Grants vs. Loans
After hunting down your transcripts, submitting an application, filling out the FAFSA, and registering for classes, it’s finally here — your Student Aid Report! Now that you know what your options are, you can start thinking about what financial aid you want to accept.
But before you accept anything, it’s important to know the difference between grants and loans. While there are many things that differentiate the two, the key difference is this:
Grants do not have to be repaid, except under certain circumstances, while loans do, and loans generally must be repaid with interest.
Okay, okay, we don’t want you to get the wrong idea about loans. When used correctly, loans can be very useful in funding your education. The key thing to remember is that once you borrow that money, you’ll have to pay it back no matter what.
If your employer is only paying for a portion of your education and you need more money to continue taking classes, this is a situation in which you might consider taking out a loan. Just remember that if you are using your education benefit, your loans may not be dispersed until later in the semester. You can talk to your Guild coach if you have questions about the timing of your loan disbursement.
Some questions to ask yourself before accepting a loan include:
- How many years will it take me to pay off this loan with my current salary?
- What compromises will I need to make in order to make monthly payments?
Another thing to keep in mind is that not all loans are created equal. Different loans have different interest rates and different repayment plans. Here are the two kinds of loans you should know about:
Direct Subsidized Loans
Who: These loans are for eligible undergraduate students who need financial help covering the cost of college.
How it Works: Your school determines the amount you can borrow, and the amount may not exceed your financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan:
- While you’re in school at least half-time
- For the first six months after you leave school (referred to as a grace period*), and
- During a period of deferment (a postponement of loan payments)
Direct Unsubsidized Loans
Who: These loans are for eligible undergraduate, graduate, and professional students — but in this case, students don’t have to have a financial need in order to be eligible.
How it Works: Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive. You’re responsible for paying the interest on a Direct Unsubsidized Loan during all periods. You’ll start accruing interest as soon as you take the loan out, and that interest will continue to grow while you’re in school. Some people find it helpful to pay off the interest each month to keep it from compounding.
Grants tend to be a little bit easier to understand than loans. As mentioned above, grants are a form of financial aid that doesn’t need to be repaid, except under certain circumstances. They are typically awarded to students with the greatest financial need.
In the past, many students have asked us why they should accept grants if their employer is paying for their entire education. Accepting grants is typically in your best interest financially and leaves more money in your employer’s budget to help other students. You can learn more in this blog post!
By accepting grant money for which you are eligible from the government, you empower your employer to help other students go back to school — which is a pretty good reason in our books.
If your employer is only paying for part of your education, grants are a fantastic way to supplement the remainder of your tuition. Here’s one of the common grants that you should know about:
Federal Pell Grant
Who: This grant is usually awarded to undergraduate students with demonstrated financial need who have not earned a bachelor’s or a professional degree.
How it Works: For the 2018-2019 award year, students receive up to $6,095 from the government (though this amount can change).
When you receive your financial aid letter from your school, be sure to read it very carefully to understand what your financial aid options are. Regardless of what types of financial aid you are granted, you need to make sure to accept the awards that you want, and decline the ones that you don’t at your university. If you skip this step, you may be automatically granted financial aid that you don’t want or miss out on an opportunity that you do want.
If you have any questions, check out studentaid.gov, or feel free to contact your education coach!
Guild Education, Inc. makes no representations or warranties about your eligibility for financial aid. Universities are solely responsible for any and all financial aid decisions. Employers are solely responsible for decisions regarding tuition benefits.