Loans vs. Grants vs. Scholarships

Loans

Remember when you were a kid and asked your brother for some cash to buy a few new baseball cards? Sure, he gave it to you but he did so expecting you would pay him back. That’s a loan in its simplest form and when it comes time to start writing those checks to your child’s college or university, you’ll need more than those few bucks to cover the cost. The school, banks and even the government can step into that role formerly held by your sibling – its pockets are much deeper – to provide the funds you need but just like your baseball card loan, you will have to pay it back eventually…this time with interest.

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. (Important: 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 does not cover everything your child will need, you can apply for loans from private institutions, like banks. Chase’s Select Private Student Loan is one 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, which is 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 – just try doing a search for “loans for college students” and see what comes up – but they all have one thing in common. Think back to your brother and the cash loan for baseball cards. There would have been consequences if you didn’t pay him back; if you don’t pay back federal and private loans, those consequences are amplified by about 23786587236 so be 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. Stop rubbing your eyes and questioning your reading comprehension skills because you read that sentence correctly: YOU DO NOT HAVE TO REPAY THEM. Feel free to let out a sigh of relief or do a celebratory dance; we’ll be here when you’re ready to start reading again.

Welcome back! As we were saying, grants require no repayment and can be obtained from a variety of sources. On the federal side, the most popular are Pell Grants. The amount your child receives is based 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 to a wide variety of students and the competition will be fierce. Your child should contact large corporations as well as smaller organizations at the national, state and city levels and tell them exactly why they and they alone deserve the award. Check with your employer as well because 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 at least one.

Scholarships

Hooray for more free money for college: 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 but all should at least be considered.

Next, observe requirements and deadlines. Your child may be the ideal candidate but if their application arrives missing key elements or, even worse, arrives late, it doesn’t matter; someone who turned in their package complete and on-time will get the nod instead. Also, don’t discount the importance of neatness: If the scholarship committee can’t read your child’s writing or doesn’t appreciate mustard stains on their paperwork, their odds of success are significantly lowered.

Lastly, cross your fingers and wait for the winner to be announced. Calling or e-mailing the committee before this date 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 it isn’t, a letter detailing how the scholarship has impacted their educational experience should be sent when the award expires) and decide on what aspect of their education to use the award.

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