The Financial Aid Story

A college education is expensive: upwards of $100,000 for four years at many private colleges and universities and more than $50,000 even at lower-cost, state-supported colleges. Figuring out how you and your family will come up with the necessary funds to pay for your education requires planning, perseverance, and learning as much as you can about the options available.

If your family has not saved the total amount you will need for college or does not earn enough to cover your probable expenses, you can most likely still attend college--even the college of your choice. That's what financial aid is all about. The amount you and your family will be required to contribute toward your college expenses will be based upon your family's current financial situation, including their income and assets and your income and assets. But if this is not enough, the rest of the expenses can usually be met through financial aid programs.

How Financial Aid Is Awarded
When you apply for aid, an analysis is done of your family's financial situation based on the federally mandated formula, known as the Federal Methodology. The formula calculates the amount you and your family are expected to contribute toward your college expenses. This is called your Expected Family Contribution or EFC. If this amount is equal to or more than the cost at a particular college, then, of course, you will not demonstrate eligibility for need-based aid at that college.

If the total cost of attendance for your education at a particular college is greater than your EFC, then you will probably qualify for assistance, hopefully enough to meet the full costs.

The amount and type of aid you are awarded by any one college will most likely differ from what is offered by other colleges you apply to because, among other things, the costs of attendance are different, which creates a different "Financial Need". But the amount you and your family are expected to contribute (your EFC) should be roughly the same regardless of which college you attend.

Even if you don't appear to have financial need, it is possible you may still receive aid, since there are many grants, scholarships, and loan programs that do not take financial need into account. You will certainly want to explore this possibility. Currently, many schools are offering merit-based aid to students without regard to financial need. "Merit" aid is usually awarded based on a student's academic performance or specific talent or ability--in other words, it is used by colleges to attract the students they want.

Sources of Financial Aid
There are three types of financial aid: scholarships (also known as grants or gift aid), loans, and student employment. Scholarships and grants are outright gifts and do not have to be repaid. Loans are borrowed money that must be repaid (usually after graduation); the amount you have to pay back is the total you've borrowed plus an interest charge (for loans not subsidized by the government). Student employment is a job arranged for you during the academic year. Loans and student employment programs are generally referred to as self-help aid.

The largest single source of aid is the federal government, which awards over $30 billion to more than 7 million students each year. Eligibility for federal aid is based on the federally approved formula, the Federal Methodology.

The federal government has two large grant programs, the Federal Pell Grant and the Federal Supplemental Educational Opportunity Grant; a student employment program called Federal Work-Study; and several loan programs, including loans for students and loans for parents.

Federal Perkins Loans, Subsidized Federal Stafford Loans, and Subsidized Federal Direct Loans are all need-based, government-subsidized loans. Students who borrow under these programs do not have to pay interest on the money they borrow until after they graduate or leave college. Unsubsidized Federal Stafford Loans, Unsubsidized Federal Direct Loans, and the parent loans are awarded without regard to need, and borrowers are responsible for the interest while the student is still in college. Usually, the actual repayment for student loans can be deferred until after graduation.

The next largest sources of financial aid are the colleges and universities themselves. Institutions award an estimated $8 billion to students each year. There are many different scholarship, grant, and loan programs available directly from the colleges and universities.

Another large source of financial aid is state government. All fifty states offer grant aid. Most of this is need-based, but merit-based state aid is on the rise. Most state programs award aid only to state residents who attend a college in their home state.

Other sources of financial aid include private agencies, foundations, corporations, clubs, fraternal and service organizations, civic associations, unions, and religious groups. These groups award grants, scholarships, and low-interest loans. Some employers also provide tuition reimbursement benefits for employees and their dependents.

More information about these different sources of aid is available from high school guidance offices, public libraries, college financial aid offices, and directly from sponsoring organizations. In addition, Peterson's has released a new annual directory, Scholarships, Grants, & Prizes 2002, ISBN 0-7689-0695-4. Organized by area of academic interest, this comprehensive guide profiles nearly 1.6 million sources of noninstitutional aid, worth more than $6.4 billion. To order, purchase directly from Peterson's On-Line Bookstore or call 1-800-338-3282 Ext. 660 (English) or Ext. 462 (Espanol).

Applying for Financial Aid
Some students applying for college entrance in the fall of 2003 will find they need to fill out two forms for financial aid. Your situation will depend on which college(s) you are applying to, since it is up to the college to decide whether it will use only the Free Application for Federal Student Aid (FAFSA) or the FAFSA plus a supplemental application, the Financial Aid PROFILE. The FAFSA is the standard form for applying for federal aid used at every school in the U.S. The PROFILE asks additional questions that some colleges and awarding agencies use in awarding their own funds. Many colleges also require you to complete an "institutional application" for aid. These will vary from simple data gathering forms to more complex applications.

Your first step is to find out whether you will need to fill out only the FAFSA or whether you will also have to complete the PROFILE.

