How Do School Loans & Financial Aid Work?

By Amanda Rumble
Understanding how financial aid works is a must for parents of teens headed off to college.
Understanding how financial aid works is a must for parents of teens headed off to college.

Selecting what colleges to apply to and which one to attend is a major decision for your teen to make. One factor to consider when deciding which school to attend is the financial aid package that they offer, if your teen decides to go there. It pays to understand the types of aid that are available, how they work and whether your child meets the eligibility requirements to receive the loan or loans.

Direct Subsidized Loans

Direct subsidized loans are student loans offered by the government to undergraduate students that exhibit financial need. Students are not responsible for interest on subsidized loans while enrolled in a program of study and and do not enter repayment until six months after graduation. Students are now responsible for paying the interest during a grace period on loans disbursed between July 1, 2012, and July 1, 2014. Subsidized loans are limited to undergraduate students.

Direct Unsubsidized Loans

Direct unsubsidized loans are another type of federal student loan. Students do not need to show financial need to receive an unsubsidized loan, and graduate and students are eligible to receive funds. The amount that a student is eligible to borrow is determined by the total cost of attendance and other components of your total financial aid package.

Private Loans

Private loans are another option if federal loan funds aren't enough to cover the total cost of attendance. The interest rates are higher than federal loans and the terms and conditions are typically less favorable than government loans. You might need to co-sign for your child and repayment might be required while still enrolled in school.

Scholarships and Grants

Scholarships and grants are also included in the financial aid package offered by a school. These can be awarded based on academic performance, financial eligibility, athletic skills or other criteria to qualify for each specific scholarship or grant. Encourage your child to apply for both types of aid while in high school to have the best chance of receiving an award.

Qualifying and Limits

Your child must fill out the Free Application for Federal Student Aid every year he attends school to qualify for financial assistance. The yearly and overall limits for each type of aid vary based on factors such as cost of eligibility, the length of the program your child is enrolled in and how much he has previously borrowed.

About the Author

Amanda Rumble has been writing for online publications since 2000, primarily in the fields of computing and technology. She holds a bachelor's degree from the University of Buffalo in information technology. Rumble also focuses on writing articles involving popular video games and Internet culture.