Fueling the Dream: How Financial Aid Is Awarded

Making enough money to own the house of your dreams is something many people look forward to. Purchasing a home of your own is probably the biggest investment you will ever make in your life. However, the next biggest financial project that the average American family undertakes could surprise you. It has nothing to do with home improvement or retirement planning. Instead, it involves paying for your child’s college expenses.

Gaining Currency: The Business of Education

A four-year college term costs thousands of dollars. For advanced degrees, the cost is even higher. In 2013 the National Center for Education Statistics submitted a report titled “The Condition of Education 2013.” Prepared in conjunction with the U.S. Department of Education, the report established that:

The percentage of first-time, full-time undergraduate students receiving financial aid increased from 75 percent in 2006-07 to 85 percent in 2010-11
In 2011-12 the sticker price for the average public college was $20,997
In 2010-11, families with income levels up to $30,000 received financial aid worth $9,530 and paid a net price of $8,050. In comparison, families with income levels from $48,001 to $75,000 received financial aid worth $5,410 and paid a net price of $13,640 and the average amount of grants awarded to first-time, full-time undergraduate students was:

In public colleges: $13,475
In private non-profit colleges: $23,745
In private for-profit colleges: $10,783
Sticker price denotes the published price of attendance prescribed by the college. Financial aid represents the money that reduces the final price that students have to pay. The net price represents the family’s actual payment for college expenses. This could come from:

Their income
Their savings, or
A loan
Full Circle – An Overview of the Financial Aid Process

At first glance, the sticker price of any college might seem expensive, if not exorbitant. However, financial aid wipes away a substantial amount of that price. Thus, it enables college students to earn their degrees. It comes from several sources, such as:

The federal government (approximately 73 percent)
Colleges and universities (about 18 percent)
State governments (about 5 percent)
Several private organizations, e.g., companies, religious organizations (around 4 percent) and
Banks and financial institutions
Financial aid comprises:

Grants from the federal and state governments: They award grants based on the financial circumstances of the student. The student does not need to repay these.
Scholarships from governments, colleges and private organizations: They provide grants based on the student’s skills and abilities in academics, sports, volunteer work, and so on.
Loans from the federal government (low interest) or private lenders (high interest): Students need to repay these along with the interest component.
To receive financial aid, students must apply via the Free Application for Federal Student Aid (FAFSA). They must submit the FAFSA by January 1 of the year in which they plan to attend college.

Students could also apply for financial aid from the colleges they apply to or other financial institutions. Some institutions require applicants to submit forms such as the CSS/Financial Aid PROFILE. The relevant authorities award financial aid based on the details submitted in the application form.

What Lies Beneath – The Formula behind Financial Aid

Most formulas for evaluating- and awarding- need-based aid operate on the following principle and input your family’s income and assets into a calculator. The calculator segregates a portion of your family’s:

Income (for meeting living expenses) and,
Assets (for meeting any emergent expenses- usually about $50,000)
Evaluates the remaining income and assets of the family and the student at various percentage rates
Returns a grand total known as the Expected Family Contribution (EFC)
The EFC represents the amount your family needs to pay for your college education for the current year, and if the EFC is lesser than the cost of college, the difference represents your financial aid entitlement amount. For example, if:

College expenses amount to $100,000 and
Your EFC is $65,000
Your financial aid entitlement is $35,000 ($100,000 – $65,000)
However, remember that all colleges might not be able to give you aid commensurate with your entitlement.

The Same, Only Different – Features of Aid Calculating Methods

Colleges use three different aid calculators. Most employ the FAFSA method. Others could use the College Scholarship Service PROFILE or Consensus. Aid calculators have in-built assessments that act like taxes. They allow you to take a deduction for income and federal taxes. However, if you get a bonus, the IRS, the state and the college bursar will all claim a portion.

Fueling Your Dreams – How to Maximize Financial Assistance for Your College Years

Given the rising price tags in colleges, you need to plan early in life. Some tips to help you maximize financial aid include:

Completing and submitting the FAFSA always.
Reducing the number of assets in the student’s name for reducing your EFC. Student assets earn a 20 percent assessment tax, while parents’ assets earn a 5.65 percent assessment.
Avoiding excessive details on assets and income while filling the FAFSA. You are legally entitled to omit certain sources of income and assets (e.g., your primary residence, your vehicle, and furniture).
Because certain situations could reduce your EFC further, you should notify financial aid staff immediately when you encounter situations such as:

