Understanding Federal Student Aid
Some people think that financial aid and scholarships are
only for the financially distressed. Not true. Most students qualify for at
least one type of financial aid. The key is applying as early as possible. The
sooner your application is received, the more financial aid you will be awarded.
Financial Aid is available to almost any family
Whether you've been saving for your child's education or not, you should apply for every
type of financial aid that is available. Financial aid applications are less
intimidating than they may appear, and your college financial aid counselor is able to help
you complete the forms. The
FAFSA website gives you step-by-step instructions to make the application process as
simple as possible. Types of awards include the following: work study, subsidized
loans, grants, and scholarships. Even if it seems hopeless for your family to qualify
for aid, there are often unclaimed awards that are still available. Completion of
the financial
aid application also makes it possible to apply for Parent/Student Loans.
How to apply
Before you apply for financial aid, it is best to organize all your financial records.
A good file system should include the following: tax returns going back at least five years;
all receipts and documentation for tax deductions; information on any credit accounts and
loans; all investment and deposit account information as well as tax statements on unearned
income; past expenses and records for all college expenses; and any miscellaneous
information or files for on-going monthly expenses (from phone lines to electricity bills).
Being a good record keeper is always extremely helpful. Good records mean that you
will simplify your tax returns, more easily review your budgets and spending, and stand
greater chance of avoiding or identifying fraud. Good records also mean that applying
for financial aid will be much easier.
Around $40 billion of student aid is available to college students each year.
This covers only about one third of all US college expenses. The "Free
Application for Federal Student Aid" is available from your high school or the
college(s) you are considering. There is no application fee. Funds are
nationally determined for each school year, and late applications will suffer a lesser
availability of assistance funds.
Apply early
This bears repeating: apply early. Apply on January 1st or as soon as possible after
that date. Although the application requires information based on the student’s and/or
parents’ most recent tax information, it is possible to submit the application using
estimated tax and income information. You are allowed a $300 margin of error for
estimation purposes, but intentional misrepresentation is subject to fines and/or prison
sentences.
Financial need
After you complete and return the financial aid application, a federally approved review
service will rate the application to determine the student’s amount of need. Financial
need, based on guidelines set by Congress, examines each student’s relative situation.
For example, need would be greater for a student who will attend a $25,000-per-year school
than a student who will attend a $10,000-per-year school. Need is based on many
factors. Family income is a big factor; however, there are many other considerations,
such as how many children a family might have in college at the same time.
On the application, you will select which schools are to receive your needs analysis.
The schools may contact you for additional information. After a reasonable amount of
time, you may want to call your college’s Financial Aid Office to see if your needs analysis
has arrived. Because different schools have different costs for everything from
tuition to housing, your financial needs analysis may differ greatly.
Financial aid almost always assumes that the student or family will contribute some
money towards the cost of attendance. Family contribution allows you to ignore some of
the family’s expenses like housing, taxes, retirement, or transportation.
Unfortunately, these numbers are based on the Department of Labor’s "low budget standard."
These numbers may differ greatly from the reality of your family’s budget.
Types of aid
Financial aid comes in three
varieties: grants, subsidized loans and work-study. Eligibility is determined chiefly
by the amount of "need."
Grants
Federal Pell Grants are available to families who have a large difference between their
ability to pay and the cost of college attendance. Pell Grants provide an annual
maximum assistance of less than $2,500 towards a student’s education. Although grants
are available to families with the most demonstrable need, every student should apply for
the Pell Grant. Many schools require a denial for Pell Grants before they will award
other types of financial aid.
Subsidized loans
Much of the financial aid available to college students comes in the form of
government-subsidized loans. If you or your family uses loans to help fund an
education, these are the most desirable types of loans. These loans are need based,
with the most heavily subsidized loans going to families who demonstrate the greatest
amount of need. Interest rates may be as low as 5 or 6%, and the government will
often defer payments or cover the interest while the student is in school.
These loans are also subsidized through government guarantees. Government
guarantees mean that families and students who might not otherwise qualify for credit
worthiness can receive loans which are large enough to cover much of an education.
Payment deferral is often called a "grace period," and—depending on the loan’s
guidelines—the student may take up to nine months after leaving full-time attendance before
beginning repayment. Subsidized loans include Perkins, PLUS, SLS, and state loans,
among others. Stafford loans offer the lowest rates, but the maximum loan amounts
(especially during a student’s Freshman and Sophomore years) are often not enough to cover
all education costs.
Work study
Work-study is a type of assistance which requires that students work to help support the
costs of their education. These jobs are usually on campus and provide flexibility
for student's hectic schedules. Contact the school's career center for information on
available work study positions.
You can negotiate financial aid awards
After you receive a financial award letter from a college, it is possible to negotiate a
better package. Many families choose colleges based on the financial aid awards,
unaware that most colleges will at least match offers made by other schools. In
addition to matching offers from schools who are competing for your tuition dollars, you
can—in some cases—negotiate with an intended school to get a better aid package. Some
schools will avoid all attempts to negotiate; however, the school may still be open to
review a case if additional financial data is presented.
Don’t focus only on the size of an award package—remember that different combinations of
financial aid can greatly affect your repayment costs. The best award packages provide
more aid in grants (which don’t have to be paid back) and less aid in loans. Some
loans have less attractive deferral options, and some loans begin applying interest
immediately. The financial counselor can review loan packages and request changes
based on your family’s needs. You can also review an award package for whether the
expected family contribution is too high or if the calculated costs of the college are too
low.
If your financial aid award wasn't as high as you'd hoped, check out some available
scholarships to help with the cost of sending your child
to college.