If Every College You're Applying to Requires Just the FAFSA...
then it's pretty simple. Complete the FAFSA sometime after January 1, 2003,but before any college-imposed deadlines. You are not permitted to send in the 2003-2004 FAFSA before January 1, 2003. It is easier if you wait until you have all your financial records for the previous year available, but if you don't, and a deadline is approaching, you are encouraged to use estimated numbers.

After you send in your FAFSA, you'll receive a Student Aid Report (SAR) in the mail that summarizes the information you reported and contains your calculated Expected Family Contribution (EFC). If you used estimated numbers to complete the FAFSA, you may have to resubmit the SAR with any corrections to the data after you complete your tax return. The college(s) you have designated on the FAFSA will receive the information you reported and will use that data to design a financial aid package. In many instances, the colleges you've applied to will ask you to send copies of your and your parents' income tax returns for 2002 plus any other documents they feel are necessary to verify the information you reported.

If Any of the Colleges You're Applying to Also Require the Financial Aid PROFILE...
you will most likely need to start the process earlier. This means you have to submit the PROFILE as well as the FAFSA so you can have all the results at the same time.

Step 1: Send in the PROFILE Registration
The PROFILE Registration is a one-page form. These forms are available in most high school guidance offices or through the College Board's ExPAN application service.

On your PROFILE Registration Form, you must fill in basic demographic information about your family and list all the colleges you've applied to that require the Financial Aid PROFILE. Do not list colleges that don't use it. (It is up to you to find this out early in the process.) You then send this registration form to the College Scholarship Service together with the required payment.

You can also phone in the information or fax the form, using a credit card to pay the required fee. You can request overnight delivery service for an additional charge if a financial aid deadline is approaching.

Step 2: Complete the Financial Aid PROFILE A few weeks later, unless you've requested overnight delivery, you'll receive in the mail a customized financial aid application to be used to apply for aid at the colleges you've designated, as well as from certain private scholarship organizations like the National Merit Scholarship program. This form will contain all the questions necessary to estimate your family contribution based on the federal formula plus the specific questions that the colleges and organizations you've designated want answered. Your packet will also contain codes to tell you which colleges want which additional questions and a customized cover letter with information about deadlines and any special requirements for the colleges and programs you designated on the PROFILE Registration. If any of the colleges you're applying to require supplemental forms, such as the Business/Farm Supplement or the Divorced/Separated Parent's Statement, they will be included in the package.

Be sure to submit your PROFILE by the earliest deadline given. Two to four weeks after you do so, you will receive an acknowledgment and a report that will contain your estimated federal Expected Family Contribution and a second family contribution calculated from the additional data elements you provided. This calculation is called the Institutional Methodology, and colleges that require the PROFILE use this methodology when they award their own funds in conjunction with federal aid.

Remember, if any college you are applying to requires the PROFILE, then you'll have to complete both forms. On the PROFILE, list the colleges you are applying to that require it. On the FAFSA, list all the colleges you are applying to.

Financial Aid Awards
After you have submitted your financial aid forms--the FAFSA, the PROFILE, or both--each of the colleges that have accepted you will send you a letter containing your financial aid award. Most award letters show you the estimated expenses you will incur there, how much you and your family are expected to contribute, and the amount and types of aid you have been awarded. Most students who are eligible for aid receive funds from a combination of sources and programs, hence your award is usually called a "package." For first-year students, financial aid award letters are sent with, or soon after, the letter of admission.

If You Don't Qualify for Need-Based Aid
If you are not eligible for need-based aid but feel that your family needs help in paying for college, you and the college you wish to attend should try to put together a financial package that will lessen the burden on your parents.

There are several ways to approach this situation. Receiving a merit scholarship is the most desirable, and you should investigate this at the initial stages of the application process. Merit-based awards are becoming an increasingly important part of college financing plans, and many colleges award merit scholarships from their own funds. (Peterson's College Money Handbook 2002 shows you the number and types of these non-need awards each college offered last year.) In addition, many private groups grant scholarships to students with particular skills or backgrounds. (These sources are all searchable in Peterson's software package Career and College Quest.)

You also might want to consider part-time employment during the summer and the academic year. The student employment office at your college should be able to help you locate a school-year job, either on campus or in a local business.

You can also borrow through the Unsubsidized Federal Stafford Loan or Unsubsidized Federal Direct Loan programs, mentioned above. The terms and conditions are similar to those for subsidized loans, except that interest begins to accrue right away. However, most lenders permit students to delay paying the interest until after graduation, adding the accrued interest to the total amount owed at the end.

Finally, your parents will have to figure out the best way to make their payments. Many colleges offer monthly payment plans that spread the cost over the academic year. However, for many parents, monthly payments turn out to be more than they can manage. In such cases, they can borrow through the Federal Parent Loan for Undergraduate Students (PLUS) program, through one of the many private "alternative" loan programs available, with a home equity loan, or by getting a line of credit. Families who wish assistance in arranging for the best way to cover college expenses should consider getting the advice of professional financial advisers and tax consultants. The financial aid office also has good sources of information on the best alternative loan programs for parents. For example, many states now have very attractive parent loan programs that have better rates than the federal loan program or private loan programs.