There are numerous ways to help finance a college education.  Your options range from financial aid to savings accounts to 529 accounts.  Given this array of choices, how do most families pay for college?

Many lower and middle income students do not apply for financial aid because their families mistakenly think that their income is too high or they cannot afford college.  For many families, however, financial aid is the major source of money for college.  Financial aid can come from the federal government, state government, or from the University itself.

Financial aid awards may include some or all of the following:

• Grants and scholarships (which you do not have to repay).
• Loans (which you must repay).
• Work-study (which helps you pay for college out of your earnings).

Before exploring these various types of financial aid, here are some terms that colleges and universities use to quote their prices:

Tuition and fees: Tuition is the basic cost of instruction. Fees are mandatory extra charges added to those basic costs.  Some schools list tuition separately from fees. Make sure you add tuition and fees together for an accurate charge.

In addition, some schools charge different tuition and fees for different programs or courses – often more for science, business, music/art, or engineering.  Some schools, such as Temple University, also charge higher tuition and fees for the more advanced courses, generally taken in the last two years of college.

Direct costs: Colleges with dormitories and cafeterias sometimes list a “direct cost” which includes tuition, fees, room and board.  These expenses are considered “direct” because they make up the bills students pay directly to the college.

Remember that students will have other indirect costs, such as textbooks, laundry, and travel.  The College Board estimates that the average student spends about $4,000 a year on indirect costs

Cost of attendance, cost of education:  This is the total cost of a year of study including tuition, fees, room, board, books travel and standard incidental expenses, such as laundry.

Explore a college cost calculator.

To apply for financial aid, you need to complete the Free Application for Financial Aid (FAFSA).  This is the only action required to apply for most financial aid at Temple University.  There are some scholarships and non-Pennsylvania state grants that require separate applications.  Visit the Financial Aid Types section of our Student Financial Services website for more information.  Temple University encourages all students to apply for financial aid.

Major Types of Financial Aid

Need based aid

The federal government and colleges assess “need” by looking at the total cost of attendance, minus what they estimate your family can afford.  That estimate, which is referred to as your Expected Family Contribution (EFC), is determined based on the information you provide when you fill out the Free Application for Federal Student Aid (FAFSA). The information they will ask for is your family’s earnings, as well as the amount you have in savings or investment accounts.  There are calculators that can help you determine your EFC; visit the web sites of the U.S. Department of Education for assistance. Please keep in mind that no matter what the calculation of the EFC, no college is required to offer you enough grants to meet your “need.”

Grants and scholarships

Grants and scholarships are awarded to students based on financial need or merit. These awards do not have to be paid back.

Need based grants. The federal government awards Pell Grants up to $5,550 a year to students who come from lower to middle income families.  Some states, including Pennsylvania, also award need based grants to residents.

Merit based grants and scholarships.  Colleges give grants or scholarships to attract or reward students who earn good grades, win science fairs, excel in the arts or athletics, or show other kinds of “merit.”  Many of these scholarships are awarded without regard to the student’s financial situation.

Combination of need and merit-based awards.  Many colleges and universities reserve scholarships for students who have low or middle incomes and good grades.

Work study

Any student can apply for a job opening on or off campus to earn money for school. But students whom the college determines have “financial need” can apply for certain federally subsidized campus jobs.  These jobs pay standard hourly wages just like other jobs.  But they have one big advantage: their earnings do not count as income in future financial aid applications, and do not reduce the odds of getting need based financial aid the following year.

Direct Student Loans

Federal Direct Student Loans are made for the sole purpose of helping students pay for their education and related expenses. Federal student loans are considered financial aid because they offer advantages that no private loan does, such as providing loans to students who have no credit history without requiring an adult or parent to promise to repay; giving borrowers the option to make payments based on their income after graduation; and forgiving some of the loan for public service.  With Direct Loans, you borrow directly from the federal government and have a single contact, your loan servicer, for everything related to repayment.

To take out a Direct Loan, in addition to the FAFSA application, you must complete a Master Promissory Note (MPN). You complete the MPN online at the www.StudentLoans.gov website. The MPN is a legal document in which you promise to repay your loan(s) and any accrued interest and fees to the federal government. It also explains the terms and conditions of your loan(s).

The Direct Loan Program offers the following types of loans:

• Subsidized: for students with financial need as determined by federal regulations.  No interest is charged while a student is in school at least half-time, during the grace period, and during deferment periods.
• Unsubsidized: not based on financial need; interest is charged during all periods, even during the time a student is in school and during grace/deferment periods.
• PLUS: unsubsidized loans for the parents of dependent students and for graduate/professional students.  Interest is charged during all periods. PLUS loan borrowers cannot have an adverse credit history (a credit check is processed).
• Consolidation: eligible federal student loans can be combined into one Direct Consolidation Loan.

Entrance Counseling
Except for parent Direct PLUS Loan borrowers, you must complete entrance counseling before your school can make the first disbursement of your loan.  This helps you to understand your responsibilities regarding your loan.

Perkins Loans
Perkins loans are federal subsidized loans for students with demonstrated financial need, as determined by federal regulations.  With Perkins loans, the school is the lender and disburses the award as part of the financial aid package.  Since schools have a limited amount of Perkins money to lend, you may be eligible for a Perkins loan at one school, but not at another. Perkins loans charge no interest while the student is in school and a fixed 5 percent when the student enters repayment.

Private student loans

Private student loans are credit-based loans made by banks or other private lenders without government subsidy and are based on an applicant’s credit record.  These also are sometimes called signature loans or alternative loans.

There are two main types of private student loans.  School certified loans require the college financial aid office to certify that the student is enrolled and to approve of the loan and the loan amount.  Direct-to-Consumer (DTC) loans bypass the financial aid office and present the lender with a higher fraud risk.  Borrowers of DTC loans are more likely to over borrow and the credit quality is inferior to that of school-certified loans.  Private student loans cost depends on factors such as your credit rating and your college.  Most private loan rates are variable and these rates and payments will rise if other rates rise.

Characteristics of Private Student Loans

• Private student loans lack the flexible repayment options available to borrowers of federal student loans, such as income-based repayment, extended repayment and graduated repayment.  They also have inferior deferment and forbearance options.
• Private student loans mostly offer variable interest rates, presenting borrowers with the risk that their interest rates may rise.  Most variable-rate private student loans do not have a cap on the interest rate. The variable nature of the interest rates makes the monthly loan payments less predictable.

• Most private student loans do not offer death and disability discharges. However, several lenders have added these protections for borrowers.
• While private student loans do not offer loan forgiveness, Federal student loans do provide several loan forgiveness programs, such as public service loan forgiveness and teacher loan forgiveness.
• Private student loans start repayment immediately while Federal student loans have a 6 month grace period before repayment begins.