1 PAYING FOR COLLEGE Plain talk about Financial Aid
2 CONTENTS The PreStep Facing the Facts Step 1: Understanding Financial Aid Basics 1 The Basics: Understanding Scholarships, Grants and Loans 2 Step 2: Applying for Scholarships and Grants 3 National Merit Scholarships Step 3: Completing your FAFSA (Free Application for Federal Student Aid) 4 What You ll Get Back: The Student Aid Report 5 Step 4: Applying for Federal Student Loans Step 5: Applying for Private Loans 6 Senior Year Timeline - A Game Plan for Funding College Expenses 7 Glossary of Terms 8
3 FTHE PRE-STEP FACING THE FACTS Families today must face the fact that sending kids to college is more expensive than ever. And if that concept overwhelms you, you are not alone! But like many challenges in life, if you plan ahead and break the process down into bite-sized pieces, creating a strategy to fund your education will become more manageable. There is no doubt that a college education is incredibly valuable in our society. Kids who go to college have a better chance at becoming professional, marketable adults who are highly compensated in their careers. College broadens a young adult s life experience, often providing them the first chance to live on their own and establish their independence. And college is fun! (Once you get past the "can we afford this?" part.) For some families, the only workable financial solution is for parents and children to split the costs of college. That is common, and it s okay. However, it s important to have a discussion with your parents about any expectations they have for shared expenses before you start school. This will help you avoid any mid-semester money scrambles that will cause stress for all involved. The rest of this guide will take you through Five Steps that outline how to get the money you need for college. You ll find information about scholarships and grants, a primer on FAFSA (Free Application for Federal Student Aid), and key information about federal and private education loans. And as a wrap-up, you ll find an easy-to-use timeline to help you make sure you ve got your bases covered. FOR SOME FAMILIES, THE ONLY WORKABLE FINANCIAL SOLUTION IS FOR PARENTS AND CHILDREN TO SPLIT THE COSTS OF COLLEGE. STEP 1: UNDERSTANDING FINANCIAL AID BASICS Financial aid is a broad term used to encompass the various funding sources for a student s education. It s rare these days that a student will get a "full ride," or a financial aid package that covers all possible expenses. It s more likely that a student will secure financial aid that covers only a portion of what they need, and the rest must be funded through private resources. Financial aid packages often include a mix of scholarships, grants and loans. Quite often the package will include a government education loan, such as a Perkins Loan, Stafford Loan, and/or PLUS Loan. Chances are you will end up paying for college by combining many different types of financial aid. See the next page for an explanation of scholarships, grants, and loans. 1
4 THE BASICS: UNDERSTANDING SCHOLARSHIPS, GRANTS AND LOANS SCHOLARSHIPS Money given by a group, institution or charity to help cover some of the cost of college. Scholarships are given to either students with the most financial need (need-based) or to those with a record of outstanding achievement (merit-based). Most scholarships are competitive and require the student to fill out an application, which includes a description of the student s current circumstances, an essay about why they deserve the money, and some indication of their future plans. Scholarship money is essentially "free" and doesn t need to be repaid. However, many have terms that require the student to keep up certain grade point averages or follow a particular course of study. There are also athletic scholarships, which are dependent on participation in collegiate sports. Depending on school policy, if students receive outside scholarships, their financial aid offer might be adjusted accordingly. Familiarize yourself with your school s policy to avoid any surprises. WORK/STUDY Financial aid recipients are often offered a position in a "Work Study" program. This is an arrangement that allows students to work on campus to help cover some of their college costs. GRANTS There are two major types of grants federal and private. The Pell Grant is the foundation of federal student aid, to which aid from other sources (federal and non-federal) can be added. Pell Grants are awarded to undergraduate students pursuing their first bachelor s degree. They are awarded solely based on financial need, and the allocations range from $400-$4050 per school year. Eligibility for Pell Grant money is based on calculations that take several factors into consideration. These include family income and assets (parent and child), the cost of attendance (tuition and fees), and expected family contribution. You can apply for Pell Grants by completing the FAFSA or through your college s financial aid office who will assist you in completing the FAFSA and assess your ability for other sources of financial aid. Various groups, institutions