Not long ago, Congress required a school to conduct more than 50 percent of its teaching in a classroom setting in order to qualify as federal financial aid distributors. This tactic prevented so-called “diploma mills” from qualifying for federal aid, yet negatively impacted many students who were pursuing a degree through legitimate online programs. Many of these students were working adults, rural residents or military personnel who benefited from the flexibility of distance learning, but needed help paying for a college education. In February 2006, the requirement was lifted, making federal aid available to eligible students who wanted to attend an online college. Also, many institutions started offering financial aid packages to students, some in the form of loans and others via a combination of loans, scholarships and other higher educational funds.
Accreditation means that a college or university meets certain quality standards determined and vetted by an independent educational agency. Criteria for accreditation includes a clear mission statement, rigorous academics, qualified professors, sufficient technological and student resources, and much more. Agencies with the authority to vet colleges and confer accreditation must be endorsed by the U.S. Department of Education and listed on the federal register. This includes six primary regional agencies, a number of national agencies and dozens of programmatic agencies focused on a specific industry or subject area such as engineering or business. For an in-depth breakdown of the entire process, the criteria and who is involved, please read through our complete guide to college accreditation.
When it comes to online colleges, accreditation is key. Whether a not-for-profit state university offering a few online programs, or a for-profit school with a full collection of distance learning programs and courses, full accreditation means students can receive federal financial aid. It also means that credits earned from the institution will likely transfer to another accredited institution should you need to switch schools. Bottom line, when considering enrollment at an online college, first make sure it holds the proper accreditation. For a list of institutions that fit the bill, review our ranking of the top online colleges in the U.S.
While every student – online and traditional – is encouraged to seek out federal student aid, there are some basic requirements that need to be met. According to the U.S. Department of Education’s Federal Student Aid Office, students must meet the following criteria in order to be eligible for federal assistance:
Once you have met the above requirements and received your federal aid package, you will need to stay eligible throughout your college career in order to continue receiving financial assistance. This means maintaining a satisfactory grade point average and meeting all quarter or semester course load requirements (credits, hours, etc.). Each college and university has a satisfactory academic program policy for financial aid. Be sure to consult with your school’s financial aid office to find out specific details as well as how you can regain eligibility in the event that you no longer qualify.
Lastly, you will need to fill out the FAFSA® each year that you wish to receive federal financial assistance. The FAFSA® website has made this process easier by allowing students to submit a Renewal FAFSA® that will auto-complete certain information from the previous year to relevant sections for the new FAFSA®.
You might be surprised to learn that more than $185 billion in financial aid is available to college students. While the primary source is the federal government, aid also comes from the colleges themselves, state governments, and scholarships from private companies, non-profits and religious organizations. According to The College Board, each source contributes as follows to that $185 billion:
Federal Perkins Loans are fixed-rate, low-interest loans given to students with the greatest financial need. They are federally funded, but administered by your school. Approximately 1,700 institutions participate in the Perkins Loan program. Graduates have up to ten years to repay these loans, although working in certain fields (teaching, military, health care) or certain volunteer work (Peace Corps, AmeriCorps) may make you eligible to have all or part of your loans cancelled.
Federal Direct Loans (also known as Stafford Loans) also have fixed interest rates and come in two forms, subsidized and unsubsidized.
Parent PLUS Loans are federal loans that allow parents to borrow money for their child’s college education. These loans have interest rates between 6% and 7.5% and are contingent upon the borrower’s credit history. The U.S. Department of Education makes Parent PLUS Loans to eligible borrowers through schools participating in Direct Loan program. The loan amount cannot exceed the cost of attendance less any other financial aid.
Thirty-eight individual states also administer student loan programs, many with terms similar to the Federal Direct Loans. Most offer interest rates below those charged by private lenders. Programs vary in size and scope, so check with your state’s department of education for specifics. State loans are generally unsubsidized, so count on paying interest while you’re still in school.
Private lenders, such as banks, private foundations, credit unions, and schools or organizations offer student loans. They are credit – based loans, may have higher interest rates (both fixed and variable) than federal or state loans, may charge fees, and are not subsidized. Private loans also don’t offer many options to reduce or postpone payments. Consider a private loan only after you’ve maxed out your federal and state loan options.
In October 2012, The Consumer Financial Protection Bureau reported that $150 billion of the more than $1 trillion dollars Americans owe in student loan debt is for private loans. After tracking student loan complaints, it found that 87% came from just seven big lenders, with Sallie Mae generating 46% of the complaints. Clearly, it’s important to shop around. You may want to consider smaller lenders, like community banks and credit unions
When comparing private loans, look at the Annual Percentage Rate (APR). Unlike the interest rate, the APR takes into account all loan costs, such as finance charges and fees. It also considers deferment periods and repayment terms, all of which can significantly impact the loan’s cost. Review the lender’s reputation for customer service, as well as any borrower benefits, such as discounts for automated debit payments.
