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Financial Aid, Part 1: What is it?

As I’ve grown older and gone through college, financial aid has been a topic that has been greatly discussed, but also confused many. My goal writing this blog is make financial aid more clear.

What is Financial Aid?
Financial aid is usually need-based, meaning, based on you or your families income. (This is not to be confused with merit-based, which is based on academic performance.) Forms must be submitted each year to be considered for financial aid. Forms may be filled out online, or through a guidance counselor’s office at your college/university.

To apply for need-based financial aid, you’ll need to complete the Free Application for Financial Aid (FAFSA). The FAFSA is an application for federal funds and is required by all institutions of higher learning. To apply, you will need complete copies of your most recent tax and W-2 forms. You’ll be asked a series of questions to help determine what amount, if any, of financial aid that you’ll receive.

It is important to note that if you are listed as a dependent on your parent’s tax return, the numbers will come from your parent’s tax returns. If you are applying as an independent, then you will use your own tax returns. The FAFSA website provides this worksheet to help you determine your dependency status.

If you or your family plans on contributing any money, you will have to report it. That number is known as the “Expected Family Contribution (EFC). The general formula used looks similar to:
Cost of tuition – EFC = Aid Eligibility

For example, if annual tuition of your college is $13,000 and you are able to contribute $7,000. 13,000-7,000=6,000. Your Aid Eligibility will be for $6,000.

Now remember, tuition may include on-campus costs such as rooming, meal plans, and if you opt-in to health insurance. (This is generally what financial aid covers, keep in mind that you’ll need to research what financial aid covers at your school. This may not be for every college/university). Financial aid MAY cover the cost of a computer or laptop, it depends upon your school. It’s best to consult your school’s financial aid office if you wish to purchase a computer or laptop.

However, financial aid does not pay for off-campus rent, off-campus food, books and supplies, personal expenses, transportation and insurance.

Who is eligible to receive Federal Financial Aid?
To see if you are eligible, the FAFSA website has a list of requirements.

Types of Financial Aid
As stated on the FAFSA website, not all schools participate in all types of financial aid. Again, it is important to check in with the school that you’re interested in attending to see what federal aid is available to you.

There are three categories of federal student aid: grants, loans, and federal work-study. Keep in mind that you may additionally be able to get financial aid from your state government, school, or private scholarships.

Grants
Grants do not have to be repaid. Federal Pell Grants are usually only available to undergraduate students. Also, there is a program called the Academic Competitiveness Grant (ACG). There are other types of grants, and if you would like to explore these options or other grants in further detail, the FAFSA website has a convenient PDF.

Loans
Federal loans must be repaid and are available to both undergraduate and graduate students. Need-based loans do not have to be repaid until you leave school and they typically carry lower interest rates than other kinds of loans. Financial aid preference is given to people with the greatest amount of financial need.

Remember, loans are money that you borrow temporarily. Once you start repaying your loan, you must pay interest on the money that you borrowed.

Subsidized Stafford Loan
A subsidized stafford loan is awarded on the basis of financial need. This is when the US government pays (or subsidizes) the interest on a loan while enrolled in school and for six months after you leave. The subsidized loan usually has a fixed interest rate for the life of the loan.

Unsubsidized Stafford Loans
This loan is awarded regardless of need. There is an interest rate charged on the amount disbursed from the date of disbursement and you may either make or defer interest payments while you are in school and during the six-month grace period.

You can receive both subsidized and unsubsidized loans for the same academic year. So it’s important to find out which type of loan you have.

PLUS Loans (for parents)
This loan provides low interest loans to parents of eligible undergraduate students. Repayment typically beings 60 days after loan is fully disbursed. In addition, parents may have to be approved based on their credit and these loans are not based on financial need.

Federal Work-Study
Federally funded program that provides employment opportunities to students with the highest financial need. Most schools will award a student working part-time during the Fall and Spring semesters money. The average FWS award is $2,500 per academic year. This provides jobs to undergraduate and graduate students, allowing them to earn money to pay education expenses.

There are more ways to help pay for your school costs, so be sure to look at both state and school resources. It’s important to talk to a financial aid administrator or guidance counselor at the school you wish to attend or that you’re currently attending.

It’s important to start early when applying to financial aid. They have strict deadlines.

You may also contact the US Department of Education by writing:

U.S. Department of Education
Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044-0084

Paying for a Higher Education

Whether you’re preparing to go to college for the first time, or you’re thinking about continuing your education, it’s important to know what resources are available to help you. It’s also important to not “break the bank.” Education may be expensive, but it’s possible to pay for without going into massive amounts of debt. I’ve written a short list of “key terms” when planning to pay for a college education.

Financial Aid

http://www.fafsa4caster.ed.gov/F4CApp/index/index.jsf

Is a great website to estimate how much money you’d receive for financial aid. Remember that it’s just an estimation of how much money you may qualify for financial aid. Keep in mind  that you do have to pay financial aid back, with interest. Financial aid is intended to be used for tuition and fees, room and board, books and supplies, and transportation. It can also be used for computer and childcare expenses. However, financial aid should not be used for other expenses such as food or to pay phone/cable bills.

