Aid offers can confuse even top students
April 24, 2006 - Posted in College Grant, Financial Aid, ScholarshipThink your college boards were hard? What about those college financial aid offers? They can make your SATs look like Scrabble Junior.
If you were accepted by several schools, there’s a good chance you also received offers of financial aid. Comparing them isn’t easy. The award letters typically contain combinations of scholarships, grants, work-study and loans.
Some schools’ formulas to calculate the amount they expect your family to pay conflict with other schools’ formulas. And time is running out: Most colleges want an answer by May 1.
Your task is to figure out, dispassionately, which offer is the best deal. Start by breaking out the major sources of financial aid, which include:
Direct aid.
This is the most valuable type of financial aid, because the money doesn’t have to be paid back. Direct aid typically comes in two forms: scholarships and need-based grants, says Kalman Chany, author of Paying for College Without Going Broke.
Some schools characterize grants as “scholarships” because they sound more impressive, says Robert Clagett, dean of admissions for Middlebury College in Vermont. But it’s important to understand the difference.
Most scholarships are guaranteed, sometimes for all four years, as long as you meet certain conditions, such as maintaining a high grade point average, says Gerard Cebrzynski, financial aid director for Lake Forest College in Chicago.
A grant, on the other hand, is almost always based on financial need. If your family’s finances improve after your freshman year, the grant could shrink, Cebrzynski says. “Long term, a scholarship is a better deal.”
Distinguishing between scholarships and grants is particularly important if you have an older sibling now in college, Chany says. Once that sibling graduates, your grant might diminish or disappear.
Loans and work-study.
College financial-aid offices call this type of aid “self-help.” That’s a polite way of saying that you’re either going to have to work for the money or pay it back.
Under the federal work-study program, you earn money toward college by working a part-time job. Wages are usually low. But your work-study earnings won’t be counted as income for purposes of future financial aid, Chany says. Income from other jobs will.
Stephen Joyce, director of student aid at Bowdoin College in Brunswick, Maine, recommends limiting work-study to 10-15 hours a week. Students who work more than that risk falling behind academically, he says. You’re not required to work at all, but if you decline work-study, you’ll need to find another source of funds to make up the difference.
The rest of your self-help package consists of loans. Types of loans:
• Federal Perkins. This loan is based on economic need and has the most favorable terms. Perkins loans have a fixed rate of 5%, and the government pays the interest while you’re in school. You may also qualify for loan forgiveness if you pursue certain careers after graduation, such as teaching or social work. The maximum an undergraduate can receive is $4,000 a year.
• Subsidized Stafford. This loan is also based on need. The government pays the interest while you’re in school. Starting July 1, new federal Stafford loans will carry a 6.8% fixed rate.
• Unsubsidized Stafford. This loan isn’t based on economic need and is available to all students. The government doesn’t pay the interest while you’re in school. Instead, the interest accrues until you graduate, when you’re required to start making payments on the loan. Terms are usually better than those for private loans.
• PLUS. Parents of college students can use these federally backed loans to help make up the difference between financial aid and the cost of college. Starting July 1, new PLUS loans carry a fixed rate of 8.5%.
Like unsubsidized Stafford loans, PLUS loans aren’t based on financial need. So be wary of any offer that includes a PLUS loan as part of the package. “Anybody can get a PLUS loan,” Chany says. “They’re not giving you anything. It’s a bait-and-switch.”
There are several tools on the Internet you can use to analyze and compare financial aid packages. Student lender Sallie Mae offers one at www.collegeanswer.com. You can also compare the differences among financial aid awards at www.finaid.org. Click on the “calculators” link and look for the “Award Letter Comparison Tool.”
Other factors to consider:
• Whether outside scholarships will reduce your aid package. If you won a scholarship from your local Rotary club, ask the school’s financial aid office whether it will affect your financial aid award. Federal law bars students from receiving aid that exceeds their financial need or the cost of attending college. If that happens, some schools will reduce the amount of your loans and work-study by the amount of the scholarship, which is ideal, Clagett says. But others will reduce your direct aid by the amount of the outside scholarship, he says.
• Don’t get hung up on the sticker price. Some private schools with high tuitions also have large endowments, enabling them to offer generous financial aid packages. Once you’ve crunched the numbers, you may discover that a private school will cost less than a state university, Cebrzynski says.
• Don’t miss the deadline. To assure your place in the freshman class, make sure the school you’ve chosen receives your acceptance letter by the deadline. For most schools, that’s May 1, Cebrzynski says. “After May 1, all bets are off,” he says.
• Don’t give up. If your family’s financial situation has changed since you applied to college, you can ask the college to review your application. Extraordinary circumstances include a job loss or a serious illness, Joyce says. Some schools may have enough flexibility to increase your aid, he says.
You may also qualify for a “last-dollar scholarship,” says Guido Minaya, vice president of programs for the Hispanic Scholarship Fund. These scholarships help students pay expenses not covered by their aid packages, such as travel between home and school, Minaya says. Last year, the Hispanic Scholarship Fund provided more than $24 million in scholarships to 5,000 students, averaging $2,500 each.
More information on scholarships is at www.scholarships.com and www.scholarshipexperts.com.
Source: USA TODAY.com