Few of the 5 million students taking distance-learning courses today get a break on tuition costs. Tuition costs for online degrees, certificates and classes can be as steep as their brick-and-mortar counterparts. You will probably need financial aid — the average total aid to students today tops $15,000 per year — to handle the costs of an online college education.
Learn how to navigate the financial aid process to maximize your total grants and if necessary, student loans. This guide explores your financial aid options. It includes an overview of the application process, with information about student loan programs and scholarships. You’ll gain insight from experts who track the pulse of financial aid, as well as receive pointers to organizations that provide loan assistance and counseling.
First things first: If you think you’ll need financial aid, your choice in online institutions is critical. Look for an institution with a Federal School Code, which you can search for through the Department of Education’s Federal Student Aid Office. A school without one throws up a sizable roadblock, because it means the institution is unaccredited and cannot disburse federal student aid. You cannot receive federal financial aid from an unaccredited school. You can’t transfer credits earned through the institution, and upon graduation you may find yourself shut out from sitting for licensing exams. Potential employers may even refuse to recognize your degree.
Search Online Colleges with Financial Aid
Tuition is a moving target, and one that continually climbs upward. Savvy school-shopping means understanding that some institutions are more generous about dipping into their financial aid pockets. Look for schools that offer more scholarships, larger grants and better overall financial aid packages. This search tool helps you pinpoint some of the most cost-conscious online colleges.
Federal Student Loan Types at a Glance
Are you eligible for federal financial aid? Here’s what you need to establish basic eligibility with the Federal Student Aid Office:
- Social Security number
- High school diploma, GED certificate or recognized equivalent
- U.S. citizen or eligible non-citizen (e.g., green card holder or T-Visa holder)
- Registration with Selective Service (if male aged 18-25)
- Enrollment in or acceptance to an eligible degree or certificate program as a regular student (or at least half-time enrollment for Direct Loan Program)
After you establish initial eligibility, which includes fully completing and submitting your Free Application for Federal Student Aid (FAFSA), and receive financial aid, you’ll need to continue satisfying other eligibility requirements throughout your college enrollment. Take these steps to continue receiving aid for each academic year:
- Renew, renew, renew. Keep track of the calendar and fill out the FAFSA every subsequent year you wish to continue receiving aid. Meet this requirement by submitting a Renewal FAFSA directly through the FAFSA website. The website’s renewal process takes your previous year’s information and pre-fills it into the new application.
- Maintain satisfactory academic progress (SAP). For financial aid purposes, your educational institution requires you to meet its SAP policy. SAP includes maintaining a defined grade point average and completing specific course load requirements defined by credits and hours per quarter or semester. Make sure you check with your institution’s financial aid office to ensure your studies fall in line. If you fall out of favor and no longer qualify for aid, look to your school’s SAP requirements for regaining eligibility.
- Stay on the right side of the law. Be a model student in your “off campus” activity. A drug offense conviction can prove fatal to your financial aid eligibility.
|What’s the loan type?||Direct Stafford Subsidized||Direct Stafford Unsubsidized||Direct PLUS|
|What kind of student must you be?||
|Who’s the loan borrower?||Student||Student||
|Who’s the lender?||Student’s school||U.S. Department of Education||U.S. Department of Education|
|What’s the maximum loan amount?||Cost of Attendance, not taking into account amounts received from other financial aid assistanceMaximum
|Cost of Attendance less amounts received from other financial aid assistanceUndergrad maximum amounts are based on student level and dependency status:
$5,500-$12,500/year $31,00-$57,500 cumulativeGraduate or professional student maximum:
||Cost of Attendance less amounts received from other financial aid assistance|
|What interest rate do you pay?||4.29%||4.29% – undergrad
5.84% – graduate or professional
(rates reset on July 1, 2016 and may change)
|6.84% (rate resets on July 1, 2016 and may change)|
|When does your lender start charging you interest?||6 months after leaving school [DOE pays all interest before this point]||As soon as it disburses the loan to you||
|When do you start repaying the loan?||6 months after leaving school||6 months after leaving school||
Private Student Loans Fill a Gap — For a Price
Many students turn to private loans to finance their educations. A 2012 Consumer Financial Protection Bureau report shows more than $150 billion in outstanding private loans. But private lenders such as banks, credit unions, schools and other organizations offer fewer borrower protections compared with federal student loans. The same CFPB report shows that total defaults in 2012 equaled more than $8 billion and included more than 850,000 loans. Generally, private loans are less flexible and less favorable, so take a long look before seeking them out.
