As you are thinking about where to go to college, or even whether to go at all, one of the questions that comes up in most peoples deliberations is, “How can I afford this?” Four years of college at a private or an out of state public school can easily cost over $150,000 in tuition, room and board, books and travel costs. Even bargain in-state colleges can cost $10,000 to $20,000 per year to attend.
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For any other uses of this material you must request approval via the Contact Us page at CollegeWin.com As you are thinking about where to go to college, or even whether to go at all, one of the questions that comes up in most peoples deliberations is, “How can I afford this?” Four years of college at a private or an out of state public school can easily cost over $150,000 in tuition, room and board, books and travel costs. Even bargain in-state colleges can cost $10,000 to $20,000 per year to attend. So how do you go to college if you don’t have that much money? For most college students who are legal U.S. residents the answer is student financial aid. If you are applying for or currently attending college you need to have a basic understanding of how financial aid works. My next several entries will provide you with a brief overview of the types of aid available and the process for applying. Types of College Financial AidFinancial aid can be broken down into two broad categories: grant aid and self-help aid. Grant aid is “free” money. Grant aid includes any scholarships or need based grants given to college students to apply to the total cost of attending college. There is little practical difference between receiving a grant and receiving a scholarship, though the term scholarship typically refers to an award given based on some type of merit. But whether your financial aid award letter refers to grant aid or scholarship awards it still means you will be paying less for college. Self-help aid refers to financial aid which doesn’t reduce college cost for students and their families. Self-help aid simply helps the student and his family come up with the funds to pay these costs. The two most common forms of self-help aid are loans and work-study awards. Student Loans College loans come in many packages. Since banks compete for the student loan market they are constantly looking for a way to appeal to new customers. To avoid confusion look at the following key factors when evaluating a college loan: - Who is the borrower? the student/ the parents/ or both
- What is the interest rate?
- Is interest being charged while the student is still in college?
- How large will the payment be once they start?
If you qualify the best student loans available are usually subsidized federal or state student loans. The government subsidizes the loan by paying the interest while a student is enrolled at least half time in a qualifying college. Once the student graduates there is usually a grace period of several months before repayment starts. Funds for subsidized student loans are limited, and they tend to be awarded to the most financially needy students first. If you don’t qualify for subsidized loans, or if the subsidized loan amount isn’t enough to cover your needs you may still want to consider unsubsidized student loans. Unsubsidized loans will charge interest from the moment the loan is made, but the key benefit is that they defer repayment until after you leave college. Hopefully your income will be higher and repayment will be easier to manage once you’ve completed your college studies. Whether or not parents consider taking out loans in their own name rather than the student taking out loans is a bit complicated. In most cases the parents of college age children have a more established credit history which makes it easier to borrow money. However, the economic benefits of a college education are gained by the student, not the parents. So if you think of a loan as a way to raise capital for investing in higher education it makes sense for the student to raise as much of the capital as possible. After all, what are the parents as investor getting in return for taking out the loan? Perhaps nothing more than an empty bedroom when their daughter or son graduates with a good post-college job and can move into a home of her or his own. On the other hand many parents feel, and reasonably so, that providing an education for their children is a basic responsibility. If they could afford to pay the total cost of college without borrowing they probably would, so isn’t it as reasonable to borrow to pay for their children’s college as it would be to borrow for the purchase of a car or a house? Each family will need to decide on its own how much debt it is reasonable for the children to take on and how much can and will parents borrow to help pay for college. Work StudyMany financial aid packages will include a work study award. Work study is a program where employers receive a subsidy to hire needy college students. The work study award limits the number of hours your employer can receive the subsidy, and it is typically set at a level designed to keep you working the recommended <20 hours per week. A work study award may make it easier to find a flexible part time job, but you are under no obligation to actually use your work study award. If you can find a flexible part time job that pays more or gives you better work experience outside the work study system you should obviously take that job and skip the work study route. However, if you have a work study award the college itself is likely to set aside many student jobs for work study students, and this may be particularly helpful if the college is in a rural setting or a city with high unemployment and the local job opportunities are limited. Working on campus in a work study job may also help you get to know some of your fellow students and feel more at home on campus. For this reason some colleges encourage students with work study awards to work on campus for their first year or two in college, and then look for off campus employment with work study participants such as non-profit organizations or government agencies. When and How to Apply for Financial Aid Assuming you would like to pay less than the total cost of attending college you will want to apply for financial aid. But what does it mean to apply for financial aid? Here is the basic process: - At each college where you submit an application for admission you should also request and submit a financial aid application.
