What You Need to Know About College Aid

February 12th, 2008

If you are one of many students wishing to go to college, but are concerned about the costs, there is good news for you. Getting college aid can be easier than you think. Students can choose between a selection of federal loans and non-federal loans, grants, scholarships and other financial sources. All you really need is time to fill out the various applications.

Free Application for Federal Student Aid (FASFA)

First and foremost, you should start by filling out the Free Application for Federal Student Aid (FAFSA). The FAFSA will determine your eligibility for federal student financial aid. This includes grants, loans and work-study programs. Many non-federal programs, such as private loans and scholarships, also use the FAFSA results to help determine their awards.

The FAFSA consists of a number of questions regarding the student's financial situation. Once all the information is collected, it is formulated into the Expected Family Contribution (EFC). The EFC score is based on a number of factors such as family size, income, number of other family members in college and assets. The EFC score will determine eligibility for a number of federal, state, local and institutional aid programs.

It is important that students fill out their FAFSA form early. In many cases more aid is awarded to the applications submitted earliest because the United States Government has a yearly budget that becomes quickly exhausted. If the application is not submitted in a timely fashion, you may not receive the maximum amount that meets your needs and qualifications.

To get started on your FAFSA, go to www.fafsa.ed.gov and submit your application.

Financial Aid From The Federal Government

Once the FASFA is completed, you have the ability to apply for a number of financial aid programs offered through the Federal Government. These include Pell Grants, Perkins Loans, Stafford Loans and work-study programs.

Federal loans are an attractive choice to many students because the interest rates are lower than private loans. Unfortunately, there are strict eligibility requirements and borrowing limits placed on Federal loans.

Qualified students can borrow up to $18,500 a year ($8,500 subsidized, $10,000 unsubsidized) in Federal loans, according to salliemae.com. It is important to remember that loans have to be paid back, usually with interest. Your interest rate is dependent on the type of loan you accept, so be sure you know your rates.

Stafford Loan

There are two types of Stafford Loans: subsidized and unsubsidized. The main difference between the two loans is that subsidized loans don't accrue interest during deferment or your grace period. On the other hand, unsubsidized loans start accruing interest the day the money is disbursed.

The current interest rate on Stafford Loans is a fixed rate of 6.8%. Stafford Loans have a set yearly borrowing limit.

Year One Borrowing Limits:

1. Subsidized - $3,500
2. Unsubsidized - $4,000
3. Total Eligibility- $7,500

Year Two Borrowing Limits:

1. Subsidized - $4,500
2. Unsubsidized - $4,000
3. Total: $8,500

Year Three-Five Borrowing Limits:

1. Subsidized - $5,500
2. Unsubsidized - $5,000
3. Total: $10,500

Perkins Loan

The Perkins Loan is awarded to undergraduate and graduate students with extraordinary financial need and is the best Federal student loan currently available to students. It offers a low 5% interest rate and a ten-year repayment period. It is a subsidized loan and the Federal government pays interest while the student is in school and for a nine-month grace period after completion of schooling.

For more information visit the official Perkins Loan website.

The Federal Parent Loan for Undergraduate Students (PLUS)

PLUS loans are similar to Stanford loans but, in this case, the money is borrowed under a parent's name. It is important to understand that, unlike Stanford or Perkins Loans, PLUS Loans are the sole responsibility of the parents. Currently, PLUS Loans carry a fixed interest rate of 8.5%. It is also very important to remember that PLUS Loans enter repayment during the time students are in school.

Private Loans

Many companies also offer private loans, but these are more costly than Federal loans. Your credit score determines the interest rate for private loans so the higher your credit score, the lower the interest rates. In addition, having a cosigner with a high credit score can drastically lower your interest rates. Generally, if your credit score is less than 650 (FICO), you are unlikely to be approved for a private student loan.

Grants

Grants are a great way to help pay for college because, unlike loans, they don't need to be paid back. The Pell Grant and the Federal Supplemental Educational Opportunity Grant (FSEOG) are two grants awarded by the United States Federal Student Aid.

The maximum award for the Pell Grant is $4,310 per year. The FSEOG award is between $100 and $4000 per year, depending on factors such as when you apply, your financial needs, the funding at the school you've chosen, and the policies of the financial aid at the school you wish to attend.

Scholarships

Scholarships are a great way to help pay for school and hundreds of thousands are awarded each year. Scholarships are commonly awarded on the basis on particular fields of study, members from underrepresented groups, students who demonstrate financial need, and a number of other factors.

The best place to find scholarships is on the internet. There are a great number of free scholarship databases. The most popular database is www.fastweb.com as it is the largest, most accurate and most frequently updated scholarship database. Another popular database is www.scholarships.com. Don't be fooled by websites that require payment for scholarship database access. You should never have to pay to use a scholarship database website.

Many Students Qualify for Tax Breaks

According to HRBlock.com, depending on your income and a number of other factors, you may qualify for a number of tax breaks. These breaks include:

1. The Lifetime Learning Credit (LLC), which allows you to reduce your total takes by an amount equal to 20% of up to $10,000 in tuition and fees.
2. A deduction for qualified higher education expenses of up to $4,000 per year (you can take either the LLC or the deduction, not both).
3. A deduction for tuition, books and other fees.
4. A Student loan interest deduction of up to $2,500 a year.

Contact a registered public accountant or public accounting firm to obtain more information and to see if you qualify for one or more of these tax breaks.

Many Employers Help Pay for Tuition

Employers often offer tuition reimbursement to their employees. It would be wise to contact your employer to see if they offer any scholarships or tuition reimbursement programs. For example, according to Kiplinger Washington Editors, General Motors awards around 900 scholarships every year to employees or spouses and children of employees. Many companies will also help pay for employees to get their master's degree but it is important to note that most companies will require you to work for the company for a set period of time afterward in order to gain the full benefits.

The Money is There for You to Take

Money is no longer an excuse for not going back to school. With the wealth of resources available, it is easier than ever to find and apply for financial aid. The hardest part is taking the time to simply fill out the forms and applications. Gaining a higher education will expand your career options and your potential for earnings will significantly increase.