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Financial Aid The Nation's College Bill In 2000/2001, we estimated that college bills approach $140 billion. Student aid, unfortunately, probably only paid for nearly $81 billion. Financial Aid Myths And Misconceptions One of the most important things to do in planning a college funding is to overcome some basic financial aid myths and misconceptions. For example, computerized scholarship searches can prove futile in contrast to the the main sources of financial aid: Uncle Sam, your home state, your college and your employer. - Special Scholarships - Computerized Scholarship Searches - Unclaimed Scholarships Nuts And Bolts Of Financial Aid And Some Short Definitions - Grants and scholarships are gifts - Loans are sums of money the student must repay - Work-study is exactly that - A dependent student is dependent on parents for support - An independent student is not dependent on parents Financial Aid Processors As soon as you know how much you and your family earned in the preceding calendar year (and as soon after the first of the year as possible), you need to fill out a need analysis form called the Free Application for Federal Student Aid (FAFSA). The Financial Aid Package A processor sends your analyzed information to the colleges the student designates. At each college, the financial aid officer or FAO looks over the information. The first thing the FAO does is determine a student's cost of attendance and compare it with the family contribution. Federal Pell Grants And State Grants The bottom layer of the package consists of a Pell Grant and any state grant for which the student is eligible. Pell Grants are Uncle Sam's largest gift program. Students are eligible for a Pell if their Expected Family Contribution comes out to $3,050 or less. School-Based Aid And Scholarships The second layer of the package is money awarded by the college. It also has two parts. The first part consists of money that Uncle Sam gives to colleges for distribution. The schools pick the recipients. There are three campus-based programs for students with financial need. - Supplemental Educational Opportunity Grants - College Work-Study - Carl D. Perkins Loans Federal Stafford Loans Stafford loans are low-interest loans to undergraduate and graduate students enrolled at least half time. They are available to all families without regard to financial need. - Steps involved in filing out a Stafford Loan application Unsubsidized Federal Loans Uncle Sam also offers three non-need-based loans: Unsubsidized Stafford Loans, Parent Loans to Undergraduate Students and Supplemental Loans to Students. All students will be eligible for at least one of these loans, regardless of their income or assets. These loans can be used to round out the financial aid package or they can be used to help with the cash flow when paying the family contribution. - Unsubsidized Stafford Loans - PLUS Loans - Supplemental Loans to Students (SLS) New Student Programs Two new parallel student loan programs have been enacted: Federal Family Education Loans and Federal Direct Student Loans. Federal Family Education Loans include Subsidized Staffords, unsubsidized Staffords and Plus. These loans are made by commercial lenders. Federal Direct Student Loans include Direct subsidized Staffords, Direct unsubsidized Staffords and Direct Plus. These loans are made by Uncle Sam. Back to top The Nation's College Bill In 2000/2001, we estimated that college bills approach $140 billion. Student aid, unfortunately, probably only paid for nearly $81 billion, broken down approximately as follows: • Federal grants, $10.7 billion (13%) • Federal loans, $40.25 billion (49%) • Veterans Administration, $1.46 billion (1.7%) • College scholarships, loans, jobs, tuition, $14.6 billion (17.7%) • Employers, cooperative and tuition remission, $2.6 billion (3.1%) • State grants, $4.65 billion (5.6%) • Private scholarships, $1.6 billion • Tuition tax credits $6.2 billion (7.5%) Back to top Financial Aid Myths And Misconceptions One of the most important things to do in planning a college funding is to overcome some basic financial aid myths and misconceptions. For example, computerized scholarship searches can prove futile in contrast to the the main sources of financial aid: Uncle Sam, your home state, your college and your employer. Back to top • Special Scholarships For many people, looking for college money turns into a search for special scholarships; the awards students are supposed to get because they were born under a full moon and have a beauty mark below their left kneecap. Families should not stop looking for these awards; they should just make it their last priority. Remember that there is more money in being an informed consumer and taking charge of the financial aid process than in all the scholarship searches ever conducted! Back to top • Computerized