and charities, give private grants and there is often some type of affinity between the student and the organization that is granting the money. When planning to fund a college education it makes good sense to explore all of the possible grants that your church or other community organizations might offer. There are also grants that are allocated for specific areas of study, so if you know what you will be majoring in, you can explore grant possibilities connected to that field of study. All grants are competitive and often include a rigorous application process. Plan ahead, because deadlines could be earlier than you expect. And the great thing about grants is that the money does not have to be repaid. LOANS There are a wide variety of loans available to students. Federal loans can be made to both parents and students. These loans are referred to as Federal Perkins Loans, Stafford Loans, and PLUS Loans. And there is also a Federal Consolidation Loan program that allows students to consolidate all of their loans into one payment after graduation although it should be noted that federal loans can only be consolidated one time. Private loans are offered from a variety of banks and financial institutions. This type of loan is often used to bridge the gap between the money a student gets from scholarships, grants and federal loans, and what they actually need to cover expenses. Many banks make unsecured installment loans to parents, and also offer money to homeowners through a Home Equity Loan or Line of Credit. Talk to a financial advisor at your bank or credit union for more information. 2
5 S STEP 2: APPLYING FOR SCHOLARSHIPS AND GRANTS Scholarships and grants comprise $3 billion of the money used to pay for education expenses each year. But you can only acquire some of that money if you take the time to do research and submit applications on schedule. THE PROCESS: COLLECT INFORMATION: Do an exhaustive search to find out which scholarships and grants are available to you. Speak with your high school advisor and the financial aid office of the college you are planning to attend, and familiarize yourself with the numerous online resources. A good place to start is Now is the time to brainstorm and make a huge list of all of the possibilities. NARROW YOUR SEARCH: Now that you have a fact base to draw on, review your list and cross out every scholarship and grant that you think is a long shot. Then, make a "Top Ten" list of the scholarships and grants you feel could be the best fit for you. GET APPLICATIONS: Many scholarship and grant applications are available online, but if you don t see the applications you need on the web, contact the sponsoring organization to have an application mailed to you. Your school may also require that you fill out the College Scholarship Service (CSS) Profile to determine your eligibility for its grants and scholarships. WRITE AN OUTSTANDING ESSAY: There are many books available at your local library, bookstore, or online that give advice and instruction on writing the perfect essay. Share your essay with teachers, parents and friends to get input and make it the best it can be! SCHOLARSHIPS AND GRANTS COMPRISE $3 BILLION OF THE MONEY USED TO PAY FOR EDUCATION EXPENSES EACH YEAR. MEET THE DEADLINE: Scholarship and grant deadlines are serious. One of the first ways to eliminate applications is to cut those applicants who don t meet the deadline. For a searchable database of available scholarships and grants, visit: 3
6 NATIONAL MERIT SCHOLARSHIPS The National Merit Program awards more than $50 million a year to qualified students. Qualification for the prestigious $2,500 award is tied to student performance on the PSAT (Preliminary Scholastic Achievement Test), which is taken during the sophomore or junior year of high school. The 50,000 students who score the highest become semi-finalists, and one year after taking the test students must fill out an application to become a finalist. At that point PSAT scores are combined with GPA and extra curricular activity data to determine the 15,000 students who will get the award. While only a small percentage of students will receive a Merit Scholarship, falling into the semi-finalist (top 50,000) category qualifies students for other scholarships. For example, some employers offer scholarships to their employees children based on their national merit ranking, and some schools offer their own merit scholarships. In addition, a National Merit ranking opens some application doors: Generally, it s easier to receive scholarships when a student has already demonstrated high test scores. For more information on the National Merit Program, visit ASTEP 3: COMPLETING YOUR FAFSA At this point it is necessary to complete a FAFSA (Free Application for Federal Student Aid). This is a standardized form that colleges and the federal government use to determine how much money a student needs and how much money the student and his/her family is expected to contribute. You can get FAFSA forms and more information by going to Families must complete a new FAFSA every year they are seeking financial aid. GETTING PREPARED FOR THE FAFSA: DOCUMENT CHECKLIST STUDENT Driver s License or Social Security Card Last year s tax return Bank Statements Investment Records PARENT Last year s tax returns Bank Statements Mortgage or loan information Investment Records Business or Farm Records Documentation of special circumstances (for example, medical costs, death of a parent, tuition expense, divorce, etc.) 4