Private lenders look at your credit to determine loan approvals and amounts. They charge much higher interest rates and fees. Private loans are not subsidized, so you are solely responsible for paying the interest on the loan. You’ll find little leeway with repayment provisions, postponement of repayment schedules and reductions or forgiveness of repayment amounts.
Consider these shopping tips:
- Focus on APRs. Make side-by-side comparisons of schools’ Annual Percentage Rates (APR). Unlike the loan’s interest rate, the APR incorporates all loan costs, taking into account finance charges and fees as well as deferment periods and repayment terms.
- Conduct background checks. Another vital step includes background checks on potential lenders. Look into lenders’ reputation and customer-service records.
- Ask about borrower benefits. Don’t forget to inquire into cost-saving benefits. Some lenders offer loan discounts if you set up automated debit payments.
Why You Should Avoid Private Student Loans: Q&A with Gregg Cohen
Gregg Cohen, president of Campus Bound, specializes in assisting families with reducing college costs. For more than 15 years, he has counseled families on all aspects of the college preparatory process, from identifying suitable colleges to navigating the financial aid process. Here he discusses the must-knows of financial aid:
What are the most popular loan options?
The federal government loans that are part of a financial aid package are the most popular loans. They are commonly known as the Federal Stafford loans and come in a version that are Subsidized and Unsubsidized.
What are loan grace periods? Can graduates save money by paying interest costs during this period?
The loan grace period is the time after you leave school but before payments are due. They are typically six months after completing college, which doesn’t necessarily mean after you graduate. If you take a six-month hiatus, you will have to start payment. For any loans accruing interest, it is wise to pay the interest down during college or the grace period. There is no prepayment penalty on student loans and paying the principal and interest aggressively can help save money.
How do students estimate the amount they need to borrow to avoid accruing crippling debt?
Students should look into the full cost of college for each year and then subtract the amount of grants or scholarships that they receive. If they or their parents are unable to pay the remainder, they may have to borrow that amount.
What advice would you give a student considering federal and private loans?
Students should max out the federal loans before taking private loans, as federal loans come with better terms. The federal loan programs have limits on how much you can borrow, so if you need more than what is available then shop carefully for private loans as lenders will have different terms. Having a co-signer will also likely help with lowering your interest rate on private loans.
Are there mistakes students commonly make when applying for financial aid?
The most common mistake is that students wait to apply for financial aid after they are admitted or after their taxes are done. Students should review the deadlines very carefully for the particular colleges they are applying to. They also need to re-apply for aid every year.
How early should you start planning if you know you will need financial aid?
Start planning as early as your high-school freshman year. The government recently announced that it will be reviewing income for the financial aid process two years prior to starting college. It is also really important for students to consider the cost when they are deciding their educational path. They should research if they will receive grants or scholarships. With these kinds of tuition discounts, there are many instances an expensive school can become more reasonable.
Under what circumstances would you advise a student who has been denied financial aid to appeal?
If the family has had any kind of unusual expenses such as out-of-pocket medical expenses or caring for a family member. If there have been recent or upcoming reductions in income, it would be worthwhile to alert the college. It never hurts to ask.
Online College Students By The Numbers
Percentage of first-time, full-time degree/certificate-seeking undergraduate students at 4-year degree-granting institutions receiving any financial aid
Percentage of students enrolled exclusively in online education courses
Percentage of student enrolled in some but not all distance education courses
- 3 out of 5
First-time, full-time students who finish their bachelor’s degree
- 52 months
Median time it took all 2008 bachelor’s degree recipients to earn their degree
Source: National Center for Education Statistics
School-Sponsored Aid: Scholarships to Attract Students In Need
Students who excel in high school may find another financial-aid door open to them: merit-based scholarships. Schools award these scholarships to entice star students to their front doors. Neither need-based nor application-based, merit scholarship amounts vary depending on the college or university.
You’ll find more selective schools have less merit-based amounts available, with the most selective — Ivy League schools — awarding no merit-based scholarships. At other schools, where your academic achievements may shine brighter than the average student’s profile, the chances of snagging a merit scholarship are greater.
Top-tier institutions may not award merit-based scholarships or grants, but they are generous when it comes to need-based awards. If you demonstrate need, these schools may give you a free ride, or close to it, through their hallowed halls. With bulging pocketbooks, they have flexibility to bestow large amounts. Harvard, for example, provided $166 million in need-based amounts to undergraduate students in 2011. At Harvard, Stanford and Yale, students whose family income falls under $65,000 are expected to contribute zero dollars.
Your academic excellence may not meet Ivy-League standards, but that doesn’t mean your options have run out. Some online schools assist students with programs specifically designed to feasibly handle educational costs. For example, the University of Phoenix gives students the option to pay for one course at a time. It also allows employer tuition reimbursement benefits. Through its tuition deferral plan, the school gives students a grace period of 60 days, which allows them time to receive reimbursement from employers before making a payment.
