Student financial aid is available from a number of sources, including the federal government, state governments, colleges and universities, and other organizations. Students can receive aid from more than one source.
The federal government supplies the largest amount of all student aid, about 75 percent or $35 billion annually. The largest and most popular Federal student aid programs are:
Federal Pell Grants
These are need-based grants that were given to just under 3.8 million students for school year 1998-99. In school year 1998-99, the maximum Pell Grant was $3,000.
Federal Direct and FFEL Stafford Loans
Direct and FFEL Stafford Loans are the federal government's main form of self-help aid. Direct Stafford Loans are available through the William D. Ford Direct Loan (Direct Loan) Program and FFEL Stafford Loans are available through the Federal Family Education Loan (FFEL) Program. In 1998-99, approximately 5.4 million students received FFEL Stafford Loans and about 3 million received Direct Stafford Loans.
The terms and conditions of a Direct Stafford or a FFEL Stafford are similar. The major differences between the two are the source of the loan funds, some aspects of the application process, and the available repayment plans. Under the Direct Loan Program, the funds for your loan are lent to you directly by the U.S. government. If your school does not participate in the Direct Loan Program, the funds for your loan are lent to you from a bank, credit union, or other lender that participates in the FFEL program.
The Direct and FFEL programs also offer PLUS Loans for parents of dependent students and Consolidation Loans.
Direct and FFEL Stafford Loans are either subsidized or unsubsidized. A subsidized loan is awarded on the basis of financial need. With this type of loan, borrowers are not charged any interest before they begin repayment or during authorized periods of deferment. The federal government "subsidizes" the interest during these periods.
An unsubsidized loan is not awarded on the basis of need. You'll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accumulate, it will be capitalized -- that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount. This will increase the amount of money you have to repay. If you choose to pay the interest as it accumulates, you'll repay less in the long run.
You can receive a subsidized loan and an unsubsidized loan for the same enrollment period.
If you're a regular student enrolled in an eligible program of study at least half time, you may receive a Direct or FFEL Stafford Loan. You must also meet other general eligibility requirements.
If you're a dependent undergraduate student you can borrow up to:
$2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year.
$3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year.
$5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year.
If you're an independent undergraduate student or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to:
$6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (only $2,625 of this amount may be in subsidized loans).
$7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (only $3,500 of this amount may be in subsidized loans).
$10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (only $5,500 of this amount may be in subsidized loans).
For periods of study that are less than an academic year, the amounts you can borrow will be less than those just listed. Talk to your financial aid administrator to find out how much you can borrow.
For a Direct Loan the U.S. Department of Education will pay you through your school. For a FFEL Stafford Loan, the lender will send the loan funds to your school. In most cases, your loan will be disbursed in at least two installments; no installment can be greater than half the amount of your loan.
Federal Campus-based Programs
The federal government provides money to colleges to give to needy students through three federal campus-based programs. These three programs include (1) a grant program (Federal Supplemental Educational Opportunity Grants, or SEOGs), (2) a loan program (Federal Perkins Loans), and (3) the Federal Work-Study Program.
Students can get aid from more than one Federal program. For the most up-to-date information about student aid supplied by the federal government, call the Federal Student Financial Aid Information Center toll-free at the U.S. Department of Education at 1-800-4FED-AID. You can also obtain a guide to federal financial aid for students, called The Student Guide, which provides an extensive and annually updated discussion of all federal student aid programs. You can obtain the Guide by writing to the following address:
Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044
Or call: 1-800-4FED-AID
States generally give financial support to public colleges and universities. This support lowers tuition for all students attending these schools. Some states also offer financial assistance directly to individual students, which can be need-based or merit-based. To find out about state aid where you live, call or write your state's higher education agency. The phone numbers and addresses of all of these agencies are listed in the last section of this handbook.
Colleges themselves provide aid to many of their students. Most of this institutional aid is in the form of scholarships or grants. Some is need-based and some is merit-based.
When your child wants financial aid information about specific schools, he or she should contact the financial aid offices of these schools and request information.
Other organizations, such as corporations, labor unions, professional associations, religious organizations, and credit unions, sometimes award financial aid. You can find out about the availability of such scholarships by contacting someone from the organization or by directly contacting its headquarters.
In addition, some organizations, particularly foundations, offer scholarships to minorities, women, and disabled students. To learn more about such scholarships, go to the nearest public library with a good reference section and look for directories that list such scholarships. (The names of a few books that list scholarships appear in the last section of this handbook.) College admissions offices and high school guidance counselors should also be able to provide more information about scholarships.