7 TIPS: Make at least two complete copies of your FAFSA and all of the support materials and keep them handy. You ll probably need to provide hard copies to your school for verification. Proofread your application closely for errors to avoid processing delays. Deadlines: You cannot submit the FAFSA before January 1st annually, but if you submit your FAFSA soon after, you will know your expected contribution earlier. WHAT YOU LL GET BACK: THE STUDENT AID REPORT The US Department of Education will process the FAFSA form and mail back a Student Aid Report (SAR). This is a summary of the information that was provided. It s important to check this report for errors. At the top of this form the Expected Family Contribution (EFC) is shown. This is the amount of money considering all factors which the government determines a family can afford to put towards college. And in turn colleges use this figure to qualify students for financial aid. WEIGH YOUR OPTIONS CAREFULLY You may be considering a few different schools and making your decision based on the financial aid package they have to offer. Don t assume that just because one school is more expensive than another that the cheaper school will result in the lowest net out-of-pocket expense. Many private schools offer more financial aid especially if they want to compete for high-achieving students. Compare your offers and do the math you could be pleasantly surprised! And while the bottom line expense to you is a very important factor in choosing a college, don t forget to consider some other key aspects of a school that really make a difference in your education. Some examples include school reputation, opportunities for research, accelerated and study abroad programs, and college internships. 5
8 USTEP 4: APPLYING FOR FEDERAL STUDENT LOANS Unless all needed funds have been attained through scholarships and grants which is rare families must apply for student loans. It s best to begin with Federal Loans because they are created with special features to help the borrower. As noted in Step 1 there are three main Federal Student Loan types Perkins, Stafford and PLUS. PERKINS LOANS are need-based, low-interest loans available to students, not parents. The amount of the loan is determined by each college and is based on the expected family contribution. To be eligible for this loan, students must have also applied for a Pell Grant. Repayment doesn t begin until a student graduates or falls below half-time enrollment status at school. STAFFORD LOANS are guaranteed by the government and don t require a credit check, a co-signer, or collateral. There s a six-month grace period before loan payments are due after graduation, and a minimum repayment of $50 a month. There are two types of Stafford Loans: subsidized, where the government pays the interest on the loan while a student is in school and during the six-month grace period; and unsubsidized, where interest builds during the time a student is in school. Subsidized loans are awarded to students based on demonstrated financial need as determined by your college. Because the federal government sets a limit on how much money a student can get on any one Stafford loan, many students choose to take out both the subsidized and unsubsidized Stafford loan at the same time. This option allows students to take advantage of Stafford loan terms while maximizing the amount of money they receive. Even with the Stafford Loan awards, many families need to find other sources of funding to pay for their child s total educational cost. THE FEDERAL PLUS LOAN offers a low-interest, collateral-free way for parents to pay for their dependent child s education, including transportation, housing, and food. And the interest payments may be tax deductible. Total deferment is an option on some student loans in which the student decides not to pay any of the principal loan amount and interest during the time he/she is enrolled in college. This postpones loan repayment until after graduation. But it s not free. Usually, the loan amount continues to earn interest even though you re not paying. At the end of school, that interest gets rolled into the principal loan amount. Therefore, upon graduation, the loan amount will be larger. STEP 5: APPLYING FOR PRIVATE LOANS 6 As a final step when all other avenues for financial aid have been explored, private loans are available to make up the difference. These loans are offered through your bank, credit union or other financial institutions, and usually involve a fast application process that includes a credit check. These loans are available at a variety of terms and interest rates, so do your homework and find your best option if you need to go this route.