Many colleges award merit scholarships based on a student’s academic promise, independent of financial need. These are not scholarships you generally apply for, but are rather awarded by the schools as an incentive for students to attend that institution. The more your academic profile exceeds the school’s average profile, the more likelihood of obtaining a merit scholarship at that school. On the flip side, the more selective the school, the less merit dollars available, with zero merit dollars awarded at Ivy League institutions.
However, every Ivy League school and many top-tier institutions (including highly-rated online colleges), do generously award grants and scholarships to students with demonstrated need. At Yale, for example, accepted students whose family income is less than $65,000 are not expected to contribute anything to the cost of the student’s education. Princeton has a no-loan policy where it commits to meeting the student’s financial needs through grants, scholarships and work-study funds. This means students with financial need graduate without debt.
Some colleges also offer loans to students in addition to what’s available through the federal loan programs. If your college offers this option, make sure you compare the terms and interest rates with those of other third-party lenders (banks, credit unions) to ensure you’re getting the best deal.
Some online colleges offer their own forms of financial assistance to students. The University of Phoenix, for example, has its “Phoenix Scholarship Reward Program” in which undergraduate students who have completed 24 credit hours within 52 weeks of their program can receive reduced tuition for the following years. DeVry University also offers various scholarships and grants to its students who meet certain requirements. For the 2013-2014 academic year, DeVry is offering a total of $45 million in available funds to its students in the U.S. and Canada.
Online schools may also offer payment options to help alleviate the stress of college costs. The University of Phoenix has a cash plan program, in which students have the option to pay for their education one course at a time. There is also a Tuition Deferral Plan available for students taking advantage of their employer tuition reimbursement benefits. Under this plan, University of Phoenix students have a 60-day “grace period” to wait for employer reimbursement before making a payment.
Also referred to as “gift aid”, this type of federal aid does not need to be repaid. Grants are typically need-based, which means that the student’s family does not have sufficient financial resources to cover the cost of college. This is determined by a formula established by the federal government that analyzes a family’s income and assets to determine Expected Family Contribution (EFC), or the amount that a family is expected to put towards the cost of college. The most common types of federal grants are:
Companies, non-profit organizations, clubs, and religious entities award $7.4 billion in college scholarships. They vary widely in criteria and requirements. For example:
It takes a bit of research to find appropriate scholarship matches for your interests and talents. A good place to start is at http://www.fastweb.com.
Now that you know the basics of financial aid and how online learning fits in, it’s time to look at the application process. The Free Application for Federal Student Aid, commonly known as the FAFSA®, is a form you submit to the office of Federal Student Aid at the Department of Education. It collects information about student and family finances, which the FSA uses to determine your eligibility for any of nine federal financial aid programs, such as grants, work-study, and federal student loans, as well as more than 600 state aid programs. For many, it’s the first step toward an affordable education.
The FSA sends your FAFSA® information to the colleges and universities you select. These institutions often require students to complete another college-specific financial aid form and use the combined information to award scholarships and other monies. Together, your federal and institutional aid make up your financial aid package. Each school will award you a different package, or none, depending on your eligibility.
Whether seeking financial aid for colleges or financial aid for online schools, experts agree all undergraduate and graduate students should file a FAFSA®, even if they think they or their parents make too much money to qualify. You could be leaving loan dollars on the table, but you won’t know unless you apply. It’s free, so there’s nothing to lose and perhaps much to gain.
Within four to six weeks of filing the FAFSA®, you should receive a Student Aid Report (SAR). The SAR indicates the contribution you and/or your family are expected to make toward your education expenses that year (Expected Family Contribution or EFC.) The government assumes you and/or your family will contribute to the cost of your education. The EFC is not the amount you’re expected to pay; it is simply a number each school uses to calculate your eligibility for financial aid from that institution. Each school subtracts your EFC from its cost of attendance to calculate your need for that specific institution. Confused? Think of it this way:
Colleges award financial aid on a first-come, first-served basis. The sooner you file your FAFSA®, the more aid that will be available to you. The FSA begins accepting FAFSA® forms after January 1. You may file anytime after January 1st and before June 30, even if you need to estimate your tax information for the previous year. Each of the colleges you’re applying to may require additional financial aid forms and may have different deadlines. Know these and keep track of them on a spreadsheet.
While it’s certain not rocket science or brain surgery, knowing a bit about the FAFSA® form before diving in can help. The following lists run down the items you’ll need handy when finally putting pen to paper.
