Successfully Managing Your Financial Aid as a Student
The key to successfully managing your money while attending college is through careful financial planning. Instead of waiting until the last minute to get your affairs for a higher education in order, start planning early. Explore all of your financial aid options. Read all the fine print, and don't give up until you've looked at every scholarship, loan, and grant available.
The following series of articles are designed to help facilitate your planning process. Each article focuses on ways to save money on education, either through careful preparation, savings accounts, or tax benefits. By taking a moment to read through the articles, you will be one step closer to achieving your higher education goals.
How to Apply for Financial Aid
Education is the fastest route to a successful, reasonably paying career. Unfortunately, many prospective students are discouraged from earning a degree due to the financial sacrifices that have to be made. What everyone should know, however, is that paying for school is not an impossible feat. Financing an education is actually something just about everyone is able to do with the right planning and foresight.
There are many different options from which a prospective student can choose to cover his or her tuition bills. Scholarships, grants, and loans are a few of the most common ways students pay for school; however, each type of financial aid option has specific student qualifications. The following tips will help you sort through the financial aid process.
Tip #1: Start early. The financial aid process can take months. Don't expect to be able to apply for loans and scholarships last minute. You will not get the same results. Further, if you are rejected from a financial aid option, allowing yourself time to apply to another is an excellent way to ensure you get the money you need. Most financial aid applications are accepted between January 1st and June 30th .
Tip #2: Talk to your local librarian. Librarians are trained to assist individuals in the process of seeking out financial aid. If you are not currently enrolled in a high school with counselors, checking out the library is an excellent alternative.
Tip #3: Get information from schools that you are interested in. Many schools have counselors who will help you find the financial aid options you need.
Tip #4: Fill out a FAFSA form (Free Application for Federal Financial Aid). This will provide schools with the information they need to make decisions about loans and scholarships.
Tip #5: You will be asked to give you total family income. Be honest. Lying will get you nowhere.
Tip #6: Make sure you photocopy the application forms you fill out so that you have a record of them for your personal files.
Tip #7: Review all application deadlines. Put them on a calendar. Getting rejected from a scholarship simply because you didn't read the fine print is a huge waste of your time.
Tip #8: Look into alternative loans and scholarships. Getting help from the school of your choice can be easy and informative, but it is always a good idea to look into other options. Check out the Perkins Loans and Stafford Loans .
Tip #9: Have somebody close to you look over your application. Make sure there are no mistakes before you turn it in.
Tip #10: Remember: the money you borrow must be repaid. Do not use it frivolously and don't take out more than you need.
Back to the TopFinancial Aid Planning Guide
• Junior year, prepare yourself for tests like the SAT and ACT. If you do well on these tests, you could qualify as a National Merit Scholar. This can lead to large scholarship and recognition from top schools.
• Speak to your school's financial aid office. While it may seem like a waste of time, these individuals can point you in the right direction. Remember: financial aid officers hear about scholarship and loan opportunities far before you do. They will likely have suggestions you have not considered.
• Save money during the summer. Get a full-time job and squander. It may be a pain at the time, but you'll appreciate the extra funds later.
• Research what each school requires for financial aid benefits. Do you just need to fill out the FAFSA? Are there other requirements? Further, many schools have early scholarship deadlines. DO NOT MISS THESE. Some scholarships are due as early as October and November. Prepare for this.
• Apply for as many scholarships as you can. Receiving a scholarship is infinitely better than a loan because it does not need to be paid back. Scour the Internet. Speak to your counselors. Contact individual schools. There are billions of scholarships out there. You just need to do the leg work to get them.
• Go to financial aid planning nights. Many times excellent information is shared at these meetings. Don't miss out. One piece of information can make all the difference.
• File the FAFSA . This is incredibly important. File it as quickly as possible after January 1 st . It will ask for your income taxes, but you can estimate the taxes and make corrections. It is important that you get this in as soon as possible because the FAFSA works on a rolling basis. The sooner the FAFSA is turned in, the more likely you will be to get aid.
• You will receive a Student Aid Report (SAR) after you turn in your FAFSA. Make sure that it is entirely correct.
• After you receive your awkward letters, make sure you spend some time assessing your options. Just because a school is cheap does not make it the right school for you.
