Strategies for getting college financial aid
May 16, 2006 - Posted in College Loans, Education News, Financial Aid, Student LoanCollege financial aid packages can include a combination of low-interest loans, federal work study and grants or scholarships that need not be repaid. The more desirable your child is to the college, the larger percentage of grants and scholarships he or she will receive.
So how do you position yourself to score the most aid dollars possible? Become an educated consumer.
“I feel sorry for parents, almost, when I see them talk with people in the financial aid office and they think that person is going to give them the keys to the kingdom,” says Kalman Chany, founder and president of New York-based Campus Consultants. “College is big business. The financial aid representatives are selling you a product. They are salespeople and they know parents are worried their child won’t get in. They specialize in emotional marketing.”
The expected family contribution
No matter what your time horizon, you’ll want to begin by sizing up your expected family contribution — the amount colleges believe you can afford to pay.
The Free Application for Federal Student Aid, or FAFSA, form, used to determine financial aid by most colleges nationwide, is available online at the U.S. Department of Education’s Web site. A print version can also be obtained at financial aid offices.
Crunching the numbers will shed some light on how the process works and what’s included in the calculation. The earlier you do this, the better off you’ll be, as it will allow critical time to adjust your financial picture.
“It’s all about what the parents do with their financial assets that will influence the family contribution,” Chany says.
For example, colleges determine your expected contribution using financial data from the calendar year before your child heads off to school. It’s wise to defer big bonuses and avoid large capital gains and IRA distributions during that first base income year, Chany says in his book, “Paying for College Without Going Broke,” which is co-authored by Geoff Martz.
Parents should also explain to the financial aid officer if their salaries that year were inflated (unlikely to be repeated) due to retroactive pay increases or excessive overtime, he writes. And send a letter if you sold your home during the base year, since you’ll have to report the profit as part of your assets on the financial aid form.
Bridging the gap with loans
Unless your child gets a full ride, you’ll likely need one or more loans to bridge the financial gap.
Students can take advantage of federal government loans, called Stafford loans, which offer a low, but variable interest rate. If you demonstrate financial need, you may qualify for the subsidized Stafford loan, in which the government pays the interest while you’re in school. Those who fail to demonstrate need can still receive funds through the “unsubsidized” Stafford loan, where you pay all the interest but are able to defer payments until after graduation.
Another federal loan, the Perkins loan, is also available to undergraduate and graduate students with exceptional financial need. With a 5 percent fixed interest rate, it’s the best of the batch. If you think your child will qualify, however, the U.S. Department of Education recommends you apply early. At the start of the year, each school receives a lump sum under the Perkins loan program to disburse at its discretion. Once those funds dry up, no more awards can be made that year. That means FAFSA forms should be filled out before the end of January.
For parents, the federal Parent Loan for Undergraduate Students, or PLUS, is another option. With a low, but variable interest rate, the fund is designed to cover the difference between the cost of admission and the amount your child receives in financial aid. Take note, however: “Parents are on the hook for the PLUS loan,” says Mark Kantrowitz, publisher of FinAid.org. “Even if you have a verbal agreement with your child, it’s ultimately the parents’ responsibility.”
Finally, parents and students requiring additional funds to cover education expenses are free to explore private education loans at private lending institutions. But be prepared for higher interest rates than those programs offered through Uncle Sam.
You can reduce the amount you need to borrow by establishing a monthly payment plan with your school. Making smaller payments over the course of a year, rather than one lump sum, enables you to keep funds longer in interest-bearing accounts. Academic Management Services operates the TuitionPay program, offered at more than 1,500 schools, that allows you to pay monthly.
Finding free money
The holy grails of all forms of financial aid are grants and scholarships — awards that do not need to be repaid.
Most are designed to reward academic or athletic excellence, but some are reserved for students pursuing a particular degree or those who represent an ethnic group.
Needless to say, such awards are highly competitive.
These days, however, finding scholarships for which your child is eligible to apply is easier than ever.
Online databases, including FastWeb.com, SRN Express,and the College Board’s FUND FINDER tool, provide free search tools that help identify ones that match your student’s personal profile.
“I recommend doing two online searches, which will make you more comfortable that you haven’t missed anything and less likely to get taken in by a scam that requires you to send in money with your application,” says Kantrowitz.
Kantrowitz also recommends doing a search for small, local awards by reading notices posted on bulletin boards at your school’s guidance office, the public library and outside the financial aid offices at nearby colleges and universities.
“It doesn’t hurt to get the advice of your guidance counselors on how to win these awards, since they’ve seen students apply and win them before,” he says.
The government offers perks to students, too. See “Education tax breaks 101″ for more.
Source: Bankrate.com