Grants: A Federal Gift to Attend College
A grant from the federal government may provide the financial aid you need. The best advantage of a grant is that you are not required to repay because it is a gift. You qualify based on need, which means you must show your family does not have the resources to cover your educational costs. This need-based determination hinges on your Expected Family Contribution (EFC), the formulaic dollar amount created by the government that measures your family’s income and assets. Here are the most commonly known grants:
|Type of Grant||Student Type||Description||Grant Amount*|
|Pell Grant||Undergraduate, in some cases post-baccalaureate||Award considers financial need, cost of attendance and enrollment status||$5,775 is maximum award for the 2015-16 year|
|FSEOG: Federal Supplemental Educational Opportunity Grants||Undergraduate who has not earned a bachelor’s or graduate degree||
|TEACH: Teacher Education Assistance for College and Higher Education Grant||Undergraduate, post-baccalaureate or graduate student pursuing a teacher career in a high-need field in a low-income area||
|Iran and Afghanistan Service Grant||Students whose deceased parent or guardian:
*Grant amounts have been affected by the federal government’s sequestration, automatic budget cuts resulting from the U.S. Congress’ failure to agree on a plan to reduce the nation’s deficit.
Don’t Leave Grant Money on the Table: Q&A with Jamie Dickenson
Jamie Dickenson is a certified educational planner based in Charleston, West Virginia, and author of “Too Smart for the Ivy League.” Dickenson has given more than 150 financial-aid and college-planning presentations to corporations, schools, colleges and other associations. She holds a Bachelors of Business Administration and Masters in Business Administration from Marshall University.
What changes have you seen in the financial aid system?
Major changes have occurred in the last three or four years. It’s gotten easier to apply for financial aid, although people don’t believe that. You can now use the IRS data retrieval tool to help fill in your FAFSA — which was something that Obama put in the first year he was in office. People can download their income [information directly] into the application. That’s probably the biggest change other than the federal government taking back student loans.
Is there anything in the financial aid process that trips up students?
The FAFSA form is tricky, and only the federal government would come up with something so crazy. For the class of 2016, the first day they can apply is January 1. If you look at the FAFSA website, you’ll see that you have to use your income for 2015 in the application. This requirement really messes up a lot of people because they wait until they get their income tax returns finished before they fill out their FAFSA. But if they do that, they miss all the financial aid deadlines. When I help families with the form, I use the prior year’s income  estimate as the [base year]. Come October 1, , however, the federal government has changed the [income-year] requirement [so that families include income information from] the prior-prior year, which will make it easier. This change applies to the class of 2017 [going forward].
Do online students applying for financial aid need to treat the process any differently?
Financial aid is no different for online distance learners. They fill out the same form. If there’s any confusion it lies in the distinction between public schools and private schools. I have a lot of people who don’t know whether they pay the in-state or out-of-state tuition if they enroll in an online program for the University of Maryland, for example. That’s what I would watch: whether different tuition prices apply depending on your residency.
Are there any cost advantages to online learning?
I tell people to be very cognizant, just as they would in considering brick-and-mortar schools. Do your research and know what you’re getting into before signing on the dotted line. Some online programs are very affordable. One of my students wanted to do a Master’s in biochemistry and found a great online program through a school in Connecticut that only cost $25,000.
How should parents get students involved in the financial aid process?
I’ve been in the business for 17 years and have found that parents can take about sex with their children much easier than they can talk about money. I always tell parents that teenagers understand money whether they have the conversation or not. Dad says, “Little Susie can go to any university she wants.” But when she gets in, he comes and tells me he can’t tell her she can’t go even though they can’t afford it. The best thing parents can do is tell their kids to make good grades. The majority of money given out is merit based and nothing to do with income and assets.
How useful are grants?
There are Federal Supplemental Educational Opportunity Grants (FSEOGs) and state grants. Colleges will also give grants if you demonstrate need. Vanderbilt University, for example, provides 100 percent aid for demonstrated need. What’s confusing is when the grant is on a per-school basis. You can qualify for a grant from Vanderbilt but not West Virginia University. That’s because the grant is based on the cost of attendance at the school less the EFC. If your EFC is $20,000 and the cost of attendance at Vanderbilt is $60,000, the university will fill that gap. But if the cost of attendance is $18,000 at West Virginia, then you won’t qualify for need-based aid. So, unless you make over $250,000 in income, you could conceivably qualify for it.
Do you have any other advice?
