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What Financial Aid Is Available? |
This section introduces some basic financial aid terms and concepts you will need to understand. It also gives details about some specific programs, and suggests other sources of information.
What Types of Financial Aid Are Available?
What Are the Sources of Financial Aid?
What Other Resources Are Available?
There are two basic categories of student financial aid:
When students do not have sufficient financial resources to pay for their education beyond high school, they are generally considered to have "financial need." Having financial need is the primary requirement for receiving need-based aid, although students must meet other eligibility criteria as well. Whether or not you and your family have sufficient resources to pay, the cost of sending you to college is usually determined by collecting financial data about you and your parents, and having that data analyzed. In other words, you must show that you and your family do not have enough money to pay for all of your college expenses, and that you have "need" for financial assistance.
Non need-based aid is often referred to as merit-based aid and is frequently awarded to students in recognition of special skills, talents, or academic abilities. Qualifications for non need-based aid are usually competitive in nature, and recipients are chosen because of their superiority in whatever criteria are used for selection. Non need-based aid may also be awarded based on criteria such as field of study, community service, leadership abilities, athletic ability, ethnicity, or religious background. Most merit aid does not require students to demonstrate that they have financial need.
Within each category of need-based and non need-based assistance there are three types of aid:
Grants are gift aid; they do not have to be repaid, nor do they have to be earned. Scholarships are generally considered to be grant aid; thus they too do not have to be earned or repaid.
Loans are financial assistance that must be repaid. However, unlike other kinds of loans, need-based student loans do not have to be repaid until you leave school and they carry lower interest rates than most other kinds of loans. This is because the government pays the interest for you while you are enrolled in school.
Non need-based loans also do not have to be repaid while you are enrolled, but unlike need-based student loans, you will be responsible for paying the interest that accrues, even while you are in school.
Loans are really someone else's money that you borrow temporarily. Once you start repaying your loan, you must pay interest on the money you borrowed. Interest is the price you pay for having borrowed someone else's money.
Because you are expected to repay loans from your future earnings, loans are generally referred to as self-help assistance. Loans are also available to the parents of college students. These loans are non-need based and can have a higher interest rate and fewer special provisions than loans made directly to students.
Repayment of student loans may be delayed or temporarily suspended for certain reasons without a penalty. Some student loans may be partly or entirely canceled if you perform certain services.
Work programs help you earn money so you can pay your educational expenses as you go. Many schools help their students find jobs or actively place them in jobs. Employment can be on or off campus. Some jobs relate to a student's program of study, others do not. Jobs that are unrelated to your particular academic program still provide you with valuable work experience. Employment teaches you how to organize your time, introduces you to a new set of responsibilities, and provides you with a source of recommendations for future job searches. Because you must work for this money, employment is considered a form of self-help aid.
The four basic sources of student financial aid, and who to contact for more information, are:
Each source may offer both need-based and non need-based aid as well as all types of aid: grants, loans, and work.
To find out more about private aid, we encourage you to contact community groups and consult the reference librarian at your local library. Your school's counseling office and your city's chamber of commerce or community center may also be able to help you find sources of private aid.
Many schools also provide need-based and non need-based aid to their students. This type of aid is usually referred to as institutional aid and varies by school. The importance of institutional aid has increased in recent years as educational costs have increased. Remember, your application for admission to a school might not automatically trigger consideration for institutional aid. Always read the school's catalog to find out what aid the school offers and what additional forms or applications are required. If you have questions, contact the school's financial aid office.
State-supported financial aid varies from state to state and may have residency or attendance restrictions. In some states, grants cover tuition only and are based on a financial need analysis designed by the state. Some state scholarships are based solely on merit and are measured by academic achievement. Others are designed to support students interested in certain professions to help fill a shortage within the state. Some states also have loan and work programs.
High school counselors can provide information regarding state aid, or you can write to or phone the agency in your state responsible for awarding state aid. Counseling offices have brochures and the addresses to which you can write. Be sure to ask whether your state's student aid must be used only at schools located in your state or if it can be used in other states. If a school that interests you is located in another state, ask the school's financial aid administrator for information about aid from that state or for an address to which you can write. Ask if aid from that state would be available to you if you decide to attend the school.
Federal aid is the largest source of money for students who can demonstrate that they have financial need. The federal government has also committed a great deal of money in the form of non need-based assistance. Some forms of federal aid are merit-based, but they are more limited or specialized, and some are administered by state agencies on behalf of the federal government.
