Education & Careers » financing college

Defining Financial Aid

Suzanne Shaffer — Tue, 21 Dec 2010 13:00:47 +0000

When you hear colleges talk about financial aid, you will hear these terms: eligibility, need, expected family contribution, need-based aid, non-need based aid, and loans. It’s difficult to wrap your head around the process if you don’t understand the basic terms that are used when discussing financial aid.

Eligibility

In order to qualify for financial aid, you must be eligible to receive it. The first step in receiving aid is that you must be accepted to a college. Other criterion may also come into play: state of residence, academics, family contributions, and other college-specific requirements. You will need to demonstrate that need; most often it is done by completing the FAFSA (Free Application for Federal Student Aid).

Need

Simply defined, need is the difference between the cost of attendance and the family contribution which is calculated by completing the FAFSA. This figure is calculated by using the information provided and is used by the college to determine your financial aid.

Expected Family Contribution

The EFC is calculated by determining a value that compares your ability to pay all or part of the college cost in relation to other families like yours as well as those with more ability to pay and those with less ability to pay. Colleges use this figure to award financial aid in the form of grants, loans and scholarships. The College Board offers a simple calculator you can use to determine your EFC.

Need-based Aid

This type of aid is awarded by colleges based on your need. It can come from the federal government, state governments, the colleges themselves and even outside sources in the form of scholarships. The amount that is awarded cannot exceed the amount that is determined on the FAFSA.

Non-need based Aid (or Merit Aid)

This type of aid comes in the form of scholarships and academic grants. Financial need is not a factor in the decision of the award, but other criterion might be used: academics, athletics, program of study, and so forth. Colleges often award this aid to students they feel are deserving of recognition and as an incentive to assure their acceptance of admission.

Loans

According to FinAid.org, an education loan is a form of financial aid that must be repaid, with interest. Education loans come in three major categories: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans) and private student loans (also called alternative student loans).

Colleges use the above terms when discussing your financial aid options. Understanding these terms will help you when speaking with the college’s financial aid counselor. It’s also important to understand these terms before you make choices regarding how you will finance your college education.

Are you confused about financial aid? Do you have questions about any of these terms? If so, please feel free to leave a comment here and I will be happy to answer them.

Do you need financial aid to attend college?

Suzanne Shaffer — Tue, 14 Dec 2010 13:00:53 +0000

For many, the decision to attend college hinges on the ability to pay for it. You may be surprised at the amount of aid that becomes available each year through federally funded grants and loans; not to mention the amount of aid individual colleges award each year in the form of grants and scholarships.

On January 1^st, the 2011 Free Application for Federal Student Aid (FAFSA) becomes available for submission. The FAFSA is a form that the government requires to determine your financial aid eligibility. If you’re interested in receiving financial aid for college in the form of student grants or federally funded loans, you will be required to complete it and file it either online or by mail.

Who is eligible to receive Federal Student Aid?

According to FAFSA.ed.gov, to receive federal student aid, you must meet certain requirements::

Be a U.S. citizen or eligible noncitizen.
Have a valid Social Security Number (unless you’re from the Republic of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau).
Be registered with Selective Service if you are male and 18 to 25 years of age.
Have a high school diploma or a General Education Development (GED) Certificate or pass an exam approved by the U.S. Department of Education.
Be enrolled or accepted for enrollment as a regular student working toward a degree or certificate in an eligible program at a school that participates in the federal student aid programs.
Not have a drug conviction for an offense that occurred while you were receiving federal student aid (such as grants, loans, or work-study).

Once the FAFSA is completed, you will be eligible to receive federally funded student loans and grants. Your eligibility for aid depends on your Expected Family Contribution (EFC), your year in school, your enrollment status, and the cost of attendance at the school you will be attending.

To get more information on federal student aid, visit the financial aid office at your school or look at “Funding Education Beyond High School: The Guide to Federal Student Aid” at studentaid.ed.gov/students/publications/student_guide/index.html

If you received financial aid would it affect your decision to attend college?

One Student’s Debt is $550,000

Diane — Wed, 17 Feb 2010 23:26:15 +0000

One woman decided that an education was worth the student debt. Michelle Bisutti took out $250,000 in student debt before she finished medical school in 2003. But over the years it grew to a $555,000 debt.

The woman deferred her loan payments while she did her residency and so default charges compounded the interest rates. There was a single $53,870 fee added and eventually the debt amount was turned over to a collection agency.

Bisutti acknowledges she didn’t read the loans fine print. Apparently! What doesn’t make sense is why she let it go to a collection agency before she took it seriously. I took out a student loan and I was constantly getting papers that were telling me I would have to start making payments on such and such a date; so I knew in advance what the payments would be and I could figure out a way to pay them.

Did she hide all of those under her bed and hope they would go away? She needed to contact her financial counselor and find out a way to start making the monthly payments. Since she avoided the repayment she now owes over two times the amount.

Student loans are serious business. Since the government funds these student loans they are very hard to get rid of. Whereas other debts can pretty much be eliminated by declaring bankruptcy. The keys to the house are taken away and the car may be taken away along with other things but you have the chance to start over.

But student debt follows individuals around even if they declare bankruptcy. So getting rid of student loan debt is virtually impossible especially once the collection agency is involved.

Probably the best thing to do in the situation is contact financial aid advisors and see if payments may be trimmed down and extended over a longer period of time. But other than that there isn’t much that can be done.

The website FinAid.org said that there’s over $730 billion in outstanding federal and private student-loan debt and only 40% of that is actively being paid on and the rest is in default. This means that only $292 billion is being repaid and that $438 billion is in deferment, forbearance, or in collections.

Students need to understand that student loans are serious. They can mess up the rest of their life if they aren’t paying attention. They need to understand everything and read all of the fine print before they sign their name.

Debts can quickly spiral out of control and in this economy it can be difficult to pay back. So only take out student loans as a last resort and make sure that everything is as clear as day before you put your signature on it and take the money.