December 2008

Financial Aid 101

College is a big investment, and in these difficult economic times many families are wondering how they will pay for it. Fortunately, financial assistance is available to the majority of students who attend college. In fact, about two-thirds of full-time undergraduate students receive financial aid of some sort. In this newsletter, you’ll learn the basic facts about financial aid and how the economic downturn might affect how you pay for college.

How the economy might affect college admission and financial aid
While it’s still too early to tell exactly how the economic downturn might affect college admission and financial aid, here are a few things to consider:

• Public colleges and universities will most likely see an increase in applications as students look for a more affordable education. This may lead public schools to become more selective with applicants.
  
  
• Public college and university tuition may rise as a result of decreased funding.
  
  
• School programs and capital projects may be cut or put on hold as endowments and funding are diminished. Personnel and faculty at many colleges and universities may also be cut. Class sizes may increase. Colleges with very large endowments should not see vast changes.
  
  
• State and federal financial-aid programs may lose funding. Loan programs will likely lose funding as well.
  
  
• Private colleges and universities may increase financial-aid funding and are unlikely to increase tuition. Many will try to make a college education more affordable for students and may increase financial aid by making budget cuts elsewhere and reducing operating costs.

Students should apply to a range of colleges, from affordable schools to others that cost more. Families should be prepared to think through their choices and priorities carefully and to have frank conversations about expectations and limitations. And all families should apply for financial aid. Colleges need to fill their classes, and, in some ways, they are more protected from the economic downturn than other institutions. Colleges will be doing whatever they can to help make it possible for students to attend.

Understanding financial aid
Financial aid is meant to cover the gap between the cost of attendance and what parents can afford to pay. It is an umbrella term for all types of aid: grants and scholarships, which don’t have to be repaid; and loans, which do.

• Federal grants. There are several federal grants available, including the Pell Grant, which is offered to undergraduate students who demonstrate financial need according to criteria set by the U.S. Department of Education; Federal Supplemental Educational Opportunity Grants (FSEOGs), which provide additional aid to students demonstrating strong financial need; and the Academic Competitiveness Grant, which pays up to $750 for the first year of undergraduate study and up to $1,300 for the second year of undergraduate study. Additionally, many states have their own education grants.
  
  
• Scholarships. Scholarships are often based on student achievement in academics or athletics, or a special skill or talent. Some are offered only to students whose families demonstrate financial need. Scholarships are offered through colleges and universities, community service organizations, civic and religious groups, employers, and other groups. Be wary of any organization that charges you to help search for scholarships and be careful about giving out your bank and credit-card information to scholarship search organizations. You can research scholarship information yourself on the Internet and with the help of your college guidance office or local library. Some of the best sources of scholarships and information are the colleges and universities to which your child is applying.
  
  
• Loans.The credit crunch means that private loans are harder to secure. But federally backed loans are still available. These include Perkins Loans, which currently carry a 5 percent interest rate. Students can borrow up to $4,000 per year. Repayment begins nine months after graduation and must be repaid within 10 years. Stafford Loans have a variable interest rate and are available as subsidized and unsubsidized loans. Repayment begins six months after graduation. Federally backed PLUS Loans are offered to parents with a fixed interest rate (7.90 percent for Direct PLUS Loans and 8.50 percent for FFEL PLUS Loans). Loans disbursed between July 1, 1998 and June 30, 2006 have a variable interest rate that is determined on July 1 of every year. For 2008-2009, the variable rate for these PLUS Loans (in both the Direct and FFEL programs) is 5.01 percent . Parents may borrow the total cost of college attendance minus other financial aid. Loan repayment begins within 60 days after the loan is made or the parent may wait until six months after the student is no longer enrolled, on at least a half-time basis, in college.
  

• Federal Work-Study. This federal need-based program allows students to earn money to pay for education expenses by working at a subsidized job, generally on the college campus. Money earned at a work-study job is not counted as income for the following year’s financial-aid analysis.

Applying for financial aid
The federal government calculates financial aid based on a number of factors, including income and assets, family size, and the state taxation rate. The information is run through a formula to determine the Expected Family Contribution (EFC). Don’t rule out any college because of cost. The more a college costs, the more financial need you may receive. In most cases, to be considered for financial aid, you will need to follow a formal process that includes submitting one or all of the following forms by the appropriate deadlines:

• Free Application for Federal Student Aid (FAFSA). This is the form that you will need to fill out to apply for federal financial aid, including Pell Grants, Perkins and Stafford loans, and work-study. Most colleges require it. You can fill out the FAFSA electronically at the FAFSA Web site (www.fafsa.ed.gov), or in paper format, which you can get through your child’s guidance office, the college admissions office, or by calling 800-4-FED-AID (800-433-3243). File the FAFSA as soon after January 1 as possible, and by the earliest financial-aid deadline of all the colleges to which your son or daughter is applying. Allow plenty of time to fill the FAFSA form out. Note that you may obtain a PIN before you fill out the form by going to the FAFSA Web site.
  

• College Scholarship Service/Financial Aid Profile (CSS/PROFILE). Many private colleges, universities, and scholarship programs require the PROFILE as a supplement to the FAFSA to determine eligibility for non-government student-aid funds, such as the school’s own scholarships, grants, and loans. You can get more information and complete the CSS/PROFILE online at https://profileonline.collegeboard.com. There is a fee for processing the form and an additional charge for each school to which the results are sent.
  
  
• A state-specific financial-aid form. Check with your state to learn about its financial-aid deadlines and forms if you’d like to be considered for state aid.
  
  

• A college-specific form. Many colleges have their own financial-aid forms that you will need to fill out as well.

Be sure to check with each college’s Web site or call the financial-aid office to see what forms they require and when they are due. Missing a deadline may mean less financial aid is available for your student because it’s already been distributed. It is essential that your child also apply for admission by the admission deadlines to receive the best financial-aid consideration.

If you are the parent of a high school junior
It’s not too early to begin researching financial aid. In fact, by starting now, you’ll have time to research all of your options and learn the various deadlines for applying for aid. Some private sources of funding may have deadlines before your child’s senior year. Most colleges’ and universities’ deadlines, as well as government deadlines, however, will be during the senior year. Missing a deadline could mean missing out on money that could help pay for your child’s college education. The following are some helpful Web sites for financial aid:

• FinAid! (www.finaid.org) is a comprehensive Web site that explains all the terminology of financial aid, lists a number of different sources for aid, and offers calculators to help determine your costs. The site provides links to a variety of other sites that will help your family navigate the financial-aid process.
  
  
• SallieMae College Answer (www.collegeanswer.com) helps families search for sources of financial aid and provides useful information about the process.
  
  
• FastWeb! (www.fastweb.com) offers a free scholarship search service.
  
  

• Student Aid on the Web (www.studentaid.ed.gov) is the U.S. Department of Education’s financial-aid Web site.

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