Scholarship Searches Most computerized scholarship search firms have gone bankrupt or are under federal investigation for deceptive trade practices or mail fraud. The reason is simple: their ads are full of empty promises. For sixty dollars, they guarantee to find five awards for which the student is eligible. What they do not tell you is that this information is frequently outdated or inappropriate, or that it is information the family could get free from Uncle Sam. In addition, you can do a free search of nearly 200,000 sources over the Internet by visiting http://www.studentservices.com/fastweb Back to top • Unclaimed Scholarships Finally, many people also ask about the hundreds of millions of dollars in unclaimed scholarships they read go to waste each year. It is true that some money does go unclaimed every year, but the basis for these extraordinary figures is primarily unused employee tuition remission benefits, not miscellaneous scholarships for which people have not applied. Back to top Nuts And Bolts Of Financial Aid And Some Short Definitions Back to top • Grants and scholarships are gifts They mean the same thing. Because they do not have to be repaid, they are the most desirable forms of financial aid. Back to top • Loans are sums of money the student must repay The reason some loans count as financial aid is they contain favorable repayment terms and are offered at interest rates below the going commercial rates. Back to top • Work-study is exactly that Money the student works for while he or she studies. The money does not have to be repaid, and the college provides the job. Back to top • A dependent student is dependent on parents for support Both the parents' and the student's income and assets are evaluated when determining how much the family can contribute to college costs. Back to top • An independent student is not dependent on parents Only his or her income and assets, and those of a spouse, are evaluated when determining contribution to college costs. Generally, students must be at least 24 years of age by December 31 of the award year to qualify as an independent student. Orphans, veterans, wards of the court and students with legal dependents also qualify, as do married students and graduate students. Students under 24 years of age, who do not meet any of these conditions, may still be declared independent at the discretion of the school's financial aid officer. Back to top Financial Aid Processors As soon as you know how much you and your family earned in the preceding calendar year (and as soon after the first of the year as possible), you need to fill out a need analysis form called the Free Application for Federal Student Aid (FAFSA). Some schools, especially the more expensive ones, will require additional information about a family's finances. They may have their own form, and/or ask families to complete the College Board's "Financial Aid Form" or the "Family Financial Statement" of the American College Testing Program. Uncle Sam authorizes and approves the computer centers that process financial aid applications. When the computer is done calculating, the processor sends the family a multi-part form called a Student Aid Report (SAR). On it, they will find a number preceded by some letters. FC: 03700 means the family has an expected contribution of $3,700. Back to top The Financial Aid Package The processor also sends the analyzed information to the colleges the student designates. At each college, the financial aid officer or FAO looks over the information. The first thing the FAO does is determine a student's cost of attendance and compare it with the family contribution. Remember, this comparison yields what financial aid is all about - the family's need. Then, the FAO begins to work up a financial aid package - a combination of grants, loans and work that will meet the student's financial need. If the family has no financial need and the school really wants the student, the financial aid officer may now offer the student a non-need based award, or recommend the family use one of Uncle Sam's non-need based programs to help manage its cash flow. Back to top Federal Pell Grants And State Grants The bottom layer of the package consists of a Pell Grant and any state grant for which the student is eligible. Pell Grants are Uncle Sam's largest gift program. Students are eligible for a Pell if their Expected Family Contribution comes out to $3,050 or less. The smaller the family contribution the larger the grant within a range of $400 and about $3,250-$3,350. Note the use of the word "about." Appropriation shortfalls usually cause the upper award limit to be shaved down. For example, a $2,500 EFC corresponds to a family of four with an income of $40,000 and assets that approximate $60,000. State grants make up the other part of the bottom layer. Most states require students to attend an in-state college to