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FAFSA PLUS Loan / FAFSA Stafford Loan Secrets About The FAFSA Loan Site |
FAFSA Loan Questions and Answers (continued)Financial Need (continued)Unfortunately, your school may not be able to provide you with financial aid to meet your entire demonstrated financial need. Many colleges and universities must create a "Unmet Need" or "Need Gap" between the cost of attendance and the amount you can afford to pay because of limited funds. Schools have limited funds available for financial aid, and they must determine how to best allocate the funds to their neediest students. Very few schools can afford to meet the demonstrated need of all their students, so most assume that all students and/or parents must pay a certain minimum amount, regardless of their need. Others give financial aid only to the neediest students. You're expected to obtain the funds for the unmet need or gap through summer or term-time employment earnings and educational loans, including the Federal Parent Loan for Undergraduate Students (PLUS). Moreover, your financial aid package may be reduced by any "outside resources" you receive. A resource is something that is available because the student is in school, and is normally counted after need is determined. For example, if your parents have contributed money to a prepaid tuition plan, the money received from that plan toward the student's education will be subtracted from the determination of financial need. Other resources include VA educational benefits and outside scholarships. Thus the determination of the school's financial aid package is actually based on Remaining Financial Need = Financial Need - Resources So even though resources do not affect the size of the Pell Grant the student will receive, they do affect the amount of Stafford or campus-based aid available. They are often counted 100% toward meeting need, and the university will reduce the size of the financial aid package to compensate. Resources represent a direct reduction of cost (e.g., a prepaid tuition plan cuts the amount of tuition the student will pay) and therefore less need. [A few schools will "reward" students for bringing in outside scholarships by using a portion of the outside funds to reduce the self help level, or by using them to reduce the loan portion of the financial aid package and not the institutional grants.] The school's "budget" or COA will include tuition, fees, room and board, books and supplies, travel, and personal and incidental expenses. In many cases there is a standard fixed budget amount for some of these categories. For example, the budget amount for travel may vary depending on the student's home state. Likewise room and board expenses may be reduced and travel expenses increased for commuter students. Budget allowances are used only for determining the estimated expenses that a student will experience during the enrollment period. Actual costs will vary depending on the your particular lifestyle. If special circumstances should warrant a higher budget amount, consult your financial aid administrator, who is permitted to increase your budget, if appropriate, with documentation. For example, students with child care expenses or expenses related to a disability may be able to get their budget increased to compensate. If your books and supplies cost more than the amount in your budget, save your receipts and show them to a financial aid administrator. The federal formula approved by Congress to calculate the EFC is called the Federal Methodology (FM). The federal methodology is used to determine eligibility for federal funds. If a college or university relies on a different formula for awarding its own funds, that formula is called the Institutional Methodology (IM). Different colleges and universities may use different institutional methodologies. The EFC is the sum of the student contribution and the parent contribution: EFC = Student Contribution + Parent Contribution An independent student is not expected to have a parent contribution. To be classified as independent for Federal aid purposes, a student must either be 24 years of age or meet one of the following exceptions 1. be married 2. have a dependent 3. be a graduate or professional student 4. be a ward of the court or an orphan 5. be a veteran Some schools (mostly private) expect both natural parents to contribute to their children's educational expenses, regardless of a divorce or any court orders to the contrary. In cases of divorce where the custodial parent remarries, the financial information for both the custodial parent and the step-parent must be included on the FAFSA as well as any child support and/or alimony received from the non-custodial parent. If a student is classified as independent because of marriage, the spouse's financial information must be included on the form. The student contribution assesses 35% of the student's assets and 50% of the student's earnings after subtracting a small threshold from the student's earnings. The parent contribution depends on the number of parents with earned income, their income and assets, the age of the older parent, the family size, and the number of family members enrolled in postsecondary education. Income is not just the adjusted gross income from the tax return, but also includes nontaxable income such as social security benefits and child support. The Higher Education Amendments of 1992 eliminated home equity from the EFC, but many private colleges and universities still use a parent's home equity as a way of rationing their school's own grant and scholarship funds. Money set aside for retirement in a pension plan such as a 401K, IRA, Keogh, or 403b is usually not counted as an asset. However, the funds contributed to a tax-deferred retirement program during the previous year must be included on the FAFSA as "other untaxed income". In addition, an asset protection allowance shelters a portion of the assets from the calculation of the parent contribution. The asset protection allowance increases with the age of the parents to allow for emergencies and retirement needs. The asset protection allowance for most parents of college age children will be approximately $40,000. The parent contribution assesses a maximum of 5.64% of parent assets and 20% to 50% of parent income, after subtracting various allowances. The full need analysis formula is rather complex. If you want an estimate of your EFC, use the free financial aid estimation calculator on the FinAid site. It will let you play "what-if" games. *** [3] Consequences of the Need Analysis Formula The FinAid site also includes a list of tips on how to arrange your finances so as to maximize your eligibility for need-based financial aid. Here's just a taste of FinAid's analysis. 