Parent information required (if you’re not a dependent):
Student information required:
Students and parents filling out the FAFSA® have three options:
Filing online comes with a handful of benefits:
Questions on the FAFSA® are organized into certain categories. Here’s a glimpse of the specific groups:
Questions 1-31: General personal information and citizenship status questions.
Questions 32-57: Financial information questions, such as income, assets, exemptions, and household size.
Questions 45-57: Questions to determine whether the student is a dependent.
Questions 101a-h: Choose the schools you want to receive your report.
When researching financial aid for online college, there’s no better place to get advice and tips than from the experts. The people who have worked in financial aid for years and help hundreds (if not more) students every year reconcile their financial needs and their desire to earn an online degree. These veterans have seen it all and share key information about aid and FAFSA®.
Robert Friedman University Director of Student Finance Yeshiva University New York, NY
Scott Seibring Director of Financial Aid Illinois Wesleyan University Bloomington, IL
Connie Brown Associate Director Student Financial Aid and Scholarships Texas Tech University Lubbock, TX
Linda Parker Financial Aid Director Union College Schenectady, NY
Bob Walker Financial Aid Director Creighton University Omaha, NE
Heather McDonnell Associate Dean of Financial Aid Sarah Lawrence College Bronxville, NY
As you navigate the world of financial aid to make college more affordable, you may find yourself having to learn a whole new language. We’ve compiled this glossary of terms to help you along the way.
Academic Year: The time during which school is in session, typically from September through May.
Accreditation: Accreditation ensures a college or school meets certain minimum quality academic standards, as defined by an accrediting body recognized by the US Department of Education. Only accredited schools can participate in federal student aid programs.
Assets: Assets, when referenced in the FAFSA®, refer to income, checking and savings accounts, stocks, bonds, trusts, material goods, and investment or vacation real estate. Do not include your primary residence or retirement accounts, such as IRAs and 401Ks, under FAFSA® assets.
Award Letter: An official notice from a school’s financial aid office that details all the aid awarded to the student. If you decide to attend that school, you must return a signed copy of the letter indicating whether you accept or decline each type of aid.
Award Year: The school year for which the financial aid is requested or awarded.
Base Year: The tax year prior to the award year for which you’re requesting financial aid.
Cost of Attendance (COA): The total cost of attending a particular school, including tuition, fees, room and board, books and supplies, transportation, loan fees, childcare, and personal expenses. COA for a specific school may differ depending on whether the student lives on- or off-campus, is married or unmarried, or from in- or out-of-state. The COA allows students to budget college expenses accurately.
CSS Profile: Some private colleges and universities use the College Scholarship Service (CSS) Profile to determine whether a student is eligible for non-federal loans.
Department of Education (DOE): The federal agency that establishes financial aid programs and processes the FAFSA® form.
Deferment: A temporary period, common in federal loan programs, when a borrower is not required to make loan payments. In the case of deferred student loans, such as Stafford and Perkins loans, the student begins loan payments at a point in time after graduation.
Custodial Parent: When parents are divorced or separated, the parent with whom the student lived the most time in the past year is considered the custodial parent and the parent who fills out the FAFSA®.
Dependent: A student is considered a dependent if he lives with his parents and depends on them for more than half of his living expenses.
Direct Loan: A federal, low-interest loan administered by the college or university.
Disbursement: The time when loan funds are released to the college and/or the student.
Expected Family Contribution (EFC): The contribution the student and/or family are expected to make toward education expenses. It’s a calculation based on the information filed in the FAFSA®. Schools use the EFC to calculate a student’s eligibility for financial aid from that institution.
FAFSA® (Free Application for Federal Student Aid): A free form you submit to the office of Federal Student Aid (FSA) at the Department of Education. It collects information about student and family finances, which the FSA uses to determine a student’s eligibility for financial aid.
Federal Pell Grant: Federal grants awarded to students with significant financial need, and which do not repayment.
Federal Student Aid Office (FSA): The entity within the Department of Education that processes the FAFSA®.
Financial Aid Offer: The total amount of aid a school offers you. Sometimes called “Financial Aid Package.”
Financial Aid Office: The office at a college or university responsible for making financial aid award decisions and communicating with and assisting students and families.
Financial Aid Package: The total amount of aid a school offers each student. Sometimes called “Financial Aid Award.”
Financial Need: The difference between a school’s cost of attendance and the family’s expected contribution. It’s how much each student needs in financial aid dollars to be able to afford a specific school.
Financial Aid: Money awarded to help a student pay for the cost of higher education. Financial aid comes in many forms, including loans, grants, scholarships, and work-study.
