Friday, January 2, 2009

Financial Aid Applications

Financial Aid Applications

You should apply for aid every year, even if you think you don't qualify. There are many factors affecting eligibility for financial aid. For example, a student who didn't qualify one year might become eligible during the next year when a brother or sister enrolls in college. A change in family financial circumstances might affect your eligibility for student aid.

February is
Financial Aid
Awareness Month!

To apply for student financial aid from the federal government, including the Pell Grant, Perkins Loan, Stafford Loan and work-study, you will need to submit the Free Application for Federal Student Aid (FAFSA). There is no charge for submitting this form. The FAFSA is also required by all state and many school student assistance programs.

Some private colleges and universities will require one or more supplemental forms to obtain information not included on the FAFSA. They may have their own forms or they may ask you to complete the College Board's CSS PROFILE form.

Watch the Five-Minute FAFSA Video for a quick introduction to the FAFSA.

Before you begin, you should review important information about the deadlines (including the strange business about not submitting the FAFSA form before January 1) and gather together all the documents you'll need to complete the form. The IRS Form/FAFSA Map will show you which lines of your income tax returns correspond to each line of the FAFSA.

Then read our sections relating to the FAFSA and/or CSS PROFILE forms. You should also read our section on Help Completing the FAFSA and our list of Common Errors on Financial Aid Applications. You will find our Title IV School Code Database helpful, since it contains the magic numbers you'll need to identify the schools to which you are applying. We also review what happens after you submit the FAFSA, in the section about the Student Aid Report (SAR) and Expected Family Contribution (EFC).

You will later receive financial aid award letters from the colleges, listing the amount and types of financial aid in your financial aid package. These award letters can sometimes be difficult to decode.

If you're wondering whether you count as a dependent or independent student for financial aid purposes, see FinAid's dependency status form.

If you want to get an early estimate of what the government thinks you can afford to pay for your education, try FinAid's Financial Aid Estimation Form. It lets you play what-if games, to give you an idea how changes in income and assets affect the expected family contribution. We also have tips on how to legally maximize your eligibility for need-based financial aid by careful financial planning. See also information about the new small business exclusion.

Veterans should read the section concerning Veterans and the FAFSA for information about the student aid treatment of veterans education benefits and the definition of a veteran for student aid purposes.

Other Types of Aid

Other Types of Aid

In addition to the primary sources of financial aid (loans and scholarships), other kinds of aid are available to many students. These other types of aid fall into eight broad categories:

  1. Free Scholarship Lotteries
  2. Federal and State Government Aid
  3. College-Controlled Aid
  4. Student Profile-Based Aid
  5. Aid for Graduate and Professional School
  6. Aid for Elementary and Secondary School
  7. Aid for Specific Activities
  8. Innovative Programs

Free Scholarship Lotteries

Scholarship Lotteries
Several sites have started giving away scholarships to attract traffic. Look here for a list of the largest free scholarship lotteries.

Federal and State Government Aid

US Federal Government Aid
Here you'll find information about the various forms of aid available from the federal government.

US State Government Aid
Look here for pointers to state aid programs and residency requirements for in-state tuition.

Section 529 Plans: Prepaid Tuition Plans and College Savings Plans
Section 529 plans are state-sponsored college savings programs. The two major types are Prepaid Tuition Plans, which lock in current tuition rates, and State College Savings Plans, which offer more flexible investing options. Both are useful ways for families to save for their children's college education.

Scholarships for Volunteering and Community Service
Volunteering can not only help the disadvantaged, but it can provide money for your college education. Learn about the National Service Scholarships Program, AmeriCorps, and other awards for community service.

Military Aid
Aid resources for veterans and their dependents and for students interested in pursuing careers in the military.

Education Tax Benefits
Information about the Hope Scholarship and Lifetime Learning tax credits, the deduction for student loan interest, tax treatment of employer education assistance, and other tax benefits for education.

College-Controlled Aid

School Financial Aid Office Web Sites
Look here for information about your school's financial aid policies and procedures, including application deadlines.

