Volume 3, Issue 7
College Costs: Help from Uncle Sam
Applying to colleges requires a course of study all its own. When you add the need for financial assistance, you may feel you are faced with a situation you would rather avoid altogether. However, the benefits of completing the required forms in a timely manner can make the effort worthwhile, especially if it pays off by allowing your child to attend the school of his or her choice.
The U.S. Department of Education has several programs, involving grants, loans, and work-study programs, available for post-secondary education. Aid from most programs is awarded on the basis of financial need, with exceptions in the loan programs. In determining need, both the cost of education and an expected family contribution (EFC) are considered.
The EFC is calculated using a formula established by Congress. Factors such as taxable and nontaxable income, assets (e.g., savings, checking accounts, family businesses, and real estate holdings), and benefits (unemployment and Social Security, for instance) are all considered in the calculation.
Federal programs include the following:
Pell Grants—These grants are generally awarded to undergraduates based on need and family income qualifications. The size of the grant depends on program funding.
Supplemental Educational Opportunity Grants—These grants are earmarked for undergraduates who are in greater need than Pell Grant applicants. The federal government supplies this money, but the individual colleges carry out the distribution of funds. The availability of these grants may be limited, depending on how much funding is allocated to a particular school. Annual grants range from $100 to $4,000.
Federal Perkins Loans—These loans are generally available for students with exceptional financial needs. Factors that determine qualification for a Perkins Loan include the following: 1) when the application is submitted, 2) a student’s financial need, and 3) the funding level for the particular school. An eligible undergraduate student can borrow up to $3,000 per undergraduate year of study, not to exceed a total of $15,000. An eligible graduate student can borrow up to $5,000 per graduate year of study, not to exceed a total of $30,000. Interest on the loan is 5%. If the borrower is more than a half-time student, repayment begins nine months after the recipient graduates or leaves school. (These nine months are called the “grace period.” Students who are attending school less than half time may have a shorter grace period.) Payments can be spaced over a maximum of ten years after the grace period expires.
Federal Work-Study Program—This program essentially provides an award in exchange for work. These jobs may be on or off campus; but, if off campus, they are generally with a government agency or non-profit organization. (Under some circumstances, a school may have arrangements with a private for-profit company.) When possible, the jobs are related to the student’s major. The pay is generally minimum wage, and hours and compensation cannot exceed the Federal Work-Study award.
Stafford Loans—This federally insured loan program permits eligible students to borrow at favorable interest rates. These loans are typically arranged through private lenders, and the program offer flexible loan repayment options. The federal government subsidizes some Stafford loans based on financial need, deferring interest charges until loan repayment begins or during qualified deferment periods. Subsidized loans have much lower limits than unsubsidized loans, which are not based on financial need and begin accruing interest when the loan is disbursed.
PLUS (formerly “Parents’ Loans for Undergraduate Students”)—Parents are eligible for this loan if they pass a credit check. The amount of the loan is generally limited to the actual “cost of attendance” minus any financial aid already received. Parents taking this loan must begin repayment sixty days after the final loan disbursement for the academic year. Interest on PLUS loans is variable, but it cannot exceed a specific amount.
Some states base their programs not only on need, but also on academic performance. The recipients of state loans generally must be legal residents of the state and enrolled in a college or university within that state. Some states have “reciprocity agreements” with other states.
No matter how slight you believe your chances of receiving aid are, apply. You may qualify for more aid than you think.