The U.S. Department of Education decides whether a college is eligible to receive and award federal money. Eligible schools give federal money to students based on rules established by Congress and the U.S. Department of Education. Some schools decide not to participate in certain federal programs even if the government would let them. The school's catalog should describe the programs in which it participates.
There are six federal student aid programs you should know about. Knowledge of these student aid programs is not only important, it may make the difference between furthering your education or not. The federal programs you should learn about are:
Federal Pell Grants are need-based gift aid. If you are eligible for a Federal Pell Grant, the actual amount you will receive will depend in part on how much it costs to attend the school of your choice. The money for the Federal Pell Grant comes to the school, which then delivers it to you. If you are eligible for a Federal Pell Grant, you will receive it regardless of how many other students at the same school also show need for this type of aid.
Federal Supplemental Educational Opportunity Grants (FSEOG), Federal Work-Study (FWS), and Federal Perkins Loans are three individual need-based programs that are collectively referred to as the campus-based programs. The federal government gives each participating school a certain amount of money for each of these programs. The school then decides which of its needy students will receive the money and how much they will receive. The type and amount of aid you might be offered from these programs will probably vary (sometimes significantly) from school to school.
Usually, there is not enough money from the campus-based programs to help all of the students who need it. That's why you must learn about the aid that is available and apply for it on time! While campus-based assistance is very important, don't despair if you cannot get help from these programs; alternatives are available and will be discussed shortly.
The Federal Supplemental Educational Opportunity Grant (FSEOG) is gift aid that must be given to the neediest students, according to federal law. Besides showing need, you must also meet the guidelines the school is required to use when awarding FSEOG.
Federal Work-Study (FWS) allows schools to provide jobs for students who need to work to meet some of their educational expenses. Don't worry if you have no previous work experience; most FWS jobs do not expect or require it.
You can use Federal Work-Study earnings to pay for expenses that come up throughout the school year. Think of your earnings as a way to help you meet those expenses. You might even be able to save some of your earnings to help pay tuition for a later registration period.
If the school offers you a Federal Work-Study award, the number of hours per week you will be expected to work depends on the amount of your award and your hourly pay rate. The school will generally award you an amount to earn that will not be so great that it interferes with the time you have available for studying. Some schools also allow students to earn their Federal Work-Study funds during the summer or other vacation periods.
Federal Perkins Loans are low-interest loans (currently 5%) with generous repayment conditions. You don't start repaying the loan, or interest on the loan, until you finish school or drop below half-time attendance. Even then there is a 9-month grace period before you actually start paying back the loan.
Some students are afraid to borrow money for school, but you shouldn't be. If you must borrow to help pay for school, look at the loan as an investment in your future. And remember, the grace period allows you time to find a job. Further, you might be able to delay repaying your Federal Perkins Loan even after the grace period has ended. If, at that time, you are seriously looking for a job but have not been able to find one, or if you are working as a teacher in certain areas or are engaged in specific full-time volunteer services, you can wait longer before repaying the loan.
Under certain conditions you can defer paying your loan for a few months or even a few years and finish repaying it later. As long as you keep the school that loaned you the money informed about where you are and why you wish to delay repayment, reasonable repayment arrangements can usually be made.
Under specific conditions defined by law you may not have to repay your loan at all. All or part of your loan may be canceled if you teach in certain areas, work in certain law enforcement fields or for child or family service agencies, become a nurse or medical technician, or serve as a full-time volunteer in certain programs.
Once you do start repaying the loan, you can spread your payments out over as many as 10 years, and you may be able to pay as little as $40 per month. Your actual monthly payment will depend on how much you borrowed. If you must borrow money in order to further your education, the Federal Perkins Loan is the most desirable type of loan to receive.
There are two separate loan programs that fall under the title of Federal Family Education Loan (FFEL) Program. These are:
The money you borrow through these programs comes from banks or other private lenders, but the loans are guaranteed by the federal government through a state or private agency. Basically, the federal government has decided to back you by betting that you will be a success and will repay the money to the lender.
Most students pay back their loans willingly and on time. Those who do not repay suffer the consequences of a bad credit rating, and can have their wages garnished and their income tax refunds seized. These students damage their chances to take out other loans, like car loans or home loans. If you have to borrow money to obtain your education, remember you must be willing to pay it back.
Federal Stafford Loans are made directly to students. Federal PLUS Loans are made to parents of dependent college students, and the money must be used to pay for the educational expenses of that student. Federal PLUS Loans and unsubsidized Federal Stafford Loans may be used to replace the amount the family is expected to contribute toward educational expenses.
Federal Stafford Loans are similar to Federal Perkins Loans, although the interest rate is higher and the grace period is shorter.