• Most schools require that you make a decision by May 1 st so make sure that you have made your decision by then.
• Apply for scholarships and loans every year. Just because you were rejected from scholarship x last year doesn't mean that this will happen again. Remember: you are applying with a whole new group of people.
Back to the TopTax Benefits for Students
An educated population makes a richer nation, not only financially, but also culturally. This is why many governments are proponents of making it as easy as possible to earn a degree. One of the ways the U.S. government eases the financial burden of its citizens is by providing tax breaks to students while they pay back their loans.
Some of these breaks are reserved only for a particular part of the population, but others apply to all students and even parents who are helping their kids through school. For instance, if you are a student, there is a chance you could get a tax break by choosing a certain type of career. The government designates certain high need career fields, such as teaching and nursing, and offers grant or loan forgiveness for individuals who choose to work in these fields. One example of this is in the teaching profession. Some teachers are able to have their Perkins government loan forgiven if they teach in certain areas of the country.
There are three standard tax incentives for higher education. They are as follows:
• Hope and Lifetime Learning Credit: This applies to anyone who pays tuition and related expenses for you or any eligible dependent. Different rules apply in each situation, and if you receive this tax break, you cannot use the Lifetime Learning Credit.
• Tuition Deduction: This again can benefit you, your spouse, or any dependents enrolled in an accredited institution. The tuition break can be up to $4,000.
• Deducting Loan Interest: It is possible in certain cases to deduct the interest you pay on a student loan. These situations include you paid interest on a qualified student loan in 2008, your filed status is not married, your gross income is less than $70,000, and you and your spouse (if filing together) are not claimed as dependents.
Other tax breaks include special tax credits, which are granted to students and parents, tax-free college savings accounts, and loan interest deductions. Make sure to check with a financial aid officer to see if you qualify for any of these breaks.
Back to the TopThe Myths about Paying for School
Paying for college can be a daunting experience, but with some educated foresight and a little sacrifice, almost anyone is capable of figuring out an affordable way to pay for education. Like any difficult task, there are many myths that materialize and scare people away from pursuing an education. We will highlight a few, but when you are ready to take the plunge and enroll in school, it is always a good idea to talk things over with a financial aid adviser at your college of choice.
Myth #1: Only the rich can afford to go to school.
Not true. There are many middle class or impoverished people who figure out how to either save for school, or get their school paid for through scholarships and grants. In fact, 20 percent of all traditional-aged college students come from families with an annual incomes lower than $25,000 a year.
Myth #2: Saving for college is a waste of time because it makes students ineligible for financial aid
Not true. Most colleges determine their financial aid packages by a family's annual income, not by the amount of money saved up in the bank. Further, saving for college is the smartest way to go. If you save money prior to college, you will not have to worry about your finances while you are an active student or student loans once you graduate.
Myth #3: Scholarships are only for athletes and minorities.
False. While it is true that there are many scholarships available to athletes and minorities, these are only part of the free-money pie. If you check in with a college counselor or a library, you can search a database full of scholarships that are open to a number of different types of students. Some scholarships are subject based, sponsoring a certain track of studying, while others are academically based, sponsoring students who have worked hard to earn good grades. Still others are hobby based, sponsoring students with special interests such as painting, drawing, agriculture, and writing.
Myth #4: Applying for student loans is a lot of work.
By simply filling out the FAFSA form, you are well on your way to getting receiving some form of student loans.
Myth #5: All student loans have very high rates.
Student loans actually have very good interest rates. In fact, they are often better than most other kinds of loans. Obviously there are those out there that are bad, but if you do your research and talk to stupid loan officers, you will be surprised at the good rates that you can find.
Myth #6: You must have credit to get a loan.
Student loan officers understand that most individuals have little to no credit when they are applying to schools. It is easy to find a loan that requires no credit at all.
Myth #7: You must have a co-signer to get a student loan.
Yes, some loans do require a cosigner, but not all. If this is a problem for you, do your research and fine an alternative option.
Myth #8: Graduate students can't receive student loans.
There are many loan options for graduate students and they are just as easy to receive.
Myth #9: Ordinary people can't get loans.