The guidance counselors at your child's high school should be able to provide information on when and how to apply for federal, state, and other types of aid. If they cannot give you this information, try a local college. Even if your child doesn't plan to attend that particular institution, financial aid officers there should have information on federal financial aid. Many colleges can also tell you about state aid and their own institutional aid.
To qualify for federal aid, you or your child must submit a financial aid application. Applications for financial aid request information about your family's income, savings, and assets, as well as information on the number of children in the family who are in college. You can get a copy of the federal financial aid form by calling the toll-free number that was mentioned earlier: 1-800-4FED-AID. You may also fill out this form via the World Wide Web. Visit the Department's web site at: www.ed.gov and click on "Student Financial Assistance."
To apply for other aid in addition to federal aid, you may need additional forms. High school guidance counselors can tell you more about applying for financial aid, including where to get forms you might need for state aid.
From information you report on the financial aid forms, your expected family contribution (EFC) is calculated. The EFC is the amount of money a student and his or her family are expected to contribute to the costs of attending college. Using the EFC and other information that you provide, each college to which you apply will determine your financial need. Financial need equals the cost of education minus the EFC and represents the maximum amount of need-based aid the student can receive. In addition, students can borrow money to cover the EFC.
Because financial aid determinations consider both financial need and education costs, you should not rule out a school because you think it costs too much. In fact, with financial aid it may cost no more to attend an expensive institution than a cheaper one. Chart 8 below summarizes the simple calculation that is performed to determine financial need.
How Much Need-based Financial Aid Can My Child Get?
The amount of need-based financial aid a student qualifies for depends on his or her financial need. Financial need is equal to the cost of education (estimated costs for college attendance and basic living expenses) minus the expected family contribution (the amount a student's family is expected to pay, which varies according to the family's financial resources).
Includes costs of
Based on the financial resources of a student and his or her family
Students can receive up to this amount of need-based financial aid, such as Pell Grants and Stafford Loans.
To give you a better idea of how you can finance your child's college education, examples of two college students' financial aid packages are shown below.
Note that these financial aid packages are just examples of the kinds of packages that students with these profiles might receive if they attended the schools described below.
Profiles of student financial aid.
In addition to any student aid awarded to a student, families may be eligible for tax credits, tax deductions, or tax breaks on savings plans. These are not the same as student aid but may make college education more affordable by reducing the amount of taxes that would otherwise be owed.
Tax credits directly reduce the amount of taxes owed to the federal government. There are two types of tax credit programs. The first is called Hope Scholarship and can provide up to $1,500 for a child's first and second years of college. The second is called the Lifetime Learning tax credit and can provide as much as $1,000 a year after the first two years of college. The actual amount of the credit depends on the amount of college expenses and on parent or student income. Parents can take the tax credit if they claim the student as an exemption on their return. The student can take the tax credit if he files a separate return and claims himself as an exemption.
When deciding about student loans, student should also remember that some of the annual interest payments may be deductible on their tax returns during the first five years of loan repayment.
The federal government also encourages families to save in advance for their education by allowing taxes to be deferred or forgiven on accumulated earnings. One provision is the Education IRA or individual retirement account. This allows total contributions of not more than $500 a year to the account of a child under 18. These contributions cannot be deducted from taxes. However, the taxes on the earnings in the account are deferred. If the withdrawals from the account are used for qualified higher education expenses, the student will not owe any tax on the accumulated earnings.
Certain states and agencies also have programs that allow people to buy credits or certificates or make contributions to accounts that can be used to pay higher education expenses. These programs are usually referred to as state tuition programs or pre-paid tuition programs. The contributions are not tax deductible but the earnings from the accounts are not taxed when used for higher education expenses.
Many families have used EE savings bonds as a way to accumulate funds for college. The interest on these bonds, if they were used after 1989 and used to pay qualified college expenses, can be excluded from gross income on your tax return. This exclusion depends on the family's income and other financial aid and tax benefits that the student or parents may have received.
Eligibility for tax credits, deductions, and deferrals involves complex rules and calculations. You should seek the advice of someone who has experience with these provisions. You can also read IRS Publication 970, Tax Benefits for Higher Education.
AmeriCorps is a domestic service organization in which thousands of young men and women are working in community service projects around the country in exchange for a living allowance averaging $7,500 per year; health care; child care when needed; and an education award of $4,725 per year for paying back a student loan or for financing postsecondary education. Under some circumstances a person can serve part time and receive an education award of $2,362 per year.
AmeriCorps projects serve communities throughout the country. All meet at least one of four national priorities: (1) education; (2) public safety; (3) human needs; and (4) the environment. For example, AmeriCorps members teach state-of-the-art computer skills to teenagers, tutor grade-school children in basic reading, or organize innovative after-school programs in some of the education projects. AmeriCorps members in environmental projects clean up urban streams and inland waterways, monitor dangerous trends in air quality, or test-start city-wide recycling programs.
