financial aid overview
Introduction
- How much financial aid am I eligible to receive?
- What financial aid do you offer?
- What percentage of your students is awarded financial aid?
- Do I qualify for financial aid?
- How do I apply for financial aid?
These are only some of the
frequently asked questions posed by students and parents of students
to Admissions and Financial
Aid professionals.
The term financial aid has become synonymous with higher
education. To many students and their parents, receiving
financial aid
is as important as being accepted to the college of their
choice.
While the term financial aid is known by all students and
their parents, far few actually understand the particulars.
Almost all financial aid falls under one of four categories:
(1) federal aid, (2) state aid, (3) institutional aid,
and (4) outside
aid - financial
aid that comes from sources outside of the college being
attended by the student.
In this article, I will primarily be addressing federal
aid and the federal aid application. State aid varies
from one
state
to another
by amount offered and how eligibility is determined. Institutional
aid varies from one institution to another. Some institutions
offer need-based institutional aid and/or merit-based institutional
aid.
Most aid offered by an institution is in the form of a
grant; that is, it does not have to be repaid by a student.
Lastly,
outside
aid (mostly in the form of grants, but can include loans – see next
paragraph) comes from a wide array of individuals and organizations.
The trick is finding out how to apply for these. At the end of this
article, I’ve provided some websites where you can look for
outside financial assistance.
As a last resort, some institutions will direct students
to information pertaining to alternative loans. These are
loans
provided by
private lenders – banks and credit unions. Alternative loans are interest-bearing
loans and will need to be repaid.
How do I apply for financial aid?
All students apply for federal aid by completing a Free
Application for Federal Student Aid (FAFSA). This is a
four-page application
that takes into account a family’s size, number enrolled in college,
income, and assets. Most high school guidance offices have copies of
this form. The application is mailed to a branch of the Department
of Education or the application can be completed online – http://www.fafsa.ed.gov.
Estimated Family Contribution
The student, and financial aid office(s) to where the student
designated, receives a Student Aid Report (SAR). The financial
aid office calls
this an Institutional Student Information Record (ISIR).
The SAR, or ISIR, contains a very important piece of information – the student’s
Estimated Family Contribution (EFC). It is the EFC that determines
whether a student can receive federal aid and if so, how much.
The student’s EFC is derived from a formula. For a dependent
student, the formula takes into account the parents’ total income
minus total allowances against income to arrive at available income.
It then adds a contribution from assets (net worth minus allowances).
This is the parents’ contribution. Then the formula takes into
account the student’s total income minus total allowances against
income to arrive at available income (times an assessment rate of 50%),
it then adds a contribution from assets (net worth times an assessment
rate of 35%). This is the student’s contribution. The combined
parents’ and student’s contribution equals the EFC.
Pell and SEOG
Directly related to the actual numeric EFC are the Federal
Pell Grant and Federal Supplemental Educational Opportunity
Grant
(SEOG). If
a student’s EFC is 0, the student qualifies for the maximum Pell
Grant – $4,050 for the 2004-2005 award year. As the EFC increases,
the Pell Grant decreases. Only if a student is eligible to receive
a Pell Grant is that same student eligible to receive an SEOG. An
institution may award up to a $4,000 SEOG to a student who qualifies
for a Pell
Grant. To every institution that awards Pell Grants, the federal
government allots a certain amount of money in the form of SEOG.
This amount can
vary from one institution to another. Therefore, what one institution
may award to a given student in SEOG, that same student may receive
a different amount from another institution.
Financial Need
The remaining federal aid (with the exception of the Federal
Parent Loan for Undergraduate Students – PLUS) is determined by taking
the total cost of attendance at an institution then subtracting the
student’s EFC. The remaining value is the student’s financial
need. For example, if the total cost of attendance at University X
is $20,000 and a student’s EFC is $4,000, the student’s
financial need at University X is $16,000.
Other Federal Financial Aid
To be eligible for a Federal Subsidized loan, a Federal
Perkins Loan, or Federal College Work Study, a student
must have
financial need
up to the total amount(s) of this aid.
Regarding the Federal Subsidized loan, a first-year undergraduate
student is eligible to receive up to $2,625, a second-year
undergraduate student
is eligible to receive up to $3,500, and a third or four-year
undergraduate student is eligible to receive up to $5,500.
First-year, second-year,
third and fourth years are determined by the number of
credit or clock hours earned by the student.
If a third-year student were to receive a $5,500 Federal
Subsidized loan, this would mean that the student has at
least $5,500
in financial need.
Regarding the Federal Perkins loan, the maximum amount
an undergraduate can receive in an award year is $4,000.