Tuition Payment Plans
Tuition payment plans are short-term installment plans that split your tuition into equal monthly payments.

School-Specific Scholarships and Fellowships
Scholarship and fellowship programs offered only at specific schools, including college-controlled merit scholarships.

College Partnerships
Partnerships between certain community colleges and four-year colleges make it easier for students to transfer from a community college into a four-year college. Studying for two years at a community college can save the student a significant amount of money.

Student Profile-Based Aid

International Students
Sources of financial aid and other useful information for foreign nationals studying in the US.

Canadian Students
Scholarships, loans and other sources of aid for Canadian students, in both Canada and the US.

Students with Disabilities
Resources specific to students with disabilities.

Female Students
Scholarships, grants and other awards intended specifically for female students.

Minority Students
Scholarships, award programs and advice specifically for members of ethnic minorities.

Older and Nontraditional Students
Financial aid information for students age 30 and older.

Jewish Students
Financial aid information for Jewish students.

Gay, Lesbian, Bisexual and Transgendered Students
National, regional and school-specific scholarships for gay, lesbian, bisexual and transgendered students.

Undocumented Students and Illegal Aliens
Financial aid and scholarships for undocumented students and illegal aliens.

Ayuda Financiera del Estudiante en Espanol
Financial aid information and resources in Spanish.

Cancer Scholarships
Scholarships for cancer patients, cancer survivors, children of a cancer patient or survivor, students who lost a parent to cancer, and students pursuing careers in cancer treatment.

Prestigious Scholarships and Fellowships
A list of the most prestigious, competitive and lucrative scholarships and fellowships.

Aid for Graduate and Professional School

Graduate School
Options and tips for funding a postgraduate education.

Business School
Awards and advice specific to MBA students.

Law School
Awards and advice specific to law students.

Medical School
Awards, professional organizations and other resources specific to medical students.

Aid for Elementary and Secondary School

Private Elementary and Secondary Schools
Financial aid available to parents of children attending private elementary or secondary schools.

Aid for Specific Activities

Some groups, particularly professional organizations, hold contests that offer cash and other prizes.

Domestic Exchange and Study Abroad Programs
A variety of loans, scholarships, grants and tuition-reduction options are available for students studying abroad, or participating in domestic exchange programs.

Grants are a form of financial aid, based on need, which you do not have to repay. Numerous private organizations and government agencies offer grants to students in all fields.

Sports Scholarships, Athletic Scholarships and Financial Aid for Student Athletes
Information about sports scholarships and other resources for the student-athlete.

Specific Majors or Courses of Study
Scholarships and awards available to students pursuing specific majors, such as computer science, engineering, journalism, nursing, etc.

Innovative Programs

Student Sponsorships and Education Investments
Private benefactors and investors provide students with funding for their education in exchange for a fixed percentage of the student's future income for a fixed number of years. Many students find these as an attractive alternative to loans.

Early Awareness Initiatives
Early awareness initiatives try to increase the number of students pursuing a college education by encouraging them to consider college as a real possibility when they are young. Many lower-income children give up on college when they are very young, as early as the first or second grade. By the time they reach high school and change their minds, they often lack the necessary preparation. Early awareness programs try to stop pipeline leakage when the students are young by encouraging them to aspire to and plan for college. This increases the number of students pursuing challenging courses, the number of students graduating from high school, and the number of students matriculating in college.

Military Aid

Military Student Aid

This section of FinAid provides information about student financial aid resources for students who are interested in pursuing careers in the military and for veterans and their dependents. This information is intended primarily for US citizens.

Free Military Education
and Career Resources

Military student aid, such as the Montgomery GI Bill, is the main reason many people enlist in the armed forces. However, GI Bill benefits cover only about three-fifths of the average cost of a college education, and about a third of eligible veterans fail to use their benefits.

Additional information can be found in the Education section of the web site. The FastWeb scholarship search includes many scholarships for veterans and their dependent

Saving For College

Saving for College

According to the Bureau of Labor Statistics, the tuition component of the Consumer Price Index (CPI) increased by 8% per year, on average, from 1979 to 2001. This means that children born today will face college costs that are 3 to 4 times current prices by the time they matriculate.

