrow indiscriminately.

Determining financial need involves guesswork and research. Working with the school’s financial aid office can help students determine the average cost of a single year at college. Some of the most common expenses include:

  • Books & Supplies: Books cost far more than many students realize. In a single year, students at four-year universities typically spend about $1,300 on books alone. Sometimes students can control costs by buying used books, working out of books from the library or selling books back to the bookstore when the school year is over. Still, books with technical information often contain information that must be kept up-to-date and are often more expensive and harder to find in used form. Students should plan to spend over $1,000 in a single school year on books.
  • Cost of Living: Cost of living varies by region, city and state. Doing research before beginning the school year can help students anticipate the cost of living for a single school year.
  • Tuition, Room & Board: The price of tuition and room and board can change annually, but most schools release the costs well in advance so students can make plans and seek financial aid as necessary.
  • Student Loan Counseling: Students taking out a federal loan for the first time must undergo student loan counseling to prove that they understand the terms of their loan and their responsibility as borrowers. This counseling is required by the federal government as part of the terms of the federal loan.

Repaying Federal and Private Loans

Once repayment begins, students are obligated to make payments on time and in full. Students will have different repayment options based on the type of loan.

Federal Student Loan Repayment Options

Federal student loans have many different repayment options. Some payment options involve larger payments and a shorter repayment time, while other payment options involve smaller payments for a longer period of time. Federal student loans are designed to meet the needs of the borrower to whatever extent possible. Some of the repayment options include:

  • Standard Repayment Plan: This repayment plan involves paying the loans off over a 10-year period. The payments are fixed. When the repayment period is over, the loan should be completely paid off.
  • Graduated Repayment Plan: The graduated repayment plan requires the borrower to make low payments in the months after graduation. Payments are gradually increased as time passes. This payment plan takes longer to pay off and costs more than the standard repayment plan.
  • Income-Sensitive Repayment Plan: This plan takes up to 15 years to pay off the loan and is based on annual income.

Some other plans involve paying a percentage of discretionary income and take into account factors like debt-to-income ratio. Students who graduate can talk to the loan servicing center to determine which payment plan is right for them.

Grace Period

The grace period is a length of time that occurs after graduating, leaving school, or dropping below half-time in credit hours. The first payment is not due until the grace period is over. The purpose of the grace period is to allow the student to find a job, settle in with a new lifestyle and pick a repayment plan.

Active Military Duty

During certain periods of active military duty, borrowers can postpone payments. Payments can also be postponed during periods directly following active military duty while the borrower is preparing to return to school.

Returning Students

Many students who return to school after getting their bachelor’s degree are eligible for an in-school deferment. Students have the option of paying their student loan during this time, but they may choose to wait until leaving academia before tackling student debt.

Loan Consolidation

Loan consolidation involves condensing multiple loans into one single loan. Consolidated loans usually involve a longer repayment plan and may also involve paying more in interest, so borrowers must consider the positive and negative aspects of loan consolidation before deciding if it is right for them.

Forgiveness, Discharge, Cancellation

In some rare cases student loans can be forgiven, canceled or discharged.

  • Total and Permanent Disability: Borrowers who become totally and permanently disabled can have their debt forgiven if they fill out an application and it is approved. Documentation must be supplied by the borrower’s physician or office of Veterans Affairs to certify that the borrower has become disabled. Total and permanent disability involves a condition that has lasted for a continuous period of 60 months or more, is expected to last for a continuous period of 60 months or more, and can be expected to result in death.
  • Student Loan Bankruptcy: Student loan bankruptcy is not achieved easily, but in some cases, it can be used to erase debts. In order for this to happen, the borrower must prove that making payments prevents the borrower from maintaining a minimal standard of living, disability or health problems are preventing the borrower from making repayments for a significant portion of the repayment period, and that a genuine effort to repay the loans has been made.
  • Disability or Health Problems: Disability or health problems are preventing the borrower from making repayments for a significant portion of the repayment period.
  • Teacher Loan Forgiveness:  Teacher loan forgiveness programs will forgive up to $17,500 for teacher loans if the loans are Direct Subsidized, FFEL Subsidized or Unsubsidized Loans, and if the teacher has spent at least five years working at a qualifying school. The Teacher Loan Forgiveness program is just one of many different loan forgiveness programs that apply to teachers. Many states will forgive student loans for teachers who teach in low-income areas. In addition, Public Service Loan Forgiveness programs and Perkins Loan Cancelation for Teachers programs also cancel student loans under certain circumstances.
  • Federal student loans are canceled in the event that the borrower dies. Private loans can vary and may or may not require the borrower’s spouse to repay the loans when the borrower dies.
  • Unpaid Refund Discharge: Many federal repayment plans end after a certain period of time, regardless of whether or not the loan is finished being repaid. For example, the Pay As You Earn Repayment Plan requires payments that amount to 10 percent of the borrower’s income and forgives the loan after 20 years. Any money left on the loan when the repayment plan is finished is simply discharged.

Frequently Asked Questions (FAQ)

How Do You Know If You Need a Student Loan?

Before borrowing money to pay for school, work with your school’s financial aid office to determine the amount you can plan to spend for tuition, fees and room and board. Find out how much money this amounts to per semester and how often the bills will be due, should you decide not to take out student loans.

Next, budget with your family to determine what your living expenses will be during the months you spend at school. Food, clothes, gas and books will all cost money.

Work with your family to design a budget and decide how much money your family can afford to pay on a monthly basis. If there is a gap between the budgeted amount that your family can afford and the payments your school will require, then you should use student loans to make up the difference.

How Does the Money from a Student Loan Reach the Student?

Student loans are typically disbursed directly to the school for tuition, room and board. Some awards may be given directly to the student with the intent that the money is used to pay for school-related expenses. Students may use this money to live on while in school.

How Long Does the Grace Period Last after the Borrower Graduates?

This depends entirely upon the type of loan the borrower has taken out. The grace period for most loans will last from three months to a year.

Can Students Consolidate Their Federal Loans Privately?

Yes, private consolidation is available. Students who wish to shop around after graduation may be able to find a good consolidation deal for their existing student loans. However, this should be done with caution. Turning a federal loan into a private loan erases all federal protections. Borrowers should be careful to read the fine print before agreeing to a private loan consolidation. If in doubt, consult with a financial expert before making your decision.

Can Private Student Loans Be Forgiven or Canceled?

Private loans can be forgiven or canceled if the lender has a forgiveness or cancelation policy. Most lenders do not, but some do. To find out for sure, consult with your lender.

What Is a Deferment on a Student Loan?

Deferment is a postponement of payments during which time interest does not accrue. Borrowers are eligible for deferment under certain circumstances such as economic hardship, military service, enrollment in an academic program orunemployment.

What Is the Difference between Forbearance and Deferment of a Student Loan?

Forbearance and deferment are both periods of time when payment on a loan has been postponed. The difference between them is that interest accrues during forbearance, but not during deferment.

Does a Borrower Need to Reapply for Financial Aid Every Year?

Yes, borrowers must reapply for financial aid every year. If the borrower’s financial status changes, the financial aid award may get bigger or smaller, depending on the change.

Can a Borrower Fill out the FAFSA before Doing His or Her Taxes?

Yes, a borrower can fill out the FAFSA with estimated taxes, but once the taxes are complete, the borrower must to go back and fill out the FAFSA with accurate tax information.

Does a Student Have to Be Admitted to a University in Order to Apply for Financial Aid?

No, students can apply for financial aid as soon as the FAFSA opens for the school year when the student will need the aid. However, the student must be enrolled at a school in order to receive any aid that has been approved.