1. The parent contribution is divided by the number of children in college. Changes in the number of family members in college can significantly affect the amount of aid received. For example, even families that are well-off may become eligible for financial aid when two or more family members are enrolled in college at the same time. So parents should not assume that they are ineligible for aid just because they make too much money or own a house. 2. The assets and income of parents are "taxed" by the federal methodology need analysis formula at a much lower rate than those of the student. This means that it may not be to the advantage of the parents to shift income and assets to their children, despite the tax savings. Generally, no more than 5.64% of a parent's assets (excluding their home equity and retirement programs) are expected to be used for the child's educational costs. For most parents, the first $40,000 or more of their assets (depending on their age and family size) will be ignored completely in the federal methodology need analysis formula. On the other hand, student assets are "taxed" at 35%, a much higher rate. This suggests that college funds should be saved in the parents' names and not the child's (the difference in aid eligibility wipes out any tax savings from Uniform Gift to Minors Act asset transfers), and spend down the student's assets before using any of the parents' assets to pay for the student's education. 3. The financial aid award or "package" is based on the assets and earnings for the year before the student matriculates in college. So parents should be careful about financial activity the year before their children enter college. For example, parents who avoid creating capital gains during the child's senior year in high school will be at an advantage in the federal methodology need analysis system. Likewise, they may wish to wait until after the child has entered college to withdraw money from pension plans to pay for college expenses. *** [8] Don't Assume You Don't Qualify Don't assume that you don't qualify for financial aid. Virtually all US citizens or eligible non-citizens enrolled at least half-time are now eligible for some form of financial aid, including the Federal unsubsidized Stafford Loan and the Federal Parent Loan for Undergraduate Students (PLUS). Even if you don't qualify for a grant, you may still be eligible for other forms of financial assistance. Many families don't apply for financial aid because they believe that they earn too much money or own a home, or because their friends and relatives have told them that they won't qualify. They then prevent themselves from getting any aid by failing to apply for it. You don't need to be poor to get financial aid. For example, some loans and scholarships are available regardless of need, and the number of family members in college can significantly affect your eligibility for aid. Also, as mentioned previously, a parents' home equity or retirement programs are no longer considered in the federal methodology need analysis formula. There are several factors in addition to income that are used to determine your eligibility for financial aid, and there is no simple cut-off based on income. Talk to the school's financial aid administrators if you have any questions. You can't get aid if you don't apply. So you should definitely fill out the FAFSA and apply for financial aid if you feel you may need assistance. Do not think of the federal student assistance programs as charity. They are designed more as cash flow assistance than a handout, allowing you to spread the expense of college over many years. It is important to apply for financial aid before admission, even if you think you won't qualify during your first year. For example, the Brown University Guidebook for Undergraduate Financial Aid says "... it is important that students who plan to apply for admission to Brown apply for financial aid as well if they have reason to believe that the costs of attendance exceed what they and their parents can reasonably be expected to contribute. Only under the most extraordinary circumstances is it possible to grant scholarship aid to first year students who failed to apply for aid before admission. Budget limitations may also preclude the granting of University scholarships to new upperclass applicants." Moreover, don't apply only to those schools you think you can afford. The more expensive schools may provide larger financial aid packages to compensate for the greater cost of attendance. Do not reject any school simply because of the high cost of tuition and room and board. Tuition and living expenses are like list prices; universities offer financial aid packages as discounts against the list price to bring the cost closer to what you can afford. Compare schools based on the bottom line, not the list price. You may find that the difference in the bottom line is not as significant a factor as you previously assumed. Do not limit your initial choice of schools by the high price tag. It is, however, a good idea to apply to several different types and costs of schools for insurance purposes. Just as you apply to one or two safety schools that you are sure will admit you, you should also apply to a few schools you are certain you can afford. Certainly college costs should be one of the factors you consider when deciding where to go to school, but it shouldn't be the *only* consideration. Many students and parents avoid the financial aid office, thinking of the financial aid office as "the enemy". Most financial aid office employees are dedicated (underpaid and overworked) professionals who want to help you as much as they can. Their job is to distribute limited funds fairly to all the students. Within their constraints, however, they will do their best to ensure that you can afford to graduate from their university. True, their estimate of what you can afford may not match your own assessment, but they aren't out to get you. They will try to help you if you ask. *** [5] Applying for Financial Aid The Free Application for Federal Student Aid is a prerequisite for applying for federal and state aid, as well as many college aid programs. You can obtain a copy of the form from your high school guidance counselor, your college financial aid administrator, or your local public library. You can also complete the form online, at http://www.fafsa.ed.gov/ and get your results back quicker than with the