September is
National College Savings Month!

Parents should expect to pay at least half to two-thirds of their children's college costs through a combination of savings, current income, and loans. Gift aid from the government, the colleges and universities, and private scholarships accounts for only about a third of total college costs.

Accordingly, it is very important that parents start saving for their children's education as soon as possible, even as early as the day the child is born. Time is one of your most valuable assets. The sooner you start saving for college, the more time your money will have to grow.

If you start saving early enough, even a modest weekly or monthly investment can grow to a significant college fund by the time the child matriculates. For example, saving $50 a month from birth would yield about $20,000 by the time the child turns 17, assuming a 7% return on investment. Saving $200 a month would yield almost $80,000.

It is less expensive to save for college than to borrow. Either way, you're setting aside a portion of your income to pay for college. But when you save, the money earns interest, while when you borrow, you're paying the interest. Paying for college before your child matriculates definitely costs much less than paying for college afterward. Saving $200 a month for ten years at 7% interest would yield $34,818.89. Borrowing the same amount at 6.8% interest with a ten year term would require payments of $400.70 a month. At 8.5% interest the payments increase to $431.70 a month. (If your return on investment is 4% instead of 7%, you'd accumulate $29,548.13. Borrowing this amount at 6.8% interest would entail monthly payments of $340.04; at 8.5% interest the monthly payments would be $366.35. If your return on investment is 10%, you'd accumulate $41,310.40, corresponding to monthly payments of $475.40 at 6.8% and $512.19 at 8.5%.) So if you elect to borrow instead of saving, you will be paying 1.7 to 2.6 times as much per month.

Even if college is just a year or two away, it is never too late to start saving. There are tax benefits to saving in a section 529 college savings plan or prepaid tuition plan, and every dollar you save is a dollar less you'll need to borrow.

This section of FinAid discusses methods of saving for college. It starts with advice on deciding how much to save and tips on making saving easier. It also discusses common myths about saving, the best investment strategies, and the financial aid impact. There are also several college savings calculators and other useful tools. This section also provides information about the advantages and disadvantages of the most common college savings vehicles, identifying section 529 college savings plans as the best. It also discusses credit card rebate and loyalty programs that help you save for college by rebating a portion of your purchases to your college savings fund.

Topics about saving in general include:

There are about a dozen different college savings vehicles available. Choosing among the many options can be confusing, so first check out our College Savings Checklist of questions to ask about every type of college savings account.

If you don't have time to make your own decision, open a section 529 college savings plan for each of your children. Section 529 college savings plans are one of the best college savings vehicles because of the tax advantages, the low impact on need-based financial aid, the flexibility, the high contribution limits and the lack of income phaseouts, and because control over the account remains with the parent. You should also explore some of the loyalty programs, because they provide an easy way to get additional money for your college savings plan.

The complete list of college savings vehicles are as follows:

Student Loans

Student Loans

An education loan is a form of financial aid that must be repaid, with interest. (Scholarships, on the other hand, do not have to be repaid.)

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). A fourth type of education loan, the consolidation loan, allows the borrower to lump all of their loans into one loan for simplified payment. A recent innovation is peer-to-peer education loans.

Federal law sets the maximum interest rates and fees that lenders may charge for federally-guaranteed loans. Nothing prevents a lender from charging lower fees. Many lenders offer a variety of student loan discounts to attract borrowers.

Few students can afford to pay for college without some form of education financing. Two-thirds (65.7%) of 4-year undergraduate students graduate with some debt, and the average student loan debt among graduating seniors is $19,237 (excluding PLUS Loans but including Stafford, Perkins, state, college and private loans), according to the 2003-2004 National Postsecondary Student Aid Study (NPSAS). (The median is $17,120. One quarter of undergraduate students borrow $24,936 or more, and one tenth borrow $35,213 or more.) For federal student loan debt (excluding PLUS Loans), the figures are 62.2% and $17,036. Average cumulative debt increases by about 3% or approximately $550 a year. When one includes PLUS loans in the total, the average cumulative debt incurred is $21,899. (Approximately one in ten (10.8%) parents borrow PLUS loans for their children's college education, with a cumulative PLUS loan debt of $16,317.)