Financial aid is an important decision that families need to spend time considering — just like retirement planning or home-buying. Make an educated decision that’s not to be taken lightly or turned over to a 17-year-old high school student and high school guidance counselor. Families need to take the emotions out of the decision and be more business-like.
Student Aid by the Numbers
Total average federal aid to full-time students
Grants (all sources)
Education tax credits and deductions
Source: College Board 2014-2015 school year
Questions to Ask Online Colleges About Costs, Loans & Scholarships
What are the real, fixed costs of each online program?
Realistic cost given your budget?
How does the financial aid process work?
Do your candidate online schools maintain scholarship programs just for online degree seekers?
Do your candidate online schools require your physical presence on campus?
If so, what are your travel costs?
Can you experiment with free online courses at your candidate online schools before enrolling?
What costs will you incur for school-required must-have tools, such as a computer, printer, scanner, or Webcam?
Older computers with non-current operating systems or software may need to add in the cost of new hardware or software to their schooling costs. Also, you may need access to high-speed internet for some courses.
Can you test out of some classes?
If you’ve worked in an accounting office, for example, you may be able to test-out of entry-level accounting classes.
Do your candidate online schools offer price breaks if you take more than a certain number of credit-hours per semester?
Do the candidate online schools release completion statistics? If so, how do they compare?
Don’t Let Your Student Complete a FAFSA: Q&A with Paul Wrubel
Paul Wrubel holds a BA from Middlebury College, an MAT from Wesleyan University and Masters and PhD from Stanford University. His decades-long career has brought him through the public school system, as a teacher and administrator. He is the founder of two non-profit organizations, CollegeWorks and MindWorksUSA. As an advocate for financial aid reform, Wrubel discusses the flaws in the federal system and the best way for families to navigate it.
What should every student applying for financial aid know?
Parents are the ones paying, so don’t let your kid within 100 feet of the form. If you read the FAFSA, the verbiage shows the government expects students to fill it out. The problem is students don’t pay. Kids, for all their well-intentioned ignorance, almost always fill the forms out incorrectly. It happens all the time, and the federal government wants it to happen. Parents should be filling out the forms. What does a kid know about a 403(b) retirement plan? They don’t know about that stuff, and they shouldn’t.
You’re saying the system is flawed. Please explain why.
Only 53 percent of students who entered college in Fall 2009 had graduated by Spring 2015. If you ran a business like that you would be fired. The system needs to be redone. It assumes that colleges have equal amounts of funds. Some colleges, like Stanford, have tons of money, while others are struggling. When federal aid runs out, the struggling colleges have to provide aid. For poor colleges, that’s a killer. The forms should also be easy to navigate. It used to be that your EFC was a dollar number. If the EFC is $10,400, that was the amount you were expected to pay. Now the EFC is an index. What does the index mean? If your kid is underfunded for financial aid, the college simply says, “No, you’re not.”
How can a student best navigate this system despite its flaws?
It’s really important to learn about the system well in advance. There are things you can do that will protect you from rising college costs and help you qualify for more need-based aid. You always have to be truthful on the forms, but you can still avoid exposing assets to the [EFC formula]. You need to understand the EFC formula. Figure out the data points that affect your EFC and look at your own finances to see if there’s anything you can do to lower your EFC. There’s going to be a gap no matter what, but it’s better to have a small gap. You should also have something in mind as to how much you might be able to afford for college.
Should financial aid influence your college choice?
Don’t automatically take the cheapest route. A lot of students decide they are going to attend community college for two years and then transfer to a four-year college. That’s not a good idea. Statewide in California, less than 25 percent ever make that transfer and the ones that do take an average of four more years to graduate. What could have taken four years at any price now takes six years. Think also about what the student would have been doing for two years if he or she had graduated in four years. Once you work opportunity costs in the mix, six years becomes expensive. As a general rule, I recommend that students go to the college they really love because they’re much more likely to get in and out in four years. That alone will save parents money.
Glossary: Key Student Loan Terms You Need to Know
Diving into the financial aid world means you’ll encounter a whole, new set of unfamiliar terms. This glossary helps you get up to speed as you wade through your financial aid research and paperwork.
The time period during which a school and classes are in session. A typical academic year begins in September and concludes the following May or June.
The recognized income, accounts, stocks, real estate and other assets that figure into the calculation of a student’s Expected Family Contribution, which determines the approval and amount of need-based financial aid.
The academic year for which a student receives financial aid.
The cost of attending a school. The COA is the total cost and includes tuition, fees, room and board, books, supplies and other personal expenses. A school may define the COA differently depending on a student’s marital status, state or residence and other relevant criteria.