- At most colleges the financial aid application will consist of a short form from the college and a requirement the you complete the Free Application for Federal Student Aid (FAFSA) and have a copy of the student aid report sent directly to the college.
Carefully note the deadlines each college has for applying for financial aid. Many colleges will list a priority deadline, after which additional financial aid awards may be made but only if there are remaining funds available. To receive the best award offer you want to make sure you have your application completed before the priority deadline. This means sending in the college form AND completing the FAFSA well before this date so that the college can receive and process this information. To make sure the financial aid application is completed on time you need to do two things. First, you need to apply for financial aid at the same time you apply for admission. If you wait until after you have received an offer of admission before applying for aid you will most likely miss the priority financial aid deadline and receive less aid as a result. Second, you need to complete the FAFSA as early as possible. Since the FAFSA depends on information from your and your parents’ federal income tax returns you will all need to make plans to complete your tax returns promptly in years where you will be applying for college financial aid. This need to complete tax returns creates a bit of a rush for students planning to start college in the Fall (and an even greater rush for students starting in the Summer term). You typically can’t complete your tax returns until you receive all the W2 and 1099 income statements you are expecting. Those forms often don’t arrive until the end of January. If the priority deadline for applying for financial aid is in March, you will need to complete your tax returns and then complete the FAFSA fairly quickly to make sure the college receives the FAFSA based student aid report by this deadline. So as a rule of thumb, pretend that February 15th is really April 15th during any year when you will be applying for financial aid. FAFSA Basics One of the first places to turn when planning how to pay for college is the financial aid office of the college you hope to be attending. Unless you are hoping to be charged full price and receive no financial help in paying for college, you should submit a financial aid application along with your college application to each of the schools where you apply. For most college applications this means filling out a short form supplied by the college and sending a copy of your Free Application for Federal Student Aid or FAFSA application to the college’s financial aid office. If you want to complete the FAFSA you have several options. You can fill out a paper FAFSA which you can obtain from many high school guidance counseling offices, college admissions offices or local libraries or you can request an application by calling 1-800-4-FED-AID. You can also complete the FAFSA online at http://www.fafsa.ed.gov/ . The online FAFSA option is often more convenient, particularly if you are planning to apply for aid at several colleges, but either method still works. While completing the FAFSA you can request that the resulting student aid report be sent to up to six college and can send out additional reports by submitting an amended FAFSA report changing only the schools where the application is to be sent. There are federal guidelines for calculating financial need which are followed by most colleges. The FAFSA student aid report includes an expected family contribution. This contribution amount is based on family income and on available savings or investments which could be sold to pay for college. If you are classified as financially dependent (a status based not just on whether you are listed as a dependent on your parent’s or guardian’s tax return, but also on whether you are paying all your own bills or are still receiving significant support in the form of money or food and shelter) the financial aid office will expect your parents to be making a contribution from their income, and if they have any from their savings and investments except for funds invested in qualified retirement plans. How much your parents will be expected to contribute depends on their income, their savings and investment assets and how many dependents they are supporting. If you family has more than one dependent in college at the same time, the expected family contribution will be divided evenly among the cost to the family of each dependent’s education. Having a sibling in college who has received a full ride scholarship covering tuition, room and board isn’t going to reduce the amount your family is expected to contribute to your education. But if your family will have two dependents in college next year, and the total expected family contribution is $20,000 then assuming each college is charging at least $10,000 after grants then that would be your family’s expected contribution for each dependent in college. |