There are two types of Federal Stafford Loans: subsidized and unsubsidized. You do not have to start repaying the principal of either type of loan until six months after you are out of school (or after you stop attending at least half-time).
The primary difference between the two types of loans is who pays the interest on the loan while you are enrolled in school, and during grace and deferment periods. If you can demonstrate you have need for financial assistance, and are eligible for a subsidized Federal Stafford Loan, the government pays the interest for you until your repayment begins. The other difference is that subsidized loans may not be used to replace the student's expected family contribution, but unsubsidized loans may be used for this purpose.
Eligibility for the unsubsidized Federal Stafford Loan is not based on financial need. If you borrow from this loan program, you will be responsible for paying the interest that accrues from the time you borrow the loan through repayment, including when you are in school. The interest can be capitalized, which means it can be added to the principal amount of the loan for later payment. In this case, you end up paying interest on the capitalized interest.
All Federal Stafford Loan borrowers are charged certain fees called origination and insurance fees. These combined fees cannot exceed 4% of the amount borrowed and they are deducted up front. Thus, if you borrow $1,000, you will receive approximately $960, but you must repay the full $1,000.
If you apply for a Federal Stafford Loan, make sure you understand all of the costs associated with borrowing and know the actual amount of funds you'll have available to help meet your expenses.
Once you start repaying either a subsidized or unsubsidized Federal Stafford Loan, the interest rate on the loan varies each year beginning on July 1. The actual interest rate is calculated based on a formula, but it can never be more than 8.25%. You normally have up to 10 years to repay your Federal Stafford Loans, as long as you pay at least $600 per year ($50 per month). Your actual monthly payment may be more depending on the amount you borrow.
With the approval of your lender, and under certain specific conditions--such as when you re-enroll in an educational program of study or if you are experiencing economic hardship--you can delay or interrupt repaying your student loans. These periods are called deferment periods. During your deferment periods, the government pays the interest for you on subsidized Federal Stafford Loans. You are responsible for paying the interest during deferment periods for any unsubsidized loans you have borrowed.
Under FFEL, there is also a provision for a Federal Consolidation Loan Program. This program provides borrowers who have multiple types of loans the opportunity to combine those loans for repayment purposes. Since this program is designed to provide a repayment option, it is not detailed here.
When you compare the costs of attending different schools, you should compare the amounts you may have to borrow. If your academic program will take more than one year to complete, try to project the total amount of debt you will have to assume to complete the entire program. Then consider whether you'll be able to repay that debt based on typical starting salaries for the job you're likely to get after you finish school. Each school can help you make projections about total debt and repayment amounts. You can also get information about starting salaries from the school or from library reference books. The Financial Aid Information Page offers a variety of financial aid calculators.
Federal PLUS Loans are available to parents who do not have an adverse credit history. These loans are not based on financial need. Parents may borrow through this program to obtain money for the cost of college for their dependent children. These loans carry an interest rate that varies annually, but may not exceed 9%.
The origination and insurance fees are the same as for the Federal Stafford Loan. The first payment of interest and principal for Federal PLUS borrowers is due 60 days after the loan is fully disbursed and ends no later than 10 years after repayment begins, excluding periods of deferment and forbearance
A Federal PLUS borrower may qualify for one of the loan deferments listed earlier under the Federal Stafford Loan Program. Parent borrowers who qualify for a deferment may have payment of their loan principal deferred and pay interest only on the loan. Or, they may capitalize the interest, which means it will be added to the loan principal. However, whenever feasible, parent borrowers (like all other borrowers) should try to pay the interest. Otherwise, they will end up paying interest on interest, as well as on loan principal. This can make the cost of borrowing more expensive than necessary.
You can get Federal Stafford and Federal PLUS loan applications and more detailed information about FFEL loans from the school's financial aid office or from your bank or credit union.
Like the FFEL Program, the William D. Ford Federal Direct Loan Program is a name used to refer collectively to several different programs. Under the William D. Ford Federal Direct Loan Program, which is commonly referred to as the Direct Loan Program, there are the Direct Subsidized and Direct Unsubsidized Loans, and the Direct PLUS Loan programs. There is also a Direct Consolidation Loan Program designed to provide a repayment option for students who have borrowed more than one type of loan.
The primary difference between the Federal Direct and FFEL programs is the source of the funds. Under the Direct Loan Program, the lender is the federal government; under FFEL, banks, credit unions, savings and loans, and other private lenders are the source of the funds.
With the exception of certain repayment options, the terms and conditions of loans made under the Direct Loan Program are identical to those made under FFEL.