9 SENIOR YEAR TIMELINE - A GAME PLAN FOR FUNDING COLLEGE EXPENSES SEPTEMBER - JANUARY SEPTEMBER - JANUARY Apply to college. Find and apply for Scholarships and Grants. Meet with your college advisor to plan your college applications. Most applications are due in mid-winter. Using the internet, the libraries, or your college advisor, investigate scholarships that might work for you. Keep the scholarship deadlines in mind. If you miss them, they re gone. JANUARY FEBRUARY - APRIL Fill out and mail your FAFSA. Wait for college admissions, and to see what financial aid amount your college can provide. Your FAFSA form should be processed within two weeks. Respond to your college offer of admission and financial aid. APRIL - MAY Apply for PLUS Loan and Stafford Loan if you need additional financial aid beyond the amount your college can provide. Contact StuFund for fast and easy applications. MAY JUNE JULY - AUGUST With information about how much financial aid you ll receive, and how much you ll get from PLUS Loans and Stafford Loans, make up the difference by applying for private loans. Go over your finances to make sure everything lines up. Enjoy your summer! School starts in the Fall. Contact StuFund for fast and easy applications. Review your budget, making sure to budget for housing, food, travel, and books. Don t forget to include moving expenses in your budget, if appropriate. If you have any questions along the way, give StuFund a call. From the smallest questions to the most complicated problems, we re here to help. STUDENT FUNDING GROUP 106 Allen Road Liberty Corner, NJ STUGRP3 ( ) 7
10 GLOSSARY OF TERMS: CONSOLIDATION: The combination of several types of federal education loans into one new loan. Consolidation simplifies loan repayment. DEFERMENT: The temporary postponement of loan payments; during this time, the borrower doesn t have to pay either principal or interest. FFEL: The "umbrella" term for the Federal Family Education Loan Program, consisting of Federal (FFEL) Stafford Loans (subsidized and unsubsidized), Federal (FFEL) PLUS Loans, and Federal (FFEL) Consolidation Loans. FORBEARANCE: Temporary postponement or reduction of payments because of the borrower s financial difficulties. A forbearance also may be an extension of the repayment period. All borrowers are charged interest during forbearance. REPAYMENT SCHEDULE: A statement the loan holder provides the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due. SUBSIDIZED: A federal student loan made on the basis of the borrower s financial need and other specific eligibility requirements. The federal government pays the interest on these loans while borrowers are enrolled at least half time, during the grace period, or during authorized periods of deferment. THE DEPARTMENT OF EDUCATION WEBSITE IS A GREAT SOURCE OF INFORMATION FOR PLANNING FOR YOUR COLLEGE EXPERIENCE. UNSUBSIDIZED: A federal student loan made to a borrower meeting specific eligibility requirements, but not based on financial need. The borrower is responsible for paying all interest that accrues throughout the life of an unsubsidized loan. During in-school status, deferment, and forbearance periods, the borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal). SOURCE FOR ALL GLOSSARY TERMS: studentaid.gov website: 8
11 "Who is StuFund?" THE STUFUND MISSION: To help provide educational funding for each and every student, regardless of race, national origin, religion, sex, marital status, age or disability. To provide the best customer service possible with a team of experts available to give guidance and advice. To simplify the financial aid process, making it easier for the student. In 2003, the founders of StuFund came across some startling statistics. Tuition costs increase an average of 7 percent each year, about three times as much as an average year s inflation. More than 75 percent of students who do not go to college would have done so had money not been an issue. Over 300,000 students each year choose colleges beneath their academic potential because, without access to loans, they couldn t afford tuition. These statistics were especially applicable to minority and low-income families. After taking a look at the problem, we decided to do something about it. StuFund is our answer. It is an educational loan originator and knowledge center for students and families who want simple, straightforward guidance through the complex financial aid system. The first minorityowned student loan enterprise, StuFund is built around the philosophy that each and every student, regardless of race or class, can and should have access to higher education. It s our mission to do everything we can to make sure this happens. We believe that if a student has the desire to pursue a college degree, they should be able to find the means Student Funding Group, LLC.
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