Again, just because you are not the best student at your school and have not won any awards for track and field (for example), does not mean that you won't be able to find a good loan. Loans are not like scholarships. They are not given because of merit or even need. They are given because you have agreed to pay it back.
Myth #10: I am more likely to get a student loan if I file as a dependent.
While this may be true of certain kinds of financial aid, it is not true for loans. Filing as a dependent will not affect your likelihood of receiving a loan.
Back to the TopCollege Savings Accounts
College savings accounts are still a fairly new concept. These are accounts which can be opened by anyone who wants to pay for a college education. A beneficiary must be named for the account and it must be opened as a designated college savings account (see your banker or investment consultant for more details on how to open a college saving account.)
There are a few different types of college savings accounts, one of which is the Coverdell Education Saving Account . The money put into these accounts is not tax deductible, but it can grow tax-free. This means that the interest made on the deposits in the account is not reported to the IRS as income. However, the government puts a limit of $2,000 a year on these types of accounts and money is taxed once it is withdrawn to actually pay for college.
Another type of college savings account is the 529 Qualified Tuition Program . This type of account works along the same lines as a Coverdell Account, but distributions can be taken out tax-free for tuition payments before 2011.
U.S. Savings Bonds can also be used toward financing an education. These college savings accounts are most often used by parents or grandparents who want to plan ahead for the next generation. It is a great way to watch small contributions grow into a nest egg for kids and grandchildren.
Back to the TopFactors Affecting Financial Aid
Financial aid is money that is given, paid, or loaned to a student to help pay for college or vocational training. There are several factors that affect the amount of aid a student receives, including:
Expected Family Contribution (EFC) is the amount of money your family is expected to pay toward the cost of education. Usually, the lower your EFC, the more financial aid you will receive. Factors such as family size, number of children in college, and income are used to calculate your EFC.
There are three formulas used to calculate the EFC: one for dependent students, one for independent students with dependents other than a spouse, and one for independent students without dependents other than a spouse.
Once your FAFSA form has been filed and processed, you will receive a Student Aid Report (SAR) with your official EFC number (this information is also sent to the schools listed on your FAFSA form). Your financial aid administrator (FAA) will then determine your financial need, which is defined as the difference between the cost of attending college and your EFC.
Other factors used to calculate your EFC include:
• Available income - you can determine your available income by adding untaxed income to your adjusted gross income, and then subtracting the value of certain education benefits, taxes, and income protections. Your available income will be automatically calculated for you when you file your FAFSA form. This formula subtracts all taxes – state, federal, and Social Security.
• Dependency status – Most students entering college straight out of high school are considered dependents. This means that the family is expected to contribute financially to the student's education. In exceptional cases when individuals in this situation can be considered independent students, only their income and assets will be considered, resulting in a significantly larger financial aid package.
• Student and parent assets – For purposes of the EFC, your assets include the present value of everything in your bank account and stock portfolio. If you or your family owns a business, your assets include the net worth of those holdings. The financial aid formula does not consider the value of your house or retirement accounts as assets, nor does the formula include non-liquid assets. Assets normally included are checking and savings account, stocks, bonds, and mutual funds.
• Sources of income – One of the largest factors affecting your financial aid is your income. “Income” can come in several forms including primary employment, sale of stocks or funds, bank account interest, rental property, and other sources of cash. The aid formula uses the adjusted gross income (AGI) reported on your annual tax return. In addition to your salary, other factors included in the formula are money from Social Security, veteran benefits, child support, earned income credit, child tax credit, payments to savings or pension plans, deductions to retirement plans, worker's compensation, and welfare. Once all of these factors are added up, the government deducts the Hope and Lifetime Learning tax credits, federal work-study income, fellowships, and scholarships reported as income from your adjusted gross income. The result of these calculations equals your total income for the expected family contribution.
Strategies for Maximizing Aid
To have the largest impact on your eligibility for financial aid, save as much money as possible in your parent's name. Pay off credit card and loan balances. If possible, have multiple people in a household in college at the same time – the more family members simultaneously enrolled in college, the more aid will be available to each. Spend down assets and income first, and accelerate necessary expenses to reduce available cash. Maximize capital gains and contributions to your retirement fund, and minimize your educational debt.
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