Scholarships, Loans, and Financial Aid Misconceptions

by Michele F. Kornegay

The Dream: Scholarships

The most prized form of financial aid is, of course, the scholarship. Hundreds of thousands of scholarships and fellowships are available every year. Most are reserved for students with special qualifications, like academic talent. But awards are also available to students who are interested in a particular field of study, to those from underrepresented groups, or to students who demonstrate financial need. Scholarships are offered by the schools themselves and by private organizations or individuals. The trick, of course, is to find out about the scholarships that may be available to you. There are several free scholarship databases available on line--free is the operative word here. Don't waste your money on fee-based scholarship matching services. All the information that you'll need can be found on the Web and in various print resources. Log on to as many scholarship search sites as you want, and compile information on scholarships that you're interested in. Then submit away! The good thing about scholarships is that there's no limit to how many you can get.

Myths about Scholarships

There are many widely held myths and misconceptions about scholarships. Perhaps it's because of the many different kinds of scholarships available or the variety of requirements needed to get them. Maybe it's because the process is time consuming and sometimes complicated. Whatever the reason, several scholarships myths are out there, so we'd like to take this opportunity to dispel some of them.

Myth #1: Billions of scholarship dollars go unclaimed.

Most universities will tell you that they seldom have unawarded scholarships, and, if they do, it's usually because of timing or because of the highly restricted nature of a small number of scholarships. The "billions of dollars" figure comes from unused employee tuition benefits, which account for about 85 percent of unclaimed aid dollars. The number of unused scholarships is actually miniscule.

Myth #2: I can't possibly get a scholarship with all the competition out there.

Alan Deutschman, author of Winning Money for College, received a degree from Princeton University for practically nothing by taking the initiative to enter scholarship contests wherever and whenever he could find them. As Deutschman claims, there are a lot of contests out there; you just need a little resourcefulness to seek them out. Not all scholarships are for A students; some are for those with a particular interest, those from a particular ethnic background, those affiliated with professional and fraternal groups, and so on--the list is endless. Another tactic is to look locally for opportunities in churches, civic organizations, and other groups. You won't believe the number of opportunities that you'll find if you just look hard enough.

Myth #3: Scholarship searches are worth paying for.

As a prospective student, you have a wealth of information at your fingertips. For starters, visit your library, search the Web, and browse through bookstores--you'll soon find that you don't need to pay anybody for what you can do for free.

Myth #4: I'm a top student, so I don't have to seek out scholarships. They'll come to me.

Don't take it for granted that you'll get a free ride through business school. The odds are not in your favor. Very few students are lucky enough to get through college on scholarships alone--and in graduate school, it's practically impossible. Therefore, we strongly encourage you to explore all the options that are available to you for funding your business degree, including loans, employer-funded tuition remission, and work-study.

Beware of Scholarship Scams

Unfortunately, there are a lot disreputable people who make a killing by taking advantage of students searching for aid. The Federal Trade Commission (FTC) claims that several unscrupulous companies promise you scholarships, grants, or fantastic aid packages; many use high-pressure sales pitches at seminars where you're asked to pay them immediately or risk losing out on the "opportunity." According to the FTC, several legitimate companies can get you access to lists of scholarships for a fee or compare your profile with a database of scholarship opportunities and provide a list of awards for which you may qualify. The difference? Legitimate companies never promise or guarantee scholarships or grants. The FTC (www.ftc.gov) advises you to keep your eyes open for these tell-tale claims:

  • "The scholarship is guaranteed or your money back." No one can guarantee that they'll get you a grant or scholarship. Refund guarantees often have conditions or strings attached. Get refund policies in writing--before you pay. 
  • "You can't get this information anywhere else." There are many free lists of scholarships. Check with your school, your employer, or your library before you pay someone to do the work for you.
  • "May I have your credit card or bank account number to hold this scholarship?" Don't ever give out your credit card or account number on the phone without getting information in writing first. This may be a set-up for an unauthorized withdrawal.
  • "We'll do all the work for you." Don't be fooled. You must apply for scholarships or grants yourself. There's no way around it.
  • "The scholarship will cost some money." Don't pay anyone who claims to be "holding" a scholarship or grant for you. Free money shouldn't cost a thing. 
  • "You've been selected by a `national foundation' to receive a scholarship," or
  • "You're a finalist" in a contest that you never entered. Before you send money to apply for that scholarship, check it out. Make sure the foundation or program is legitimate.

If you're approached by someone who you think is a scam artist, contact the FTC's Consumer Response Center at 877-FTC-HELP (toll-free).

The Reality: Loans

We're not trying to discourage you from going out and seeking a scholarship (or a dozen scholarships, for that matter), but the reality is that you'll probably need to take out a loan to pay for part of your business degree. There are fewer scholarships and grants at the graduate level, unfortunately, and competition for assistantships and internships can be tough; there simply isn't enough money to go around for everyone. But never fear--scores of low-interest loans are available to help you make ends meet.

Student Loans from the Federal Government

Federal education loan programs offer lower interest rates and more flexible repayment plans than most private loans; they also do not require credit checks or collateral, as most private loans do. Federal loans can be either subsidized, where the government pays the interest while you're in school, or unsubsidized, where you pay all the interest (these payments can be deferred until after you graduate). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need. All students, regardless of need, are eligible for unsubsidized Stafford Loans. With Stafford Loans, graduate students can borrow $18,500 per year; of that, $8,500 is subsidized. Many students combine subsidized loans with unsubsidized loans to borrow the maximum amount permitted each year. Perkins Loans are awarded to students with exceptional financial need. With this program, the school acts as the lender, using a limited pool of funds provided by the federal government. The amount of the Perkins Loan that you'll receive is determined by the financial aid office; the limit for graduate students is $5,000 per year, with a cumulative limit of $30,000 for undergraduate and graduate loans combined. (Some institutions participate in the Expanded Lending Option program, wherein they can offer higher loan limits for Perkins Loans.)

Student Loans from Private Institutions

Many students must turn to private loans after they have tapped into all other sources of aid. Fortunately, several low-interest student loans are available through many lenders. If you're a wise consumer, you'll shop around for a loan that will offer you the best interest rate and terms of repayment. Remember, you should be certain that you have exhausted all other options for paying for your education before you consider a loan. You may not want to approach your parents for money, but chances are that their interest rates are more lenient than any that you'll find at the bank! They may have even saved some money for you in the hopes that you'd go back to graduate school some day. It can't hurt to ask.

This article is an excerpt from "Gameplan for Getting into Business School" by Michele F. Kornegay