The loss of a job
A divorce
A medical crisis with considerable expenses
Becoming a dislocated worker
A dislocated worker is a person who receives unemployment benefits due to being laid off or due to unemployment after being previously self-employed. Dislocated workers also:

Cannot revert to an earlier job
Can be a displaced homemaker with no source of income
You should also notify your financial aid staff if you are:

Repaying debts instead of storing cash in your savings accounts
Offsetting capital gains from the sale of stocks by selling some loss-making stocks
Reducing taxable income by maximizing contributions to tax-exempt retirement accounts
Financial aid can help ease the burden of funding college education. Therefore, the earlier you begin your preparations, the easier it would be to manage the finances. After all, every college and program has a price tag. However, educated citizens are necessary for a nation to prosper. This is why educated citizens are priceless assets for every nation.

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College Financial Aid FAQ

Financially Challenged? There’s lots of free college information available online, and here are some of the most popular questions when it comes to student Financial Aid. Learn about the difference between grants, student loans and college scholarships and bank on your future!

What is Financial Aid? Financial aid is monetary aid to help you pay for your college education. Aid is made available from grants, college scholarships, student loans, and part-time employment from federal, state, institutional, and private sources. The types and amounts of aid awarded are determined by financial need, available funds, student classification, academic performance, and sometimes the timeliness of application.
What is the FAFSA? FAFSA stands for Free Application for Federal Student Aid. The FAFSA is the Federal Department of education’s primary application for financial aid and is the gateway form to just about any other federal, state or private grants, college scholarships, student loans or college work study programs. The FAFSA form must be filled out each year between January 1 and March 10th (although some colleges have their own earlier deadlines) and can be completed online or by mail. Four to six weeks after you file the FAFSA (two to four weeks if you filed electronically), you will receive your Student Aid Report (SAR) which will contain a summary of the information you submitted on your FAFSA and presents your Expected Family contributions (EFC) which tells you the amount your family is expected to contribute towards your education. The amount of financial aid is then determined approximately by the tuition of your college subtracted by your EFC. If you do not receive the SAR within a reasonable amount of time, you can call the Federal Processor at 1-319-337-5665. Review the SAR carefully for errors. If necessary, make any corrections on Part 2 of the SAR and return it promptly to the address listed on the form. You will then be sent a new SAR with the changes made.
What is the College Scholarship Services Profile (CSS Profile)? Some colleges also require you to fill out a College Scholarship Services Profile form in addition to the FAFSA. It is a secondary financial aid form that supplies further information about your family income. Be sure to check whether this form is necessary and about specific deadlines with your college directly.
What is the difference between a Grant, a Student Loan and a College Scholarship? A grant is free money from government or non-profit organizations that does not need to be repaid. Grants are usually determined by financial need but can also be influenced by academic merit. Unlike grants, student loans are money loaned from an academic institution, financial institution, or federal government that must be repaid. Like a grant, a student scholarship is free money, but is generally offered through colleges, businesses, private individuals and outside sponsors. Those awarded by the college itself are often called MERIT AID. While grants tend to be issued according to financial need, college scholarships are awarded on a broad-base of criteria, the most common being academic merit. Furthermore, to receive any grants or loans you must complete a FAFSA, however, many scholarships may not require you to complete a FAFSA to be eligible. Instead, you may need to obtain application material directly from the donor of the scholarship.
What are the different kinds of grants? There are federal as well as campus-based (institutional) grants. Federal Grants are free gift money from the Federal Department of Education while campus-based grants are government funds issued directly from your college. The campus-based grants provide a certain amount of funds for each participating school to administer each year. When the money for a program is gone, no more awards can be made from that program for that year, so make sure you find out about the types of grants awarded by each college you are considering as well as their specific deadline. Below are some of the most common grants.
Federal Grants Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and non-federal sources might be added. Pell Grants are usually only awarded to undergraduate students who have not earned a bachelor’s or a professional degree. The amount you get depends on your financial need, your college’s tuition, your status as a full-time or part-time student and your plans to attend school for a full academic year or less. The Academic Competitiveness Grant is a new grant available to first year college students who graduated from high school after January 1, 2006 or for second year college students who graduated from high school after January 1, 2005. Only students who are eligible for a Federal Pell Grant and who has successfully completed a rigorous high school program as determined by the state or local education agency and recognized by the Secretary of Education. An Academic Competitiveness Grant will provide up to $750 for the first year of undergraduate study and up to $1,300 for the second year of undergraduate study for full-time students who are eligible for a Federal Pell Grant. The National Science and Mathematics Access to Retain Talent Grant (AKA the National Smart Grant) is available during the third and fourth years of undergraduate study to full-time students who are eligible for the Federal Pell Grant and who are majoring in physical life, or computer sciences, mathematics, technology, or engineering or in a foreign language determined critical to national security. The student must have also maintained a cumulative grade point average (GPA) of at least 3. 0 in coursework required for the major. The National SMART Grant award is in addition to the student’s Pell Grant award. Campus-based Grants