The Corporation for National and Community Service provides an opportunity for students to earn educational benefits by performing community service jobs. Each state has a commission to organize community service jobs and assist in recruiting students to fill them.
This program is similar to the Peace Corps and addresses human, educational, environmental, and public safety needs through service. The Corporation for National and Community Service is the parent organization for two national AmeriCorps programs: the National Civilian Community Corps (NCCC) and the Volunteers in Service to America (VISTA) program.
Students aged 17 or older may serve before, during, or after their college education. A student must complete one year of full-time service or two years of part-time service in an approved community service job in order to earn an educational award. Education award amounts are $4,725 for full-time service (after 1,700 hours of service over one year or less), and $2,362.50 for part-time service (after at least 900 hours of service over two years or less). There is also a reduced part-time award (usually less than $1,000) for service in a short-term program. This money may be used for past, present, or future educational expenses, including two- and four-year colleges, training programs, and graduate and professional programs.
Participants may elect to use their benefit to repay a portion of their federal education loans or to pay part of the cost of attendance at an institution of higher education.
The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You cannot get a refund for the Hope credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
Your family may claim a tax credit up to $1,500 for each eligible dependent for up to two tax years. The Hope credit is available only until the first two years of postsecondary education are complete.
The exact amount of the Hope credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit.
An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer' spouse. (This means the eligible taxpayer may also be the eligible student.) You cannot claim a Hope credit if your Modified Adjusted Gross Income (MAGI) is $51,000 or more for a single taxpayer, or $103,000 or more for married taxpayers. The credit amount is gradually reduced for families with incomes between $41,000 and $51,000 if single, or $83,000 and $103,000 if married.
The tax law says an eligible student must be enrolled at least half-time in an eligible program leading to a degree or certificate at an eligible school during the calendar year AND must not have completed the first two years of undergraduate study. The college can help you determine whether it meets this requirement. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.) Also, you must not have been convicted of a federal or state felony drug offense before the end of the tax year in which you are enrolled.
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law says that schools must send this information in the form of a 1098-T statement to each taxpayer and to the IRS. For tax year 2003, colleges and universities are expected to fill out all sections of IRS Form 1098-T before sending them to students. [Your school will mail this to you by January 31, 2004.] This statement from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.
Taxpayers may pay educational expenses in a tax year for an academic period that begins following the tax year (e.g., paying in December 2003 for an academic period beginning in the first three months of 2004).
Your family may claim a Hope credit, a Lifetime Learning credit, and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the Lifetime Learning maximum per family.
The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does. You cannot get a refund for the Lifetime Learning credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes. Tax year 2003 is the most recent information currently available.
Your family may claim a tax credit of up to $2,000 per tax year (as of January 1, 2004) for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years. Beginning in tax year 2003, the amount of qualified education expenses you can take into account when figuring your Lifetime Learning credit increased from $5,000 to $10,000. The maximum credit equals 20% of these qualified expenses, making the maximum credit $2,000. The Lifetime Learning credit is available for all years of postsecondary education and for courses to acquire or improve job skills. Unlike the Hope credit (which is only available for two years) the Lifetime credit is available for an unlimited number of years.
The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (up to $2,000 per tax return) rather than based on the number of dependents in your family as with the Hope credit.
An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) You cannot claim a Lifetime Learning credit if your MAGI is $51,000 or more (if single), or $103,000 or more (if married). The credit amount is gradually reduced for families with incomes between $41,000 and $51,000 if single or between $83,000 and $103,000 if married. See the most recent IRS Form 8863 for the revised MAGI limits.
An eligible student may be enrolled in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled level in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.)
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send you this information in the form of a 1098-T statement to individual taxpayers and to the IRS. For tax year 2003, colleges and universities are expected to fill out all sections of IRS Form 1098-T before sending them to students. [Your school will mail this to you by January 31, 2004.] This statement from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.
Taxpayers may pay educational expenses in a tax year for an academic period that begins following the tax year (e.g., paying in December 2003 for an academic period beginning in the first three months of 2004).
Your family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
Various programs are available for students interested in the health professions, such as nursing, dentistry, or medicine. You can get more information by calling one or more of the following places:
[Includes Robert C. Byrd Scholarship and various other state-sponsored programs]
You can get more information by contacting any of the following:
You can get more information by contacting any of the following:
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National Association of Student Financial Aid Administrators
Opening Doors of Educational Opportunity
Copyright © 2004 by the National Association of Student Financial Aid Administrators.
All rights reserved.
