Loans vs. Grants vs. Scholarships

Loans

A loan, in its simplest definition is money that borrowed by a party and is expected to be repaid with interest. Colleges, banks and even the government have the choice to loan money to students, at their discretion and terms. So while you may be able to attend college, it comes with a cost, and then some.

The most common type of loan is the Federal Perkins Loan, which is lent by your child’s school in your child’s name in the sum of $5,500 for each year of undergraduate study. A quick disclaimer: You can’t borrow more than $27,500 as an undergrad. At 5 percent, this federally-funded loan is relatively low interest and you have up to 10 years to repay it. Payment begins nine months after your child: 1. graduates, 2. leaves school, or 3. drops below half time enrollment- this grace period may be extended if your child is on active military duty.

If the Perkins Loan does not sufficiently cover costs, you can apply for loans from private institutions, such as banks. Chase’s Select Private Student Loan is an option, which features in-school deferment repayment like the Perkins and can range from $500 up to the cost of attendance, while Sallie Mae offers the Smart Option Student Loan, designed to save money and help your child graduate with less loan debt thanks to two repayment options – the Fixed Repayment Option with in-school fixed payments of just $25 or the Interest Repayment Option that could save the lendee more than $8,000 compared to a traditional 15-year payment-deferred private student loan.

These are of course, just a few of the myriad loan programs out there – search for “loans for college students” and discover results – you will find a common denominator. There are severe consequences if loans are not paid back, so make sure you’re comfortable with all terms and conditions of a loan before signing on the dotted line.

Grants

Grants, like loans, can come from both federal funds and private institutions but, unlike loans, you do not have to repay them. Just for clarification, again: You do not need to pay back grants.

Grants can be acquired from a variety of sources. On the federal side, the most popular are Pell Grants. Award amount depends on the level of unmet need and can only be determined after you have completed the FAFSA. The Pell is offered exclusively undergraduate students from low-income families who have not earned a bachelor’s or professional degree and the maximum award can vary from year to year depending on program funding. (The maximum Pell Grant for the 2011-2012 award year is $5,550.) Another option is the Federal Supplemental Educational Opportunity Grant (FSEOG), which is awarded to undergraduates with the greatest amount of unmet financial need who also qualify for the Pell. The amount awarded ranges from $100 and $4,000 depending on the college and the Expected Family Contribution (EFC).

On the private side, grants are available for just about any student in any situation . There are merit-based grants, need-based grants and student-specific grants, the latter of which includes grants specifically for women, minorities and students with disabilities. Since they do not require repayment, grants are attractive students and the competition is fierce. Your child should contact large corporations as well as smaller organizations at the national, state and city levels and let them know why they deserve the award. Check with your employer as well, as many companies offer financial assistance to their employees’ children. Our advice: Apply early, apply often and apply to as many as possible to increase your odds of winning.

Scholarships

Just like their cousin the grant, scholarships do not require repayment and are awarded for almost anything. Seeing as though scholarships are what we know best (note our name), you’ll find plenty of advice on this subject all over our site but here are the most important things to consider.

First, strategize. Start by doing a scholarship search; by factoring in your child’s grade point average, test scores, special skills and interests, our search tool will generate a list of scholarships your child can realistically win. Some are easy while some require more time and effort.

Next, observe requirements and deadlines. Your child may be the ideal candidate but if their application arrives missing key elements or worse, late, someone who was more thorough may gain admission. Don’t underestimate the power of neatness: If the scholarship committee can’t read your child’s writing or has messy materials, their chances are significantly reduced.

The final thing you can do is wait. Calling or e-mailing the committee won’t help – a parent with poor etiquette may actually harm their child’s chances of winning – but by all means have your child use this time to apply for other scholarships. If your child is lucky enough to win, encourage them to send the committee a handwritten note expressing their gratitude. If the award is renewable, have them do the same each year- if not, send a letter detailing how the scholarship has impacted their educational experience, when the award expires, and decide where the award should be invested.

Last Edited: July 2015

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