The Federal Supplemental Educational Opportunity Grant (FSEOG) The FSEOG is a campus-based grant aimed at assisting students with exceptional financial need. Pell Grant recipients with the lowest expected family contributions (EFCs) will be considered first for a FSEOG. You can receive between $100 and $4,000 a year depending on when you apply, your financial need, the funding at the school you are attending, and the policies of the financial aid office at your school.
What are the different kinds of student loans? A student loan is money that needs to be repaid after you have completed your studies. Generally, interest rates are low- so that you do not rack up as much debt as you would with a credit card or bank loan. There are campus-based loans, which you repay directly to your college, as well as federal loans which you repay either directly to the U.S. government or to your financial institution.
Campus-based LoansFederal Perkins Loan The Federal Perkins loan is a campus- based loan because it is administered directly by the financial aid office at each participating school. In other words, your school is the lender although the loan is made with government funds. Your school will either pay you directly or apply your loan to your school charges. You’ll receive the loan in at least two payments during the academic year. You can borrow up to $4,000 for each year of undergraduate study with a maximum of $20,000 for your entire undergraduate degree. The amount you receive depends on when you apply, your financial need and the funding level at your school. The Federal Perkins Loan is a low-interest , 5 % loan for students with exceptional financial need. You must repay this loan directly to your school and you have nine months to begin your repayment plan after you graduate. Generally you will make monthly payments to the school that loaned you the money over a 10 year period. Federal LoansThe U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as 1. Stafford Loans (for students) and 2. PLUS loans (for Parents). Schools generally participate in either the FFEL or Direct Loan program, but sometimes schools participate in both. For either type of loan, you must fill out FAFSA, after which your school will review the results and will review the results and will inform you about your loan eligibility. You also will have to sign a promissory note, a binding legal document that lists the conditions under which you’re borrowing, and the terms under which you agree to repay the loan.
Stafford Loans Stafford loans are federal loans for students. Eligibility rules and loan amounts are identical under both the FFEL and Direct loan programs, but providers and repayment plans differ. For all Stafford loans first disbursed on or after July 1, 2006, the interest rate is fixed at 6. 8 percent. However, you can be considered for a subsidized loan, depending on your financial need, in which the government will pay (subsidize) the interest on your loan while you’re in school, for the first six months after you leave school and if you qualify to have your payments deferred. You might be able to borrow loan funds beyond your subsidized loan amount even if you don’t have demonstrated financial need. In that case, you’ll receive an unsubsidized loan. Your school will subtract the total of your other financial aid from your cost of attendance to determine whether you are eligible for an unsubsidized loan. Unlike a subsidized loan, you are responsible for you’re the interest from the time the loan is disbursed until the time it is repaid in full. After you graduate, you will have a six month ‘grace-period’ before you must begin repayment. During this period of time, you’ll receive repayment information, and you’ll be notified of your first payment due date. You are responsible for beginning repayment on time, even if you don’t receive this information. You will receive more detailed information on your repayment options during entrance and exit counselling sessions provided by your school.
Federal Family Education Loan (FFEL)Funds from your FFEL will come from a bank, credit union or other lender that participates in the program. Schools that participate in the FFEL program, will usually have a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer. Your loan money must first be applied to pay for tuition and fees, room and board and other school charges. If money remains, you’ll receive the funds by cheque or in cash. Besides interests, you will pay a fee of up to 4 % of the loan, deducted proportionately from each loan disbursement. For a FFEL Stafford Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency (the organization that administers the FFEL Program in your state) to help reduce the cost of your loans.
Direct LoanUnder the direct loan program, the funds for your loan come directly from the federal government and you will need to repay your Direct Loan to the U.S. Department of Education’s Direct Loan Servicing Center. Like the FFEL loan, you will pay a fee of up to 4 % of the loan. For a direct Stafford Loan, the entire fee goes to the government to help reduce the cost of the loans.
PLUS Loans (Parent Loans)Parents can borrow a PLUS Loan to help p

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