How Students Can Get the Most Financial Aid

200508754-001Each year, state and federal governments, colleges and universities dish out $55 billion to college-bound students. As your budding scholar prepares for college, don’t get left out.

I was recently advising students on math prep for college which was part of their homework, and while doing this, we also talked about what they need to earn to get financial aid.

If you earn $50,000 or less each year, some aid is virtually guaranteed. Even those more affluent can receive aid and scholarships. But no one will get one grant that covers all of the costs for a four-year college education. All sources will work in combination to get you through.

To get your share, you’ll need to know the programs and how best to apply. Your goal is to compile the richest combination of loans, aid and scholarships possible.
Even if you earn $100,000 a year, you may qualify for “needs-based aid,” if your assets fall below certain thresholds.

Unfortunately, the aid process rivals the income tax system in its complexity and the time it takes to complete the paperwork. Begin the process by checking out the Web site for the Student Aid Guide, or get forms from your high school guidance counselor. If you get an early start, write to Basic Grants, P.O. Box 84, Washington D.C. 20044, for the most comprehensive instruction packet.

Federal grants
Apply for a federal grant even if you think you won’t qualify.

“Basic grants” from the federal government are the source of 75% of all student aid. The largest are the Pell grants, which range from $100 to $3,300. These grants are amplified by Federal Supplemental Educational Opportunity Grants, which are reserved for the poorest families whose annual earnings are less than $6,000 a year.

Schools receive a lump sum from the FSEO to parcel out among the neediest of their students. Awards average $1,000 a year to a maximum of $4,000.

The application for financial aid from the federal government is the same as for most student loan programs, state aid and private non-needs based scholarships. So even though you have no hope of receiving a grant, it behooves you to apply if you want a loan, scholarship or work-study program. There is no other procedure for getting government help.

Expected family contribution
Ultimately, the aid you receive will depend on your expected family contribution, or EFC, as compared with the cost of the college.

The key factors in determining the expected family contribution are the income and assets of the family, the number of children in college and the amount of money in the name of the student seeking aid.

To determine your contribution, calculate your family’s pre-tax income. Next, factor in your family’s assets (Graduate students, those more than 24 years of age, and married students are considered emancipated and only their income and assets count.). Finally, with these two figures in tow, use the expected family contribution chart to determine your financial status.

You’ll find some surprises. For example, a family of three with $20,000 in assets and an annual income of $30,000 starts with a family contribution figure of $2,000. A family with $100,000 in assets and $30,000 in income comes out exactly the same.

In short, the table counts income much more than assets. In fact, only 5.6% of a family’s assets and 35% of a student’s assets are considered “available for college contribution.” Contrast this with the 50% of your income that is counted toward the EFC.

Once you have arrived at the preliminary figure, cut it in half if more than one child attends college. (That’s why some families ask their older child to wait a year to attend college or, conversely, push the younger child through a year sooner.) You can also go to school yourself. That will halve the family contribution as well.

After arriving at the new figure for your EFC, add 35% of the money held in your child’s name, in custody for them, or in Uniform Gifts to Minors or Uniform Transfers to Minors accounts. Also add 50% of the amount over $2,500 that your child is expected to earn in the application year.

The final figure is the EFC you are expected to make. But that does not mean that the remainder will be provided by the government. Read on.

FAFSA and student aid
Congress and the Department of Education control the financial aid process. Consider that a warning for what’s to come.

Like tax laws, rules and regulations change without warning and aid can seem like a moving target. Nevertheless, you must enter the fray. The Free Application for Federal Student Aid, or FAFSA, is used by every state to award aid, and by many colleges to award grants and needs-based scholarships.

Parents submit the forms. If the parents are divorced, the parent with custodial rights fills out the application.

The FAFSA is sent to the colleges where your child applies. The financial aid officers at those colleges then put together a package of federal, state and college aid, including loans and work-study programs. If you are offered any scholarships not based on financial need, you are likely to get it in this package.

Don’t think this is the final word. If you’re not satisfied with the financial aid package offered by the counselor, ask how he arrived at the numbers. For example, did he or she take into account the total cost of college including lab fees and books or were tuition costs only considered? Pay attention to the details.

How many years are guaranteed in the grant? What is the interest rate of the loan? Is there a work-study component? The point person for an explanation is always the financial aid officer.

College Scholarship Service and financial aid profile
In addition to FAFSA, 600 of the nation’s 2,000 private colleges require a form designed by the College Scholarship Service. Known as a profile, the form provides the individual schools with an understanding of your financial needs. There is a one-time $6 charge for the form, and you pay $16 for each college that you want to receive the information.

Aid qualification is calculated under the institution’s methodology, rather than the federal methodology mentioned above. They are slightly different but the difference counts.

The profile considers the equity in your home as an available asset to pay for college. And, even if your child has no money, he or she is expected to contribute at least $900 toward tuition. Unlike the EFC, parents can’t cut their costs by attending a college themselves.

On the other hand, the criteria are more flexible. You can offer information about special circumstances, hardship or future expenses directly to the school as reasons for additional financial assistance.