There are many different points in a person's educational career when participation in AmeriCorps is an option: right after high school; during or after college; and during or after graduate school or occupational training. AmeriCorps members are recruited locally and nationally. To find out more about AmeriCorps, call the AmeriCorps Hotline free of charge at 1-800-94-ACORPS (1-800-942-2677) or TDD 1-800-833-3722. You may also visit the AmeriCorps web site at: www.americorps.org.
As discussed in an earlier section of this book, many high schools offer Advanced Placement (AP) courses and exams. AP courses are college-level courses that help students prepare for college-level work. After taking AP courses, students can take AP exams offered in the same subjects as the AP courses. If students score a grade of 3 or higher on an AP exam, they can often receive college credit. Students with high grades on AP exams in many different subjects are sometimes granted a full year of course credit at the colleges where they enroll. The receipt of course credit can result in savings in college costs. These savings can be quite large if it means that a student is able to enter into a college as a second-year student; such a student might save the cost of tuition and fees for a whole year of college.
However, not all colleges and universities give college credit for a grade of 3 or higher on an AP exam. Contact your child's high school to find out if AP courses and exams are offered. Write to the admissions office of the colleges that are of interest to your child to find out if they give credit for an AP exam grade of 3 or higher. For more information on AP courses and exams, see the address and phone number in the last section of this guide.
As discussed earlier, some high schools offer career-focused educational programs that provide students with a set of high school courses that are formally linked to courses offered at local community or technical colleges. These "tech-prep" or "school-to-career" programs, as they are often called, offer students the opportunity to go through a sequence of career-focused courses in high school that prepares them for an apprenticeship program or for a specialized sequence of college courses in a particular occupational field. Thus, students who master certain technical and occupational skills and knowledge in high school do not need to repeat the same courses when they enter college or an apprenticeship.
In some of these programs, students who take the specialized sequence of courses in high school can sometimes be awarded college credit or advanced standing in the occupational program at the college level. This can save students time and money. It also means that students can gain access to more advanced college courses much earlier in their college careers. To find out if such career-focused programs exist in your community, ask your child's guidance counselor or teacher, or staff at a local college. To learn more about career-focused programs like tech-prep and school-to-career programs, contact the organizations listed in the last section of this guide.
Local community colleges are usually the least expensive. In addition to charging low tuition, usually it is possible to save money by having the student live at home and commute to campus.
After completing an associate's degree or certificate in a two-year college, students often can transfer to a four-year college and work toward a bachelor's degree.
If your child chooses this route, he or she needs to take courses in the two-year college that will count toward a bachelor's degree. Certain community college courses may not be transferable to a four-year institution. Community college admissions officers can explain transfer terms and opportunities.
Some students choose to work part time and attend college part time. If your child wishes to do this, he or she should make sure that work, classes, and time for studying do not conflict. Some institutions offer programs that enable students to combine work and classes. Although going to school part time is a good option for many students, it usually takes longer for part-time students to earn their degrees.
All of the ways to get postsecondary educational training through the armed forces are shown in Chart 9 below. The armed forces offer educational programs during or after active duty. If your child prefers to work toward a college degree immediately after high school, attending one of the military academies or attending a civilian school and enrolling in the Reserve Officers Training Corps (ROTC) program are options. If your child wants to join the armed forces before attending college full time, he or she can attend college after military service by taking advantage of the Montgomery GI Bill or by obtaining college credit for some of the military training he or she will receive.
Each branch of the military, with the exception of the Marine Corps, has its own academy -- a four-year college that offers a bachelor's degree and a commission in the military upon graduation. The military academies are highly competitive and are tuition-free to students who are admitted. The three main military academies are:
Two other academies operate on the same model as the military academies, with subsidized tuition in return for service. They are:
In the ROTC scholarship program, the military covers most of the cost of tuition, fees, and textbooks and also provides a monthly allowance. Scholarship recipients participate in summer training while in college and fulfill a service commitment after college.
The Montgomery GI Bill
This bill provides financial support for people who wish to pursue a college education after serving in the military.
Other Ways To Get a College Education in the Armed Forces
Most branches of the military offer some kind of tuition assistance program that enables members to take college courses at civilian colleges during their off-duty hours while on active duty. In addition, military training while on active duty can sometimes count toward college credit. All branches of the military offer training in various technical and vocational areas, and military enrollees can often obtain college credit for some of this training.
The National Guard and the Reserves offer the same kind of educational benefits as those available to people on Active Duty.
Local armed forces recruiting offices can provide detailed information about education opportunities through the military.
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