Perkins, Stafford (and other student loans) must be repaid. Grants and scholarships generally do not need to be repaid. Earnings from the Federal Work Study program are not repaid since they are wages for work performed. All forms of financial aid may have conditions such as maintaining a minimum grade point average and credit hours per term while in college.
Needs-based scholarships are based on financial need, usually calculated as family income below a certain level, the amount of which may vary by scholarship.
Merit-based scholarships are based on merit, usually by setting minimum levels for high school grade point average or SAT/ACT scores, being a National Merit Scholar Finalist, etc.
Special interest scholarships may be directed to specific categories of students such as children of disabled veterans, students who will be the first in their families to attend postsecondary education, children of alumni of certain colleges or universities and so on. These scholarships may also include needs-based or merit-based criteria as a condition for the award.
How can this be? The longer it takes to repay the loan and the lower the monthly payment amount, the more interest accumulates. The federal government has two repayment periods and two types of repayment plans with monthly payments.
Standard loans have a ten year repayment period.
Extended loans have a 25 year repayment period.
Fixed rate payments are the same amount every month.
Graduated rate payments start at a lower monthly amount than fixed-rate payments and increase every two years.Therefore, for a $40,000 student loan:
Student loans are serious financial commitments, just like mortgage and automobile loans. If borrowers stop making payments during their repayment periods (that is, they "default" on the loans), the holders of the loan can send negative reports on the borrowers to the three national credit bureaus that calculate credit ratings, causing the ratings to drop. Loan holders can also charge late fees and collection costs, get a court order to take money out of the borrowers’ paychecks (known as "garnishing") and sue the borrowers. Federal and state governments can also terminate students’ eligibility for additional student aid as well as take the money from federal and state tax refund checks.
Maintaining a good credit rating is important. Reviewing credit ratings is part of the application process for a number of goods and services including loans, credit cards, bank accounts, mortgages, apartment leases and purchases such as automobiles, furniture, farm equipment and contractor services. Some employers also require a credit check, especially for positions of trust such as police officers, bank employees and store employees who handle expensive merchandise and large amounts of money.
Information on student financial aid may look scary at first, but the more students and families learn about it, the easier it gets. Web addresses for all of the Web sites listed in this question are provided in the Resource section below.
The Florida Virtual Campus is the place to start preparing for and researching colleges, financial aid and college life.
Key points for students and families who want to be sure they successfully secure financial aid include: