Financial Aid for Online Schools A Guide to Paying for Distance Education
Higher education costs money, and most students attending universities, colleges, and private online schools need financial aid to pursue undergraduate and graduate degrees. According to the National Center for Education Statistics, the percentage of full-time undergraduates at four-year schools receiving financial aid increased from 75 percent in 2007 to 85 percent by 2012. At the same time, the percentage of students receiving financial aid at two-year institutions increased from 67 to 79 percent. In 2012-13, undergraduate students alone received $185.1 billion in financial aid through federal loans and grants.
This invaluable guide outlines the various forms of student financial aid available to online learners. It includes a comprehensive overview of the application process, organizations offering financial assistance, and insightful interviews with financial aid experts. From loans to scholarships to veterans’ education programs, first-time and continuing online students will gain a deeper understanding of how they can cover the cost of a college education.
Krista Francis, Director of Enrollment Services and Financial Aid, has worked at Peninsula College for 10 years. Krista has a Master’s in Educational Leadership from Concordia University-Portland, a Bachelor’s of Business Administration from Pacific Lutheran University, and is a graduate of the PEAK Leadership program. She has worked in financial aid for a total of 18 years.
Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships, and student loans. Kantrowitz is Senior Vice President and Publisher of Edvisors Network. Prior to joining Edvisors, Mark was founder and publisher of FinAid.org and publisher of Fastweb.com. He is also author of Filing the FAFSA®, and writes extensively on student aid policy.
Darcy G. Keller is the Director of Student Financial Services at City University of Seattle. She has been a student advocate working in the financial aid field since 1985 at private, state, and land-grant institutions. She is a member of the national and regional financial aid associations, and has been an active member of the Washington Student Financial Aid Association (WFAA) since 2002, serving as president in the 2011-12 year.
Ron Kness is a veteran school benefits specialist, and author of The 9 Secrets to Using Your GI Bill and The Military Spouses Financial Guide to Funding Education: Discover the Tactics Savvy Military Spouses Use to Fund Their Post -Secondary Education. Kness served 36 years with the Minnesota Army National Guard, retiring as a 34th “Red Bull” Infantry Division Command Sergeant Major. He currently writes and publishes the Veteran School Benefits website.
When it comes to paying for college, there are several options for distance learners. This section explores the various types of aid available, from borrowed money to tuition reduction options such as scholarships and grants. The most common form of financial aid is student loans.
Loans are lump sums of money, designed to help students pay for higher education expenses such as tuition and books. This money usually comes from federal or state governments, but students may also receive loans from private and public foundations and colleges. All loans must be repaid and with interest.
The U.S. Department of Education offers two federal programs for student loans: the William D. Ford Federal Direct Loan Program (sometimes referred to as Stafford Loans), which is the largest federal loan program, and the Federal Perkins Loan Program. Under the Direct Loan program four types of financial assistance are offered. Take a look at the table below for a break down of each type:
|Direct Subsidized Loan||Direct Unsubsidized Loan||Direct PLUS Loan||Federal Perkins Loan|
|Who’s eligible?||Undergraduate students who have demonstrated financial need and are enrolled at least half-time||Undergraduate, graduate, and professional students who are enrolled at least half-time||Parents of dependent undergraduate students and graduate or professional students||Undergraduate, graduate, and professional students who have demonstrated exceptional need|
|What’s the interest rate?||Aid first disbursed on or after July 1, 2014 but before July 1, 2015 is subject to a 4.66% interest rate||Aid first disbursed on or after July 1, 2014 but before July 1, 2015: Interest rate is 4.66% for undergraduates and 6.21% for graduate and professional students||Aid first disbursed on or after July 1, 2014 but before July 1, 2015 is subject to a 7.21% interest rate||5%|
|How much is awarded?||Between $3,500 and $5,500||Between $5,500 ad $20,500, depending on level and dependency status||Max amount is cost of attendance, not considering other financial assistance received||Undergraduate: up to $5,500
Graduate and professional students: up to $8,000
Total cannot exceed $27,500 for undergrads and $60,000 for graduate students
|When do payments begin?||6 months after graduation or when enrollment is less than half-time||6 months after graduation or when enrollment is less than half-time||Repayment starts when loan is fully disbursed; however, it will be deferred while student is still in school at least half-time and for 6 months after graduation||9 months after graduation or when enrollment is less than half-time|
The fourth Federal direct loan option is the direct consolidation loan, which allows students to combine several federal student loans into one loan with a single monthly payment.
In addition to federal loans, students may also apply for financial assistance from private lenders such as banks, credit unions, private foundations, and organizations. These loans are often credit-based and have higher interest rates than federal loans. Specific amounts, fees, interest rates, and terms and conditions can vary greatly.
State and Institutional Loans
Some state governments, colleges, and universities administer their own student loan program. Much like private loans, eligibility requirements, interest rates, and terms and conditions vary, and not all states or institutions will offer assistance. To learn more, talk to someone in the school’s financial aid office. The school should be able to provide more information on both state and institutional loans.
FAQ with Krista Francis
What the most popular student loan options?
The Subsidized and Unsubsidized Stafford loans are the most commonly borrowed loans.
Are there different options for repayment? What are they?
According to the Federal government, there are multiple options for repayment. They include:
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
- Income-Driven Repayment Plan
- Pay As You Earn Repayment Plan
- Income Contingent Repayment Plan
- Income Sensitive Repayment Plan
Can students pay on interest while still in school? What are loan grace periods, and can graduates save money by paying down interest costs during this interval?
A grace period (6 months) begins once a student graduates, leaves school, or drops below half-time enrollment. If a student is able to pay towards the interest on the loan while in school and/or during the grace period, it will greatly help reduce the amount of money the student has to pay in the long run. If the student is able to pay the interest before the first payment is due, it will prevent the interest being capitalized within the loan. If the student doesn’t pay the interest, he/she will end up paying interest on the interest.
How can students estimate the amount they need to borrow in order to avoid accruing crippling debt?
There are two free resources available to anyone who wants to learn more about student loan borrowing. All you have to do is create an account and log into StudentLoans.gov. Once logged in, choose the Entrance and Financial Awareness Counseling features. These will help you budget while in school and plan for the future. Many schools have additional financial literacy resources available to students. For example, Peninsula College offers services through SALT. SALT offers multiple financial education resources–courses, workshops, blogs, videos, articles, etc.–which are available to any past, current, and future student.
What specific advice would you give a student considering federal and private loans?
Really think about how much money you need in order to survive while in school and how much will you be able to afford in payments when out of school. Remember, there are other financial aid options available that can reduce the amount needed to borrow. For scholarships, I tell students it may take an hour or two to apply for one scholarship. But once you’ve applied for one, you can most likely use the same information to apply to another one. Even if it’s just for $1,000, that’s $1,000 less you have to borrow
Fortunately, students don’t have to rely entirely on loans to finance their online degree or certificate. There are avenues of financial aid that do not create debt or require repayment. Programs such as grants, scholarships, and college credit transfers can cut the total amount for tuition or shorten the time to graduation, freeing up both time and money.
Federal grants and scholarships make up the largest categories of federal aid that does not need to be repaid. Federal Pell Grants represent the largest form of free assistance for undergraduate students, paying up to $5,775 per year (beginning in July 2015). Amounts are based on need, tuition cost, and full or part-time status. In 2015, the Pell Grant program will provide more than $30 billion to support eight million qualified students.
Pell grants are not the only type of free money available to distance learners. Below are other types of grants that select students may qualify for:
Based on financial need and administered through a school’s financial aid office.
For students who commit to teaching elementary and secondary school in low-income communities.
For students whose parent or guardian was a member of the U.S. armed forces in Iraq or Afghanistan after 9/11 and died during military service. Students must not be eligible for Pell Grants based on parental assistance and must be registered for school at the time of their parent or guardian’s death.
Many states also offer grants to qualified students, providing up to more than $10.2 billion nationally in student aid. State sponsored grants may be based on a range of criteria including financial need, ethnicity, disabilities, demonstration of high scholarship, and career goals. Individual states may also offer tuition-waver programs. For example, California offers in-state students “Cal Grants” of $576 to $12,192 per year.
Online colleges, universities, and private schools provide students with additional avenues to finance their education. The College Board reports that college and university tuition discounts grew from $13 billion in 1993 to $44 billion in 2013. Institutional assistance may be based on financial need, academic promise, merit, or for members of specific educational majors such as arts and sciences, business, technology, communications, social sciences, minority or gender studies. For example, low-income, full-time students at public four-year schools received five times the grant aid in 2012 as those hailing from families with six-figure incomes.
In addition to grants, scholarships are another form of student aid that does not need to be repaid. Federal, state, and local governments, as well as professional associations, colleges and universities, fraternal organizations, and even companies and non-profits all offer a range of scholarship opportunities. Some are awarded on academic performance, scholarly promise, athletic or artistic aptitude, cultural and economic background, and financial need.
Online schools and colleges (or districts) establish their own sets of requirements regarding the number of credits students can transfer from other institutions. Transferring credits can reduce the overall time it takes to graduate, which in turn, lowers the overall tuition. Almost all schools require previous credits to come from a regionally accredited institution. Typically, up to 60 credits from a two-year or community college are accepted, and 60-90 credits for students with combined two-year and four-year college-level courses. Schools may also award credit for military experience and training at accredited colleges and service academies or for extensive professional experience in certain fields.
Aid for Online International Students
Though rare, some colleges offer tuition reduction to qualifying international students. Washington State University, for example, offers an International Academic Award, which is an undergraduate tuition reduction for international students who are not fully government-sponsored for financial assistance and who are first-time enrollees in a WSU degree program.
Some colleges also have alumni or alumni legacy tuition programs, which offer lower tuition rates or scholarship awards for alumni or resident students whose parent or grandparent is an alumni. Requirements and amounts vary and not all colleges offer such programs, so be sure to talk to your financial aid office for details.
FAQs with Darcy G. Keller
Please describe the types of non-loan options available to reduce tuition costs for online students (grants, scholarships, tuition waivers, etc.).
The same federal aid program options are available to online students as on-campus students. At City University of Seattle, for example, we offer grants, scholarships, veteran and military educational benefits, and tuition waivers to those students who are eligible regardless if they are enrolled in a strictly online program. They are awarded at the same eligibility level, so there would also be no distinction in award amounts. The benefit of enrolling in an online program is that a student’s costs may be reduced as they: do not need to pay transportation costs to and from an actual building; living expenses will not differ because there is no need to relocate to the campus community; and there is flexibility in the student’s schedule so that the student may not need to leave full-time employment to earn a degree.
Are there inherent student financial aid risks associated with online programs?
There are no inherent risks that are specific to online programs. Students must always be thoughtful about the programs they apply to, and whether that program will be a good fit.
Do online students take advantage of financial aid and, if not, what are common blocks to participation (lack of knowledge, etc.)?
Due to the growth in online learning, financial aid offices are very familiar with this learning mode. At City University of Seattle, all of our degree programs are eligible for the federal aid programs we are authorized to offer. However, depending on the institution, there may be online learning programs that are set up in a way that makes them ineligible to participate in federal aid programs. Students should always check to be sure online programs of interest are eligible for federal aid programs.
How can online students avoid running up debt?
All students, whether they’re pursuing degrees online or in-person, should keep track of their overall borrowing for their educational program. Students should only borrow what they need to meet their educational expenses each award year. Students can also keep track of their overall borrowing by accessing the National Student Loan Data System. They can also use the Federal Student Aid Programs loan estimator to learn how their aggregate loan debt will calculate out to a monthly payment.
In addition to the options discussed above, students may qualify for financial aid from military benefits, corporate grants, employer tuition assistance and reimbursement, and tax benefits.
According to the Internal Revenue Service, persons may earn federal income tax credits if they pay education expenses for themselves, a dependent spouse, or child. Under the credit, individuals can deduct up to $2,500 a year per student for tuition and books under the American Opportunity Credit and up to $2,000 per student a year through the Lifetime Learning Credit. In 2011, American families received a total of $20 billion in tax credits for qualifying student tuition and fees. For more detailed information, visit the IRS.
The Department of Veteran’s Affairs oversees a range of benefits that assist active service personnel, veterans, reservists, and qualified dependents in paying for their education. The Military Tuition Assistance Program pays full-tuition and fees for all active military and reservists. The Post-9/11 GI Bill pays veterans for full tuition and fees, a monthly housing allowance, and up to $1,000 a year for books and materials. The Yellow Ribbon Program pays for out-of-pocket tuition and fees for veterans who attend institutions with tuition higher than allowable amount covered by the Post-9/11 GI Bill. In addition to these benefits, many online colleges and schools offer additional tuition discounts for military personnel and veterans.
Employer Tuition Assistance Programs
Many students receive financial aid for online schools from their employers. Some employers will pre-pay or offer tax-free tuition reimbursement for employees working on advanced degrees. The MBA student is the most-common recipient of such benefits. Employers may contribute up to $5,250 in tax-free education assistance per calendar year.
Military Education Benefits: FAQs with Ron Kness
What are the most common mistakes made or misconceptions held among service personnel and veterans looking for college aid?
There’s the confusion if a service member or veteran has 2 or more GI Bills over the number of months of entitlement they can get. Under the Rule of 48, multiple GI Bill holders can use up to a maximum of 48 months between all their GI Bills. The other common misconception is how they can use each GI Bill to get those 48 months. To get the 48 months, they have to first exhaust their 36 months under the Montgomery GI Bill, then switch to the Post 9/11 GI Bill to get the additional 12 months of entitlement. They can’t do it the other way around. Also, if they switch from the Montgomery GI Bill to the Post 9/11 GI Bill without first exhausting their Montgomery GI Bill benefits, then all they get is the same number of months they had left under the Montgomery GI Bill and not the additional 12 months of entitlement.
Which programs are commonly used by veterans, active service members and spouses to pay for online education?
Since the GI Bill 2.0 initiative in 2011, there really isn’t a difference in programs in regard to if classes or the program is online or in a brick-and-mortar classroom. However, there is a difference in what is available to use for each type person: Veterans usually use the Montgomery GI Bill-Active Duty or the Post 9/11 GI Bill, which active duty personnel use both of the above GI Bills in addition to Tuition Assistance (TA) and Tuition Top-Up.
TA will pay up to a certain amount per credit or per year. The individual is then responsible for the difference. Most of the services will pay up to $250 per credit or $4,500 per year.
Tuition Top-Up operates the same way, but instead the service member paying the difference out-of-pocket, s/he can choose to use their GI Bill to pay the difference.
Spouses use transferred Post 9/11 GI Bill entitlement and in some cases the MyCAA program. The Montgomery GI Bill is not available to them as it doesn’t have a transfer option.
Can military students receive credit for previous schooling or military training and service?
Most colleges (online or otherwise) will accept up to a certain number of credits from military training and MOSs (Military Occupation Specialties). Potential students can request that a copy of those credits on a military transcript be sent to their school for review and acceptance. The benefit of using those credits is that not only does it save time in taking classes, (getting the student a degree sooner), but also conserves GI Bill entitlement.
Under the DANTES program, service members can “test out” in a number of classes and thereby get awarded credits for the course without actually have to take the course.
What are the restrictions — if any — facing military students taking online courses and completing degrees?
The only restriction is the difference in Post 9/11 GI Bill monthly housing allowance (MHA). The MHA is calculated based on the number of credits a student takes and the zip code of the school. By attending an online school, it isn’t tied to a zip code to calculate the benefit. Before GI Bill 2.0, an online student didn’t get any MHA. Now they get up to $754.50 which is about half of the national MHA average for those attending class on campus. The way around getting the lower amount is to just take one class (that is on their degree plan) per semester at a local campus with the rest online and they can get the full MHA.
Figuring out how to pay for online college can be challenging, but the right tools and knowledge can make the process less daunting. In addition to the financial aid sources discussed above, here are some key considerations students should keep in mind when evaluating online colleges and universities:
One important requirement for federal financial aid is enrollment in an accredited college or university. In order to participate in a financial aid program administered by the U.S. Department of Education, online institutions must voluntarily undergo an impartial quality assessment by an independent accreditation agency. In addition, most colleges, universities and private schools will not offer course credit transfers for previous academic work completed at unaccredited institutions. The Department of Education operates a free accreditation search school for assessing potential colleges. The college search tool at the National Center for Education Statistics lists key college information on tuition and financial aid participation.
Each organization that offers financial aid for online students establishes its own criteria for assistance. One size does not fit all. Students should read all requirements carefully in order to focus aid applications on programs to which they qualify for assistance.
Approximately 2 million students who didn’t file the FAFSA® would have qualified for a Federal Pell Grant, had they only filed the form.Mark Kantrowitz
The single-most important tool used by financial aid qualifying agencies is the Department of Education’s Free Application for Federal Student Aid (FAFSA®). The Federal Student Aid office administers all financial aid guided by Title IV of the Higher Education Act of 1965. Some 22 million students file annually. The FAFSA® process alerts students and parents to sources of qualified aid and submits income and aid assessments to more than 6,200 participating colleges, universities, and career schools. Each college or school establishes its own deadline for submitting applications – including the FAFSA®. Students can search for institutional deadlines at the FAFSA® website. Do NOT miss a deadline.
Financial Aid Eligibility Checklist
- Consult the FAFSA®4caster, a Department of Education program that creates a “College Cost Worksheet”, to estimate student eligibility for aid and the types available
- Take Preliminary SAT/National Merit Scholarship Qualifying Test (PSAT/NMSQT) tests by 11th grade for participating in National Merit Scholarship Programs
- Register for and take standardized exams for college admission such as the SAT, the SAT Subject Tests, and the ACT
- Begin college scholarship searches at the Labor Department’s Career OneStop
- After January 1st in your senior year, complete and submit the Free Application for Federal Student Aid (FAFSA®)
- Have completed high school or General Educational Development (GED) Certificate program
- Be accepted for enrollment in an accredited post-secondary certificate or degree program
- Have most-recent income tax forms from parents who support your education
- Complete Selective Service registration (male students, 18-25 years of age)
- Valid Social Security registration number
- Affirm on the FASFA that you are not in default of previous Federal loans and intend to use financial aid solely in the pursuit of a post-secondary education
- Provide proof of citizenship, green card, an immigration Arrival/Departure Record I-94, proof of immigrant status as a battered immigrant, or a T-1 eligibility visa
Individual schools have specific requirements in place to continue receiving financial aid, but here are examples of common steps:
- Continue to meet initial eligibility requirements
- Maintain a minimum grade point average
- Enroll in a certain amount of credits/courses each semester or quarter to show steady progress towards completion
- Complete the FAFSA® every year
Tuition only represents a portion of the total amount a student needs to pay for college. In considering financial aid, online students need to account for items in addition to tuition such as books, lab materials, and supplies. Depending on the field and program, some online schools may mandate that distance learners come to campus from time to time to complete in-person sessions or courses. Many institutions offer web-based, net-cost calculators to estimate total costs. Students can also use the College Board’s online Net Calculator. The net-price calculator takes into account all potential financial expectations after deducting qualified financial aid totals. The FAFSA® operates the FAFSA®4caster, a tool that assists students in estimating the maximum eligibility amounts for a Federal Pell Grant and maximum Direct Subsidized and Direct Unsubsidized Loans.
FAQs with Mark Kantrowitz
What common mistakes do students make when filing their FAFSA®s?
The first mistake students make is to not file the FAFSA®. According to my analysis, approximately 2 million students who didn’t file the FAFSA® would have qualified for a Federal Pell Grant, had they only filed the form. The second mistake is filing the FAFSA® late. Students who file the FAFSA® in January, February, or March tend to get more than twice the grant funding than students who file the FAFSA® later, perhaps due to states and colleges having very early FAFSA® deadlines. Digit transpositions in Social Security Numbers and errors in the date of birth are also surprisingly common, as is a mismatch between the student’s legal name (as it appears in the Social Security Administration’s records) and the name used on the FAFSA®. Incorrectly reporting net home equity and the value of retirement plans as investments on the FAFSA® can have a big impact on aid eligibility as well. I have created tip sheets on common mistakes and on errors parents make that affect eligibility.
Is the financial aid application process different for online students? What is the best approach for completing a successful application?
If an online college is accredited and has signed a program participation agreement with the U.S. Department of Education, students are eligible for federal student aid at the online school, the same as for students enrolled in brick and mortar institutions. The online students will need to specify the online college’s Federal School Code when they are completing the FAFSA®. They can obtain the Federal School Code from the college’s web site or search for it when filing the FAFSA® online. (If an online college does not have a Federal School Code, the student should think twice about enrolling in the college, as credits earned from an unaccredited college will not transfer to other colleges. Additionally, the student might not be able to sit for licensing exams and the degree might be not be accepted by employers.)
Aside from loans, grants, and scholarships, are there other ways to offset tuition costs?
In addition to student loans, grants and scholarships, there is employer-paid tuition assistance (quite common for MBA programs), tuition installment plans (splits the tuition bill into 9-12 equal monthly payments, as an interest-free alternative to long-term debt), student employment (e.g., Federal Work-Study and College Work-Study during the academic year, and part-time jobs in the summer), college savings plans (e.g., 529 college savings plans, prepaid tuition plans, Coverdell education savings accounts), volunteer opportunities (e.g., AmeriCorps volunteers can receive education awards to help pay for college).
Can online students receive repayment options that include forgiveness or discounts? What do these look like?
Discounts are available on student loans for borrowers who sign up for electronic billing and auto-debit. With auto-debit, the monthly loan payments are automatically transferred from the student’s bank account to the lender. In exchange, many lenders will reduce the interest rate by 0.25 percent or 0.5 percent. There are also a variety of loan forgiveness programs, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.