Student Financial Aid From Federal Government

The federal government is the largest source of financial aid, providing nearly 70 percent of the aid dollars awarded each year. There are three major federal financial aid programs: the Pell Grant program, campus-based financial aid programs, and the Stafford Loan Program.

Pell Grants

Pell Grants go only to the neediest students, those students who come from low-income families and disadvantaged backgrounds. Pell Grants are awarded usually only to undergraduate students who have not earned a bachelor's or a professional degree. The Pell Grant program is an entitlement program. Those students who qualify automatically receive a Pell Grant, as long as they apply for financial aid before the final deadline.

The maximum Pell Grant award for the 2007-08 award year (July 1, 2007 to June 30, 2008) is $4,310. The maximum can change each award year and depends on program funding. The amount you get, though, will depend not only on your financial need, but also on your costs to attend school, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less.

Campus-based Financial Aid Programs

The colleges and universities administer the campus-based financial aid programs. These awards come in the form of a grant called the Federal Supplemental Educational Opportunity Grant (FSEOG), a work-study program called Federal Work Study, and a very low-interest loan called the Federal Perkins Loan.

The federal government gives each school a certain amount of money that it can award under the campus-based programs and the school doles out the money to students there according to its own policies and formulas. Like the Pell Grant, awards from campus-based programs typically go to the neediest students.

Stafford Loan Program

The federal aid program that most students benefit from is the Stafford Loan program, which provides low-interest student loans. The main federal loan for students is called the Stafford Loan and has two variations:

• Federal Family Education Loan Program (FFELP) loans are provided by private lenders, such as banks, credit unions and savings & loan associations. Citibank Student Loans is one example of a private lender offering FFELP loans. These loans are guaranteed against default by the federal government.
• Federal Direct Student Loan Program (FDSLP) loans, administered by "Direct Lending Schools", are provided by the US government directly to students and their parents.

All Stafford Loans are either subsidized (the government pays the interest while you're in school) or unsubsidized (you pay all the interest, although you can have the payments deferred until after graduation). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need.

With the unsubsidized Stafford loan, you can defer the payments until after graduation by capitalizing the interest. This adds the interest payments to the loan balance, increasing the size and cost of the loan. All students, regardless of need, are eligible for the unsubsidized Stafford Loan.

Your parents can also borrow under the Stafford Loan program. Stafford loans that go to parents are called PLUS loans. PLUS loans are also low interest, although they cost a bit more than the Stafford Loans that go directly to students. Unlike student loans, though, they do not have any borrowing limits, and they can used to make up both the family contribution and any financial need remaining after the college determines your financial aid award.

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