Dollars and Sense—Demystifying College Financial Aid Part 2

What are the types of Financial Aid? There are two primary types of aid: Gift Aid, money that does not have to be repaid, which usually includes scholarships and grants, and Self-Help, which includes loans, and work-study. Federal tax incentives, although a relatively small component of financial aid, helps families recoup some of the money they have paid out for higher education.

Scholarships, or “merit aid”, are awarded to students in recognition of academic, athletic, artistic, or leadership abilities. Institutional aid comes directly from the colleges that award scholarships to students whom they wish to attract to their school. Many corporations, non-profit agencies, religious organizations, civic organizations, employers and unions have scholarship dollars. Often relatively few students apply for these, increasing your chances of being an award recipient. The school guidance office maintains lists of scholarships and their requirements. Frequently an essay and/or recommendations are necessary to apply.  Finally, there are legitimate online sources of scholarships where students complete a profile and receive email notifications for scholarship opportunities that match. One of the best web-based resources is: www.fastweb.com.  Please be aware of scholarship scams on the web.

Grants are awarded to students based on their financial need. The Pell Grant is the largest need-based grant provided by the federal government. Pell Grants are only given to students who show a high degree of financial need based on the Free Application for Federal Student Aid (FAFSA). Apply online at www.fafsa.ed.gov. Families can attend a free FAFSA help session on College Goal Sunday. Check www.collegegoalsundayusa.org for times and locations. Grants are also available through colleges, state agencies, corporations, non-profit agencies and civic organizations.

Work-study enables students to earn money for college expenses by designating an amount of money and providing the opportunity to secure a job, usually on campus. Eligibility for work-study is based on financial need.

With college costs increasing each year families are relying more heavily on loans.

The federal government offers low interest loan opportunities for both students and parents. These programs include the Federal Direct Stafford Loan and Perkins Loan programs for students and Direct PLUS Loans for parents and graduate students. To qualify for any of these programs families need to complete the FAFSA. If a subsidized loan is awarded the federal government pays all accruing interest while the student is attending college and during the six month grace period after the student leaves college. Subsidized loans are based on financial need. Unsubsidized loans are not based on financial need and interest is charged as soon as the disbursements are made.  Be a savvy consumer if you choose to borrow and limit the amount of student debt.

How is Financial Aid Determined? The formula used to compute how much financial need a family has is derived by taking the total Cost of Attendance (COA) for the college and subtracting the Expected Family Contribution (EFC). The remainder is the Financial Need. All need-based aid is figured from this bottom line.

In order to determine the EFC, the student and family must complete the FAFSA (Free Application for Federal Student Aid). It is available online at www.fafsa.ed.gov starting on January 1 for the next school year. Since each college has their own deadlines, complete the FAFSA as soon as possible even if you have not yet filed your income taxes. It is easy to go back to update and make corrections online. There is help available on the website. Families can also attend a free help session on College Goal Sunday.  Check www.collegegoalsundayusa.org for times and locations.

Once the application is reviewed the student will receive a Student Aid Report (SAR), which lists the Expected Family Contribution and whether the student is eligible to receive a Pell Grant.  Each college the student has listed on the FAFSA will receive an Institutional Aid Report. Some private colleges require an additional application such as the CSS/Financial Aid Profile. It is available online as early as October 1, at www.collegeboard.com. There is a fee for this application with charges for each college that it is sent to.