Colleges and universities are giving away more financial aid than ever, so be aggressive and shop around. There's also government grant and loan money, work-study options, and a wealth of national and local scholarship money.
Start your search early. As tuition has increased over the last decade, 57 percent of full-time students are taking longer than four years to graduate with a bachelor’s degree, according to the College Board. Graduating on time means making the most of available resources.
Report to Uncle Sam
The federal government provides your financial information to prospective schools, which determines your eligibility for aid.
Thus, the first step is to report to the government by submitting aFAFSA form, or Free Application for Federal Student Aid.
The U.S. Department of Education will then send you your Student Aid Report, SAR, which contains a very important number: your Expected Family Contribution, EFC. This is the only number used by your school to determine aid eligibility.
Remember that schools have the last word.
Dan Madzelan, senior official from the U.S. Department of Education’s Office of Postsecondary Education, elaborates: “With regard to federal student aid, there is always an institution standing between our money and the individual student. The fed doesn’t cut a check and give it to students. The schools have strong roles in counseling for their financial aid.”
Financial aid officers are the central point for coordinating federal, state, and school funds. It is their responsibility to use available resources to compile your best possible aid package. Compare federal aid to your school’s aid package, and you’ll be able to better judge your school.
Some schools, like Carleton College in Minnesota, provide aid package breakdowns based on income, on their websites.
Grants, like scholarships, need not be repaid.
Of all grants, the Federal Pell Grant for undergraduates, is the most widely used. This grant is unique in that the amounts awarded have nothing to do with school or state funds, but are solely federal awards based on your EFC. Note that parental income and assets factor into this number.
Madzelan explains: “The Pell grant program is focused on [the] lower quartile of income. It is the foundation grant for students for our lower income families.”
Pell grant funding has doubled since 2008, reaching 8.8 million recipients in 2009-2010 budget year, but looks unlikely to see an increase this year.
Everyone who qualifies for a Pell receives one, and you can use the grant to go to any school in the country. According to the U.S. Department of Education, the award amounts for the 2010-11 academic year range from $609 - $5,550.
Colleges give money to needy students by adding to these federal grants: the Federal Supplemental Educational Opportunity Grant , FSEOG, and Federal Work-Study , FWS.While eligibility for both grants is still determined by your EFC, the amount you receive is a combination of federal funds and university funds, which vary by school.
This year’s average award range for FSEOG is $100-4,000. FWS is funded partially by the federal government, partially by the school. Jobs can be on campus or off campus, and students are paid at least federal minimum wage.
Some schools even offer campus employment to students regardless of loans or grants, paid entirely with university funds. There are also tuition exemption programs for students who work full time as support staff, and take courses part-time. Your tuition is paid for.
To anyone going to state or private colleges, federal grant amounts are a pittance. Scholarships can provide a nice chunk of your financial aid, if you are resourceful in finding ones for which you qualify and then diligent in applying for them.
Skip Bailey, director of Educational Financing at Columbia University says, “Scholarships are hugely variant based on that organization’s interests, needs, etc. But most students never get anything partially because they’re limited in their research. [This is] because there is no clearing house to apply to all of them.”
Indeed, applying for scholarships can be a scattered and frustrating process. But you’re competing for free money.
Companies (dozens), unions, organizations, foundations, as well as state and local governments, all sponsor them. And they run the gamut from traditional to, well, niche and unusual.
This is by no means an exhaustive list, but here are some examples to kick-start your search.
Institutional scholarships are comprised of a school’s endowment returns, annual gifts, and/or general university funds. Many are based on grades and other academic qualifications, but there are exceptions. Harvard, for instance, has a number of scholarships based on ancestry. Get your school’s endowment list.
State & County Government:
According to the College Board, less then 48 percent of all federal financial aid comes from scholarships and grants, while 47 percent is from loans alone.
The general rule of thumb when you take out a loan is to go with government subsidized Stafford Loans. These are disbursed in chunks that are subsidized (no interest accrues while enrolled) and unsubsidized (interest accrues starting on the date the loan is first disbursed).
Subsidized Stafford award amounts range from $3,500-$8,500, depending on the year in school, and carry a fixed 4.50-percent interest rate, but to receive them you must demonstrate financial need (via the EFC).
Unsubsidized loans ($5,500 to $20,500) don't require a demonstration of need and carry a fixed interest rate of 6.8 percent, according to the U.S. Dept of Education.
The most needy students should also check to see if your school participates in the Federal Perkins Loan Program. Unlike Stafford Loans, Perkins Loan subsidies are an annual allocation directly from the U.S. Department of Education to participating schools.
Your eligibility will vary depending on the school. The unsubsidized loan is fixed at 5 percent, with award amounts up to $5,500 a year for undergrads, and $8,000 for graduate students. The amount you receive depends on financial need, amount of other aid and the availability of funds at your school.
Finally, there are federal loans that don't require demonstration of need. Direct Plus Loans and Direct Consolidation Loans, for instance, offer grad students and parents fixed-rate loans at 7.9 percent and 8.25 percent, respectively.
Commercial banks once provided loans with the backing of the federal government, but Uncle Sam now handles them directly. Some banks have since begun to offer loans on their own, but generally come with higher interest rates.
Does My 529 Hurt My Chances?
Named after a section of the tax code, 529 college savings plans are more popular than ever.
David Boone, president of Atlanta Wealth Management, highlights the upside: “If you are setting aside money for college, 529 funds offer the benefit of tax deferral on the earnings. As long as it is spent for tuition, withdrawals are tax-free.”
Payment of tuition from a 529 does not impact the EFC.
Take it from the Department of Education: “We are clear in our materials that schools should not count these plans as a resource when you are calculating eligibility for these programs," says Madzelan. "We are not in a position to tell these institutions how to spend their own money. [But] the instructions are clear – we say that when you are telling us about your assets, that you do not include the value of your 529 plans.”
However, schools and grantors count outside aid before awarding internal aid. If they become aware of 529 fund values, they can decrease your aid amounts.
Boone says 529s should stay in the parent’s name, advising, “You want to have as little as possible in the child’s name. Funds in the child’s name has a much greater impact on financial aid—almost four times more than parental assets.”
Don’t give up. If you are behind in your savings, the scholarship, grant and loan resources combined may make the difference between matriculation and graduation.