paper form. Questions about the form should be directed to 1-800-4-FED-AID. Some colleges will require their own forms, the CSS PROFILE form, or special supplemental forms. To apply for private sector scholarships, visit the FastWeb site at http://www.fastweb.com FastWeb provides the best free scholarship search. It compares your profile against a large database of scholarships, providing your with a list of matching awards. You will then need to write to the scholarship sponsors to obtain current application materials. In some cases you will be able to apply directly online through FastWeb. FastWeb also provides a college search database and other student resources. *** [6] Beware of Scholarship Scams College costs a lot of money, and there are some companies that try to take advantage of students and parents. The lure of "FREE MONEY" can fool even skeptical people. Every year there are a few scams based on imitations of legitimate foundations and scholarship search companies. Be cautious if you must pay money to get money -- it almost certainly is a scam. Foundations are set up to give money away, not get it. A $10 or $20 application fee may seem rather innocuous, but if the "foundation" receives a few thousand applications, they can pay out a $1,000 scholarship or two and still pocket a hefty profit, if they give out any money at all. The most common types of scholarship scams are scholarships with an application fee, scholarship matching services that guarantee results, and high pressure sales pitches disguised as a free financial aid seminar. If you have questions about financial aid or are suspicious about a program, go to your college's financial aid office. (If you are still in high school, ask the financial aid office at a local college for advice.) They can provide you with the accurate and current information, and verify whether a foundation is legitimate. The FinAid site includes an extensive collection of information about identifying the many types of scams, how to report them, pending legislation concerning scholarship scams, and law enforcement efforts to date. See http://www.finaid.org/scholarships/scams.phtml for more information. *** [7] The Unclaimed Aid Myth You may hear that millions or billions of dollars of scholarships go unused each year because students don't know where to apply, but this simply isn't true. Most financial aid programs are highly competitive. According to the National Postsecondary Student Aid Study conducted by the National Center for Education Statistics at the US Department of Education, only 1 in 25 students (that's 4%) receive private sector scholarships and the average amount received is about $1,600. The most common version of the unclaimed aid myth is that "$6.6 billion went unclaimed last year". This myth is based on a 1976-1977 academic year study by the National Institute of Work and Learning that estimated that a total of $7 billion was potentially available from employer tuition assistance programs, but that only about $300 million to $400 million was being used. This money goes unused because it can't be used, is a 20-year-old estimate that has never been substantiated, and is not available to the general public. Only eligible employees whose employers offer tuition assistance and who are enrolled in an eligible program can take advantage of such programs. There are no unclaimed scholarships. Popular variations on this myth include the figures $2.7 billion, $2 billion, $1 billion, and $135 million. *** [8] General Advice For information about college-controlled aid, talk to the financial aid administrators at the school. You will find out about any special merit scholarships when you apply for financial aid at the school. A recent trend is for many second tier schools (and even a few top rank schools) to offer non-need merit-based aid to attract top students. When looking for private sources of aid, use the following sources: 1. Public Library. Spend a few hours in the library looking at scholarship books. It doesn't take much time and the librarians are knowledgable and can help you. There may also be a bulletin board with information about local scholarship programs. 2. Use an online scholarship search. It takes less than 5 minutes to search an online scholarship database like FastWeb, and you'll find scholarships you might not have found otherwise. You should also think of any organizations to which you belong that might have aid funds available: religious organizations, fraternal organizations, clubs, athletics, veterans groups, ethnic groups, rotary clubs, unions, and your and your parents' employers. If you are presenting a paper at a technical conference, many conferences have travel funds available to enable students to attend the conference. When considering whether to use a book, look at its copyright date. You don't want to waste time with a book that is too old, since the information does change.Books about federal student aid should be no more than one year old. Books listing individual scholarships should be no more than three years old. Always write to the scholarship sponsor for up-to-date information, enclosing a self-addressed stamped envelope for the application materials. Every high school student should consider checking the "yes" box on the ETS Student Search Service form or the ACT Student Profile Form, releasing your information to scholarship programs. Some scholarship programs, such as the National Merit Scholarship Corporation (NMSC), rely on this information for determining eligibility, and if you don't check the box you won't be considered for the award. Graduate students who applied for the National Science Foundation (NSF) or Hertz Foundation graduate fellowships as undergraduate seniors should know that they can apply a second time as first year graduate students. If you didn't win a NSF as a senior, ask for a copy of your evaluation forms. Often the evaluations will be rather explicit in identifying the weaknesses in your application, and you can address those areas the second time you apply. Complete the FAFSA online at http://www.fafsa.ed.gov, instead of using the paper form. You will get the results quicker, and they will be more accurate. Don't forget, however, to print the signature sheet, sign and mail it, or they will not process your FAFSA. Be very careful not to miss any deadlines. Ask the school's bursar office about the availability of installment payment plans. Many universities will let you spread the cost of tuition out over the full year, instead of requiring you to pay a lump sum up front. |
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