Headed For College: Financial Aid

College is expensive. Many people cannot afford to pay the costs of college all at once and need help. Fortunately there is financial aid. The best sources of financial aid are scholarships and other grants that you do not have to pay back. But loans are also a good option, especially with the low interest programs available.

Scholarships and merit-based aid
The diversity and number of different scholarships, grants and other programs available is staggering. If your high school grades are very high and you did well on your college entrance exams, your chance of snagging some merit-based assistance is high. But even if you don't have the best grades and highest test scores, do some research and you may find some surprisingly obscure requirements for scholarships. There is aid available for certain surnames, cities of birth and various other demographic information. There is even a scholarship funded by David Letterman that is restricted to those with a C average in high school!

Student loans and need-based aid
There are many programs that provide financial assistance to those who would not otherwise be able to afford college. Federal need-based programs use a standard equation to determine what a family can be expected to contribute towards a child's education. Unfortunately, your family is not required to actually make this contribution.

This equation takes into account all the family's assets, including income and investments, and subtracts expenses that the family has no control over, including taxes, basic needs and employment expenses. There is also an allowance for retirement savings. The rest of the assets are considered discretionary resources. This is the amount on which your financial need is based.

There also are institutions other than the federal government that offer financial assistance. These institutions have their own formulas for determining need, which may differ widely from the federal standards.

Be sure you know what type of program is providing your college money. Grant programs provide money that you do not have to pay back. Loan programs provide loans that you will have to pay back in full — with interest — once you graduate or leave school. So if you don't need the money, don't take it.