This was originally published on Monday, May 21, 2018, in the Pacific Daily News. Click here to subscribe to the PDN.
Many students enrolled in college are using some form of financial aid — from a relative or a scholarship or grant. Many different entities, including the federal government, local government, schools and private nonprofit organizations offer scholarships or grants.
Scholarships often are awarded based on one’s accomplishments, merit and need. Grants tend to be based on financial needs.
- Pell Grant. Depending on financial needs and school costs, undergraduate students may receive up to $6,095 for the 2018-2019 award year. You don’t need to pay back the Pell Grant and it can only be used to earn your first bachelor’s degree. Part-time students can utilize the Pell Grant, but they receive less than full-time students.
- Federal Supplemental Educational Opportunity Grant.This grant is given to undergraduates with exceptional financial needs, the award ranges from $100 to $4,000 per year. This campus-based aid is administered by a college’s financial aid office, but isn’t offered at all schools.
- Teacher Education Assistance for College and Higher Education Grants. This program provides grants of up to $4,000 a year to students studying to become teachers. Recipients of this grant must agree to teach certain classes, such as math, science, special education, foreign language or bilingual education, at a school that serves low-income families for a designated period of time.
Educational savings accounts
Other ways of paying for college are educational savings accounts. They differ from regular interest-earning savings accounts because they usually aren’t taxed.
- Coverdell Education Savings Accounts.Formerly called an education IRA, this account allows families to set aside $2,000 per child each year to be used tax-free for educational purposes.
- 529 plans. These allow you to choose from a selection of investment options, including mutual funds, stocks or fund portfolios, and earn interest on these investments tax-free.
- Brokerage accounts. Brokerage accounts allow you to purchase and sell investments, including stocks, bonds and mutual funds, through a brokerage firm. You can take money out for educational expenses, but you’re taxed on any investment profits.
Student loans to help meet financial gap
Sometimes scholarships, grants and savings may not cover your complete costs. Taking out a student loan may help meet the financial gap.
- Federal student loans.These loans are backed by the federal government and offer a low, fixed interest rate. Federal loans provide protection for borrowers, such as the ability to postpone or reduce payments during periods of financial hardship. A Free Application for Federal Student Aid form must be completed.
- The William D. Ford Federal Direct Loan Program. This loan is funded by U.S. Department of Education and is one of the largest federal student loan programs. Loans may be subsidized — the government pays the loan interest while you attend school — or unsubsidized, in which the loan interest is deferred while you’re enrolled in school and later added to your loan balance. There is a PLUS loan that is awarded to graduate and doctoral students, or parents of undergraduates, to pay for college costs not covered by other financial aid.
- Federal Perkins Loan Program.Not all schools participate in this loan because the school is the lender. Your payments are made to your school or their loan servicer.
- Private student loans. These are offered through banks, credit unions, financial institutions, state agencies or schools. They’re a good way to pay for educational expenses not covered by other means. The interest rates depend on the borrower’s credit score and usually come with a higher interest rate.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.