Like
the SEOG, the
federal government allots a certain amount of money in
the form of Perkins
to every institution that awards this. This amount can
vary from one institution to another. Therefore, what one
institution
may
award to
a given student in Perkins, that same student may receive
a different amount from another institution.
Regarding Federal College Work Study, the amount varies.
In order to receive any of this money, a student must work
to
earn it.
The student
receives an hourly wage per hour worked. Therefore, the
amount of Federal College Work Study that appears on a
student’s financial
aid package may not be the amount a student ultimately receives.
The Federal Unsubsidized loan is only available to a dependent
undergraduate student if that student does not have financial
need. Loan amounts
are the same as the Federal Subsidized loan. An independent
undergraduate student is eligible to receive an additional
$4,000 (as a first
or second-year undergraduate) or $5,000 (as a third or
fourth-year undergraduate).
This is determined by the number of credit or clock hours
earned by the student.
The Federal PLUS is usually the last federal aid program
to be considered. It is a federal loan borrowed by a parent
for
their
son or daughter
who is a dependent undergraduate. The amount a parent is
eligible to borrow is determined by taking the cost of
attendance minus
other financial
aid received.
If I save money, won’t the federal government
penalize me?
Most parents’ assets are not a factor in determining a dependent
student’s EFC. Within the federal formula, an allowance called
the Asset Protection Allowance is factored into the equation to offset
the parents’ net worth of their assets. For example, in a two-parent
household, if the age of the older parent were 45, the parents’ total
assets would have to exceed $42,100 to count toward the EFC for the
2004-2005 award year. By assets, I am referring to cash and bank
account(s), net worth of investments, and net worth of a business.
In the formula,
assets do not include home equity. If the parents do have discretionary
net worth (net worth minus the asset protection allowance), only
twelve percent of that amount is counted toward the EFC. For a dependent
student,
35 percent of assets are counted toward the EFC.
If the parents participate in a qualified retirement plan – 401(k)
or 403(b) – the amount that is contributed for the calendar
year is considered untaxed income and must be reported as such. However,
the accumulated amount does not have to be reported. For example,
for
the 2004-2005 award year, if the parents contributed $5,000 in the
2003 calendar year to a qualified retirement plan that has an accumulated
total of $60,000, the parents must report on the FAFSA the amount
of $5,000 as untaxed income. The $60,000 is not reported.
Regarding the parents’ and student’s income, several
allowances are taken into account to offset the total income. These
include: income
tax paid, state tax allowance, fica tax, income protection allowance,
and employment expense allowance (parents only).
Coverdell savings accounts and college savings plans do
count as investments and must be reported. Prepaid tuition
plans
do not
count as investments
and therefore do not need to be reported.
What if my financial circumstances are unusual?
The FAFSA only takes into account certain financial information,
but does not tell the entire story. Some institutions require
students to complete the CSS PROFILE® application from The College Board.
This application asks additional questions, such as home equity,
that the FAFSA does not. Should you be in a position where you are
unable
to communicate your special circumstances, such as present loss of
job by a parent, put this information in writing to the financial
aid administrator at the college(s) to which you are applying. The
financial
aid administrator has the authority to make a professional judgement
and override certain information from the FAFSA. This can result
in your EFC being lowered. Sometimes the lowering of your EFC can
result
in additional financial aid, other times not. There are no hard and
fast rules concerning professional judgement. It is up to the discretion
of the financial aid administrator regarding whether action will
take place and to what degree. In fact, you may encounter one financial
aid administrator from one institution who will make a professional
judgement, while another financial aid administrator from another
institution
may not.
Outside Aid
For some students regardless of whether they qualify for
little or a lot of financial aid, outside scholarships
can make the
difference regarding whether they can enroll in the college
of their choice.
The Internet can be a great resource to look for outside
assistance. You
may wish to review the following sites:
- FastWeb (Financial Aid Search Through the Web) - http://www.fastweb.com
- FinAid Scholarship Search - http://www.finaid.org/scholarships/
- Scholarships.com - http://scholarships.com/
- Scholarship Resource Network Express - http://www.srnexpress.com/index.cfm
For Additional
Information
To learn more about the EFC, financial need, and federal and other
aid programs, contact a financial aid
office. Other financial aid-related websites include:
- College Board - http://www.collegeboard.com
- FinAid, the Financial Aid Information Page - http://www.finaid.org
- NASFAA (National Association of Student Financial Aid Administrators) - http://www.nasfaa.org
- U.S. Department of Education - http://www.ed.gov
A special thanks to the author of this article:
Brian P. Madden
Test Engineer II, College Solutions
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This article continues here:
INSTITUTIONAL FINANCIAL AID – PART 1
Financial Aid – an
overview, by Brian Madden
Institutional Financial Aid
- Part 1
Institutional Financial Aid
- Part 2
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