A period during which the student borrower is not required to make loan payments. For example, deferment of federal Stafford loans lasts while the student is enrolled in school and the repayment obligation does not kick in until a point in time after graduation.
A type of federal student loan administered by a student’s college or university. The loan’s fixed interest rate, which is determined by the borrower’s status (usually the level of study) and is typically lower than that of private student loans, is set by Congress.
Dollar index of the contribution a student’s family is expected to contribute to a student’s cost of attending a higher-education institution. The EFC is calculated from asset information provided in a student’s FAFSA and is used by the DOE and participating schools to determine financial aid amounts.
The Dept. of Education assigns an FSC identifying to a college or university. Students use the FSC to identify the institution on their FAFSA forms and apply for federal student financial aid. A school uses the code, which indicates the school is qualified to disburse federal financial aid, to access students’ FAFSA information for the purpose of calculating federal financial aid eligibility.
A school’s offer to a student indicating the financial aid package, whether loan or gift aid, the school will provide to cover the cost of attendance.
The amount of financial aid a school or university has offered to a student.
Financial aid that requires no repayment because it is a gift.
Financial aid award given to a student to cover the cost of attendance at a college or university. The grant is a gift, so there is no repayment obligation provided the student remains in satisfactory academic standing.
Financial aid awarded to a student that is based on the student’s financial need.
The amount the federal government or a school expects the parent(s) of a dependent student to contribute to covering the cost of attendance. For example, the PC takes into account the student’s parents’ income and assets.
A type of federal Direct Loan generally extended to graduate students, professional students or parents of a dependent undergraduate student to pay for the cost of attendance.
The standard set by an educational institution that administers federal financial aid, of which students receiving aid must meet to remain eligible for federal aid. Schools set a minimum grade point average, defined in the SAP, which students must meet.
See Federal Supplemental Educational Opportunity Grants (FSEOGs)
Direct Loan with fixed, low-interest rate extended to students attending college or university. Students must be attending at least half time. Stafford loans can be subsidized or unsubsidized, and interest rate and loan amounts are determined by the student’s level and year of study.
The Department of Education’s official recognition of a school’s satisfactory standing — the school meets defined quality academic standards — which qualifies the school to participate in federal student financial-aid programs.
A school’s official communication to a student summarizing the approved financial aid amounts for attending the school.
In the context of a financial aid application, the tax year prior to the award year. However, new rules for 2016 have changed the base year to the prior-prior tax year. For example, a family filling out the FAFSA for the 2017-18 award year will use income information from the 2015 tax year.
Federal agency that administers federal financial aid loan programs and processes all FAFSA forms.
Student who lives with a parent or guardian and who relies on the parent or guardian for the majority of living expenses.
The release of loan proceeds to pay for a student’s entire or partial cost of attendance at a college or university.
Form filled out by students and their families and submitted to the DOE to apply for federal financial aid. FAFSA information is used to determine and calculate a student’s eligibility for financial aid.
Administered by the US Dept. of Education, FSEOGs (also known as SEOGs) are federal grants for undergraduate students with exceptional financial needs. You must complete a FAFSA to become eligible for an FSEOG.
A college or university’s dedicated personnel responsible for determining financial aid award decisions and communicating financial aid matters with students.
The financial aid amount a student needs to cover the cost of attending a specific school. For FAFSA purposes, financial need is equal to the difference between a school’s cost of attendance and the student’s EFC.
Financial Need = [School’s Cost of Attendance] – [EFC]
The time period during which a student is not yet required to begin repayment of a student loan. A typical grace period lasts six months, beginning from a student’s graduation or departure from a school.
Financial aid awarded to a student that is based on the student’s academic, athletic or other achievement, and not on the student’s financial need.
The dollar amount the student’s family is eligible to receive, either through loans or need-based aid. The net cost is calculated as follows:
Net Cost = [School’s Cost of Attendance] – [All Financial Aid]
The dollar amount the student’s family will need to pay to cover the cost of attending a school. The amount differs between schools because financial aid packages vary. The out-of-pocket cost is calculated as follows:
Out-of-Pocket Cost = [School’s Cost of Attendance] – [Need-based financial aid package only]
A federal aid gift generally only available to undergraduate students.
Requirement of males 18-25 years old to register for the military draft. One of the basic eligibility requirements of a federal loan program.
Financial aid gift to a student, with no repayment obligation. Educational institutions, non-profit and private organizations and other such entities award scholarships, often basing the award on a student’s academic, athletic or artistic merit, or course of study.
The official response to a student’s FAFSA. The SAR summarizes FAFSA information, including your EFC, and sets out basic financial aid eligibility.
See Federal School Code (FSC).