Financial Aid Administrator (FAA): Also called Financial Aid Officers, Financial Aid Advisors, and Financial Aid Counselors, these are the college or university employees who work with families to award and administer financial aid.
Fixed Interest Rate: A loan interest rate that remains the same throughout the life of the loan.
Gift Aid: Financial aid, such as grants and scholarships, which the student does not need to repay.
Grace Period: The time period, usually six to nine months, between a student’s graduation and when he or she must begin repaying student loans.
Grant: A type of financial aid award that does not have to be repaid.
Independent Student: A student who meets any of the following criteria:
Institutional Methodology (IM): A formula colleges use to determine how to allocate the school’s own financial aid funds (versus federal funds), based on need.
Interest Rate: The cost of borrowing money. Student loan interest rates are generally lower than standard loan rates.
Lender: The bank or lending institution from which you take out a loan.
Loan: A type of financial aid that the student must promise to repay with interest.
Merit-Based Financial Aid: Financial aid, usually scholarships, that is not calculated based on need, but rather on academic, athletic, or artistic merit.
Need Analysis: The process of determining a student’s financial need, which typically begins when the FAFSA® is filed.
Need-Based Financial Aid: Aid, such as most federal aid, that is awarded based on financial need.
Need-Blind Admissions: An admissions process used by most schools that does not consider the student’s ability to pay. The objective is to eliminate admissions decisions based on whether a student needs financial aid or not.
Net Cost: The difference between a school’s cost of attendance and the financial aid package. The net cost includes all financial aid, such as loans, versus the out-of-pocket cost, which includes only need-based aid. Families should evaluate financial aid awards using the out-of-pocket cost, not net cost, of attending that institution.
Parent Contribution (PC): Unless you’re an independent student, the federal government expects your family to contribute to the cost of your education. The PC is an estimate based on parental income, assets, and other criteria.
Out-of-Pocket Cost: The difference between a school’s cost of attendance and the need-based financial aid package. It indicates the amount the family will need to pay out of savings, income, and loans. Out-of-pocket costs can vary greatly between colleges, depending on how much need is met with grants versus loans. Families should evaluate financial aid awards using the out-of-pocket cost of attending each institution
Parent PLUS Loan: A federally guaranteed loan program that lends credit-worthy parents funds to pay for educational expenses. These loans have a fixed, 7.9% interest rate.
Pell Grant: A form of federal financial aid available mostly to undergraduate students, which does not have to be repaid. Grant amounts depend on student need, school costs, and other criteria, up to a maximum of $5,500 per academic year.
Selective Service Registration: Males ages 18 to 25 must register for the military draft in order to qualify for federal financial aid.
Scholarship: A form of financial aid that does not have to be repaid. Scholarships are often restricted to students in specific courses of study or with academic, athletic, or artistic talent. Schools, non-profit organizations and private entities award them.
Stafford Loan: A federal loan available to undergraduate and graduate students attending college at least half-time. These fixed rate loans, are the most common and one of the lowest-cost ways of paying for school.
Student Aid Report (SAR): The official summary of your FAFSA® information, indicating your eligibility for financial aid. The FSA sends the SAR via email a few days after you complete the FAFSA®, or by mail within 10 days of filing.
Student Contribution: The amount of money the federal government expects the student to contribute to the cost of education. This amount is included in the EFC and may include a portion of student savings and student work earnings.
Unmet Need: Schools can’t always provide each student with the difference between their ability to pay and the cost of attending the institution. When schools award less financial aid than the student needs, the gap is called “unmet need.”
Variable Interest Rate: A loan rate that can fluctuate during the life of the loan, but usually only up to a set amount within a certain period of time.
Work Study: A federal program that provides part-time jobs for students, allowing them to earn money to pay education expenses.
Students looking to enroll in college courses may have tuition on the mind – and rightly so. Tuition accounts for a majority of the cost associated with a post-secondary education. What students and parents may not know, however, is that some colleges and universities tend to be more generous when it comes to helping their students pay. This could mean more scholarships available, more grants bestowed, and better financial aid packages. Use the following search tool to identify some of today’s most cost-conscious online colleges.
From tuition and fees to new tech resources, paying for an online education can be challenging. For many students, covering the cost of their program is probably the toughest part of earning a degree. However, students today have numerous options to help defray these costs. The average undergraduate student received $13,000 in financial aid money in 2013, according to The College Board. With the right information and resources, you can find ways to close the gap between the cost of a college degree and what you can actually afford.
The following page explores financial aid options and offers tips, expert advice and resources for future college students and their parents. It explores sources of aid, how to qualify and the importance of accreditation. Although much of the information found in this guide applies to a campus-based education, it focuses on distance learning and how online degree programs and courses fit into the financial aid landscape.