4 Things Your Students Don’t Understand About Financial Aid

February 13, 2015 heatherdunn

Students are smart. But combine inexperience with financial aid jargon, and all the stress of transitioning to college — that’s quite a plateful for a young adult.

To an industry veteran, the basics of financial aid probably seem, well, basic. For some students, it may as well be a foreign language. Additionally, most students don’t know anything about the aid process before they start. Many of their parents don’t either. According to a U.S. Department of Education study, 50% of current higher education students are first generation.

The lack of understanding in financial aid can lead to over-borrowing and even loan default down the road. As a financial aid officer, you can help students make better financial decisions by viewing the financial aid process through a new student’s perspective, and advising from there.

1. Direct Versus Indirect Costs

One of the most confusing aspects of the borrowing process is the breakdown of direct and indirect costs on the award letter. Direct costs include tuition, board and student fees. Indirect costs include transportation, laundry, food and more. Unlike direct costs, which don’t vary much, indirect costs range quite a bit depending on the student’s spending habits, location and so on. Students may not understand that even if they have been awarded money to cover their indirect expenses, they can still outspend it if they aren’t careful. SallieMae offers some tips on reducing college costs that you may wish to pass on.

2. How Subsidized Loans Work

Many students are also confused by the difference between subsidized and unsubsidized loans. Explain to students that while subsidized loans are eligible for interest deferment while they are in school at least half time or during a grace period (meaning the government pays the interest instead of the student), unsubsidized loans are not. This means that unsubsidized loans will begin accruing interest as soon as the disbursement is issued, often Freshman year.

3. The Verification Process

Students may be surprised to get to the end of a long and grueling FAFSA application process, only to be selected for verification, which asks them to answer many of these same questions again. The verification process is the federal government’s audit process, ensuring that students (or parents) are answering questions correctly. Luckily, self-service portals such as StudentVerification help students complete this step quickly and painlessly.

4. Accepting Financial Aid

Many kids also don’t understand that they don’t need to accept all financial aid they’re offered. They may wish only to accept subsidized loans, for instance, and work to make up the rest. Or they may need to take out private loans in addition to federal loans, but may not wish to accept all of what they’re offered by a private institution. Point them toward resources that can answer their questions and help them accept the minimum amount they need.

Explaining student loans to kids who may not have been educated about them before now is difficult, but not impossible. Clear up some of the main mysteries, and you will help students make better decisions in school and life.


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