Grants vs Loans: What to Know About Financial Aid
If you’re like the majority of Americans, you’re probably looking for financial aid to help pay for college. There are different forms of financial aid available, but it’s important to know which options are better than the others.
The term itself, “financial aid,” is vague. It can mean any number of different things: grants, loans, scholarships, work studies – the list can go on and on. But if you’re applying to college now, or are interested in going back to continue your education, it’s important to know which is your best option. If you’re not careful, the financial decisions you’re making now can affect you for the next thirty years.
For this article, we’ll be focusing on the two most common (and important) forms of financial aid available: student loans and grants. Financial aid is given or loaned to you to help pay for the cost of tuition, fees or living expenses. It is largely composed of student loans and grants. In fact, student loans make up the majority of undergraduate student aid (around 30%). Grants, on the other hand, compose up to 60%.
So what’s the difference?
Grants
This is money given to students – for free. Frequently referred to as “gift aid,” this funding is given to students by both the federal and state government, as well as educational institutions. There are different requirements for various forms of grants – and sometimes include a repayment of some kind – but they are commonly given out based on need. Next to scholarships, this is the best source of financial assistance you can receive. The main downside with grants is that they are a limited resource – typically, they are given on a short-term basis so they do run out and you’ll have to keep applying to receive this form of aid.
Pro-tip: Even though the majority of grants are given on financial need, don’t think that you are automatically disqualified. Apply and you might be surprised to find out how much you could receive.
Loans
Money given to students with an expectation of repayment. Are loans a good source of financial aid? Yes – but in moderation. Sign off for too much and you could find yourself in the same position as many in the student debt crisis. The aid you receive must be paid back to the lender, but the interest rate could sometimes be lower than other forms of loans. When you receive this type of aid, you aren’t really “busting” your tuition price – rather, you’re spreading the cost of your degree over several years (or decades) of your life. This can negatively impact you when you look to buy a house, open a credit card or even be hired for some jobs. Remember: debt weighs you down.
Pro-tip: Loans are a helpful source of financial aid if you are unable to find other sources of funding. But be judicious and don’t take on more than you really need! You will have to pay it all back (plus interest)!
Applying for Grants
To apply for a federal grant, you will need to fill out the Free Application for Federal Student Aid – or FAFSA. The FAFSA is run by the federal government and is free to apply. This tool is one of the fastest ways to view your eligibility for financial aid. Grant funding is available from other sources, including private organizations and non-profits. Researching local initiatives in your community is a great way to find further funding options. Ultimately, there are hundreds of different sources to find grants for school; all they’re waiting for is your application.
Financial aid includes a number of different sources to help you cover the cost of your education; but some sources are better than others. Grant money is largely money that you don’t have to pay back – make sure to exhaust all available options before turning toward student loans. While it might be easier and quicker to sign a promissory note to take on debt, it will literally cost you in the long run.
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