qualify for a state award. The FAFSA will link students up with their home state's program. If in doubt, a counselor or financial aid officer can help. Back to top School-Based Aid And Scholarships The second layer of the package is money awarded by the college. It also has two parts. The first part consists of money that Uncle Sam gives to colleges for distribution. The schools pick the recipients. There are three campus-based programs for students with financial need. Back to top • Supplemental Educational Opportunity Grants Supplemental Educational Opportunity Grants range from $100 to $4,000 per year. Back to top • College Work-Study College Work-Study provides students with part-time jobs. Awards are made in dollar amounts. Students may work until they have earned this sum. Back to top • Carl D. Perkins Loans Carl D. Perkins Loans are low interest, 5% loans that allow students to borrow up to $4,000 per year to a maximum of $20,000 for undergraduate studies. Graduate students may borrow $6,000 per year to a maximum of $40,000, minus what they borrowed as undergraduates. Uncle Sam pays interest on the loan while the student is in school and for a 9-month period following graduation. The other half of the second layer includes scholarships awarded by the college using money from its own funds, in other words, academic, band, talent and athletic awards. Back to top Federal Stafford Loans Stafford loans are low-interest loans to undergraduate and graduate students enrolled at least half time. They are available to all families without regard to financial need. Under the Stafford Loan program, dependent freshmen can borrow $2,625 per year; sophomores can borrow $3,500. Juniors, seniors and fifth-year undergraduates can borrow up to $5,500. The maximum amount a dependent undergraduate can borrow is $23,000. Graduate students can borrow up to $18,500 per year to a maximum of $138,500, minus what they borrowed as undergraduates. The interest rate during in-school, grace and deferment periods is 1.7% above the 91 day T-bill and carries an 8.25% cap. During repayment, the interest equals 2.3% about the 91-day T-bill. Uncle Sam pays the interest while the student is in school at least half time and for a 6-month period thereafter. The rate for 1999/2000 is 6.92%. Stafford Loans are made by private lenders - banks and credit unions. Most lenders will charge a 1% insurance fee. They will also collect a 3% loan origination fee, which they then forward to Uncle Sam to help reduce some of the program costs. Back to top Students are responsible for filing their own Stafford Loan applications. Here are the steps involved: • Locate a lender and pick up a loan application form • Send the form to the college they plan to attend • Financial aid officer certifies the size of loan • The form travels to the bank • The form then goes to the state guaranteeing agency • Form returns to the bank where it becomes a check • This process takes about two months - at best Back to top Unsubsidized Federal Loans Uncle Sam also offers three non-need-based loans: Unsubsidized Stafford Loans, Parent Loans to Undergraduate Students and Supplemental Loans to Students. All students will be eligible for at least one of these loans, regardless of their income or assets. These loans can be used to round out the financial aid package or they can be used to help with the cash flow when paying the family contribution. Back to top • Unsubsidized Stafford Loans Essentially, the rules and application procedures are the same as the regular Stafford, but with one important exception: Uncle Sam does not pay the interest while the student is in school or during deferments and the borrower must pay an origination fee of 4.0%. Back to top • Plus loans Credit-worthy parents can borrow an amount equal to the total cost of education less any financial aid received. The interest rate equals the 52-week T-bill rate plus 3.1%, but carries a 9% cap. Repayment begins within 60 days of taking out the loan. The current rate is 7.72%. Back to top • Supplemental Loans to Students (SLS) Independent undergraduates may borrow up to $4,000 per year during their first and second years and $5,000 thereafter to a maximum of $23,000. They pay the same interest rate as parents, but their loans cap at 8.25%. Independent graduate students may borrow up to $18,500 per year less any SLS money they borrowed as an undergraduate. The same people who make Stafford Loans make these loans. The paperwork flow is identical. Back to top New Student Programs Two new parallel student loan programs have been enacted: Back to top • Federal Family Education Loans Subsidized Staffords, unsubsidized Staffords and Plus. These loans are made by commercial lenders. Back to top • Federal Direct Student Loans Direct subsidized Staffords, Direct unsubsidized Staffords and Direct Plus. These loans are made by Uncle Sam. Back to top |