College Financial Aid: Do Your Homework

If one or more of your children will reach college age soon, you may be wondering how you will manage all the costs. For many families, a financial aid package provides some level of tuition support. This often includes grants, scholarships, loans, or work-study placements. Aid is primarily based on the family’s need. If it is determined that you are able to afford the cost of college, your quest for assistance is going to be challenging, but not impossible.

Forms must be filled out in order to ascertain if you qualify for aid. If you want to get an idea of your eligibility before applying for aid, try using the following formula:
 
The Five Percent Test

Take 5% of the value of your total family assets (including home equity, savings, and investments) and add this figure to your adjusted gross income (AGI) from last year’s tax return. Divide that result by the estimated, annual cost of college. If the result is six or less, you could qualify for financial aid. If the final number is higher, you may have a difficult time convincing financial aid officers of your need.

No matter what you expect your chances to be, it is still worthwhile to go through the application process. Many different factors enter into the final outcome. Public and private institutions alike offer varying amounts of aid, and you may be pleasantly surprised.

Funding Sources

If you do not receive aid from your chosen institution, there are other options. The Federal government, state government, banks, insurance companies, and religious, ethnic, civic, and fraternal organizations are a few alternative funding sources. The number of Federal aid programs alone is encouraging. Here are some of the more popular programs:

Pell Grants—These grants are generally awarded to undergraduates based on need and family income. The size of the grant depends on program funding. The maximum award for the 2016–2017 award year is $5,815.

Federal Supplemental Educational Opportunity Grants (FSEOGs)—These grants are earmarked for undergraduates who are in greater need than Pell Grant applicants. The Federal government supplies this money, but the individual colleges distribute the funds. The availability of these grants may be limited, depending on how much funding is allocated to a particular school. Annual grants range from $100 to $4,000.

Federal Perkins Loan—These loans are generally available for students with exceptional financial needs. Factors that determine qualification for a Perkins Loan are 1) when the application is submitted, 2) a student’s financial need, and 3) the funding level for the particular school. An eligible undergraduate student can borrow up to $5,000 per undergraduate year of study, not to exceed a total of $27,500. An eligible graduate student can borrow up to $8,000 per graduate year of study, not to exceed a total of $60,000 (including undergraduate loans). If the borrower is more than a half-time student, repayment begins nine months after the recipient graduates or leaves school. (These nine months are called the “grace period.” Students who are attending school less than half-time may have a shorter grace period.) Payments can be extended over a maximum period of ten years after the grace period ends.

Federal Work-Study Program—This program essentially provides an award in exchange for work. The typical school work schedule is about 12 to 15 hours per week (up to 40 hours per week during vacations). These jobs may be on or off campus, but they are generally with a government agency or non-profit organization if they are off campus (under some circumstances, a school may have arrangements with a private for-profit company). When possible, the jobs are related to the student’s major. While the pay is generally modest, it is at least minimum wage. However, hours and compensation cannot exceed the Federal Work-Study award.

Federal Direct Loan (Stafford Loan)—Federal Direct Loans are available to students who are enrolled at least half-time. The Federal government offers subsidized and unsubsidized loans based on eligibility. The government pays interest on Federal Direct Subsidized Loans until the student graduates, withdraws, or enrolls less than half-time. At the time these situations occur, interest on the loan is charged, but repayment of principal and interest begins after a six-month grace period. This rule applies to loans taken out after July 1, 2012.

Federal Direct Parent Loan (PLUS )—Parents are eligible for this loan if they pass a credit check. The amount of the loan is generally limited to the actual “cost of attendance” minus any financial aid already received. There is a 4% origination fee in addition to the loan amount. Repayment must begin 60 days after the final loan disbursement for the academic year, and be completed within a 10 year period. Interest on PLUS loans will depend on the disbursement date.

Some states base their programs not only on need, but also on academic performance. The recipients of state loans generally must be legal residents of the state and enrolled in a college or university within their state. In addition, some states have “reciprocity agreements” with other states. For more information, go to the U.S. Department of Education website at www.ed.gov.

No matter what you believe your chances are for receiving aid, it is always best to apply. You may qualify for more aid than you think.

 

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