Grants

Grants are primarily need-based compared to other merit-based scholarships. Usually there is qualifying criteria and are specific to students, subjects, and degree level. A good resource for grant information is http://www.collegescholarships.org/grants/

Scholarships

Scholarships are beneficial because you do not have to pay them back. It’s important to note that not all scholarships are for tuition; some are specifically for transportation or for books.

There are a lot of websites out there that let you search for scholarships, however, most of the time you have to fill out questionnaires and annoying forms. If you have the time and patience, websites like scholarships.com and fastweb.com offer important information.

But for people who don’t have the patience, it is possible just to Google phrases such as “scholarships for public policy” to find scholarships available to you.

Fellowships

Fellowships are usually available for advanced study or research. Fellowships may require a time-commitment or completion of a training program. However, if requirements are met, fellowships can be a great way to pay for school expenses.

Emergency Plans

Always remember that we can’t control what happens in our lives. It’s important to have some emergency funds saved up in case something happens. May you’ll have to pay to fix your car, or deal with a family emergency.

Credit Cards

Credit card particularly scam students in college. Some students have to put their basic needs such as food or housing on a credit card and since they do not have enough money to pay it off, interest keeps building up. It’s important to use credit cards with caution.

It’s a bad habit to think that you can pay off debt when you graduate. Especially with today’s job market, getting a job after graduation is not a guarantee. Plus, there could be other expenses that you’ll need to provide for, and by that time you could be thousands and thousands of dollars in debt.

Budgeting

It’s essential, as always, to develop a budget, especially before going to college. The budget is vital in helping to create and determine goals and determine what can be afforded to spend monthly.

Budgeting is important to determine how much money will be earned, and spent, while in college.

As always, just giving some food for thought, questions and comments are greatly appreciated.

Growing Up

College has been hard. Not only has it been difficult academically, but also financially. I was fortunate enough to live rent-free for a little over two years of my academic career, but the other two years, I had to fend for myself. It was important to my parents that I learn responsibility and independence. I’ve paid for most of my bills myself, including tuition and other expenses. Fortunately, I had several EE bonds that assisted me in paying for my tuition. I had to work hard for the rest of the money, though.

I hope that this history of my financial journey will better assist you in yours.

I made the decision to go to community college for my first two years to save money. I think that was the best decision that I could have made for myself. I saved money by attending there, my schedule was a lot more flexible to meet my work schedule, and the commute wasn’t too bad. The problem for me was transferring to a university where tuition was about 6 times as much money as I was paying at community college. I was forced to move back in with my parents and to commute to school. Although it’s been difficult, I’m here at the end, preparing to graduate with my undergrad degree. Obviously no two situations are alike, but I’m here to tell you that it’s possible. There are many grant, fellowship, and scholarship opportunities. I was privileged to have access to a lot of resources.

As I look back on what I’ve accomplished, paying for my education and other expenses has been extremely rewarding. Yes, it took a lot of discipline and I wasn’t always happy, but it’s also made me who I am today, very independent and money-conscious. Hopefully, those are skills that I’ll be able to use in the future.

I wrote this entry as a beginning of a series of entries on why it’s important to start early to think of your career pathway. I hope my story inspires you to share your own story and to give feedback. As I said earlier, no two journeys are alike, but I hope to give you the confidence to achieve your goals.

What are you going to do with your tax return?

Hopefully, most of you are getting money back this year from your tax return. If so, what are you going to do with the money? I know several of us (myself included) look forward to getting our money back every year, but are we spending it wisely?

I notice some of my friends put the money towards a large purchase, such as a TV or clothes, but is that really a good idea? Of course, I cannot tell you what to do with your money, I’m just giving you some food for thought. I’ve come up with a list of alternatives to spending your tax return money on disposable goods such as TVs and electronics.

My first question will always be, do you have any debt you need to pay off, such as a loan or a credit card? Think of how much your tax return can help you with that.

Do you have an emergency fund? It’s always a good idea to have at least 3 to 6 months of living expenses in a bank account, short-term CD or a high-quality money-market fund. It may be a good idea to start an emergency fund if you do not already have one in place… and if you do, why not add to it?

Or have you thought about investing the money or putting it in savings?

How about a step towards retirement? You may think your tax return is only a drop in the bucket, but think of how you may be restoring your 401(k).

How about buying a government bond? The current interest rate through April 30, 2010 is 3.36%. If there are any interest on I Bonds, it is added to the bond monthly and is paid, to you, when you cash the bond. It may earn interest for up to 30 years… and after having it 5 years, there is no penalty if you cash it. If you pay $50 for a bond, you’ll get AT LEAST $50 back. The disadvantage is, of course, if you need the money immediately.

Education? Maybe put the money towards something like your education or an education for our children. It could make you more marketable and make you more money, or it may give your child the chance at a quality education.

As much as that new LED-LCD screen may seem like an instant reward, think of how rewarding it is to pay off your debt sooner or to finance your child’s education. I challenge you to think about what’s best for you in the long-term, not what is going to give you instant satisfaction.