The following table shows the percentage of students borrowing and average cumulative debt per borrower (excluding PLUS Loans) according to type of educational institution.

Undergraduate Education Debt
Institution Level & Control Percent Borrowing Cumulative Debt
Overall Total (4, 2 and <> 55.5% $15,766
4-year Total 65.6% $19,202
4-year Public 61.7% $17,277
4-year Private Non-Profit 72.8% $21,957
4-year Private For-Profit 87.3% $28,138
2-year Total 37.4% $9,897
2-year Public 33.2% $9,387
2-year Private Non-Profit 69.1% $12,326
2-year Private For-Profit 90.0% $12,107
<> 67.1% $7,271
<> 34.0% $7,243
<> 26.5% $4,854
<> 77.3% $7,311

Graduate and professional students borrow even more, with the additional debt for a graduate degree ranging from $27,000 to $114,000. The following table shows the percentage borrowing and average amount of cumulative debt per borrower among graduating students according to degree program. It provides the amounts borrowed for just the graduate education and also the combined totals for undergraduate and graduate education.

Graduate Education Debt All Education Debt
(Grad & Undergrad)
Graduate & Professional Degree Programs Percent Borrowing Cumulative Debt Percent Borrowing Cumulative Debt
Total 60.1% $37,067 70.1% $42,406
Master's Degree 58.4% $26,895 69.3% $32,858
Doctoral Degree 51.0% $49,007 58.3% $53,405
Professional Degree 86.5% $82,688 88.4% $93,134
MBA 53.0% $35,525 63.6% $41,687
MSW 76.5% $27,136 81.0% $37,029
PhD 40.0% $36,917 46.8% $41,540
EdD 53.4% $49,050 65.7% $47,725
Law (LLB or JD) 87.7% $70,933 89.7% $80,754
Medicine 95.0% $113,661 95.0% $125,819

Grants, scholarships, work-study and other forms of gift aid just do not cover the full cost of a college education. Many students find that they must supplement their savings with government and private loans. The Federal education loan programs offer lower interest rates and more flexible repayment plans than most consumer loans, making them an attractive way to finance your education. You can also deduct up to $2,500 in student loan interest even if you don't itemize deductions on your income tax return.

The interest rate on the Stafford Loan for new loans first disbursed on or after July 1, 2006 is a fixed rate of 6.8%. The same rate applies to the in-school, grace and repayment periods. (A lower interest rate is available on subsidized Stafford loans for undergraduate students for loans first disbursed on or after July 1, 2008 through June 30, 2012. The rate in 2008-09 is 6.0%, then 5.6% in 2009-10, then 4.5% in 2010-11 and 3.4% in 2011-12 and returning to 6.8% for new loans in 2012-13 onward.) The interest rate on new PLUS Loans first disbursed after July 1, 2006 is a fixed rate of 8.5% in the FFEL program and 7.9% in the Direct Loan program.

The interest rates on existing variable rate Stafford and PLUS loans will continue to change annually on July 1, based on the last 91-day T-bill auction in May. The current interest rates on the Stafford Loan are 3.61% during the in-school and grace periods and 4.21% during the repayment period. The current interest rate on the PLUS Loan is 5.01%. FinAid recommends that students who have not yet consolidated their variable rate loans wait until May to decide whether to consolidate them at this year's rates or the new rates that will go into effect on July 1, 2009.

Borrowers may be concerned by the possible impact of the subprime credit crisis on the cost and availability of federal and private student loans. Federal loans will remain available, although loan discounts will likely be reduced significantly. A higher minimum balance may be required to consolidate. Private student loans will likely have stricter eligibility restrictions, requiring a higher credit score or a cosigner. There may be increases in the interest rates and fees on private student loans. Lenders will encourage borrowers to make payments of interest while they are in school.

Many student loan providers offer low cost government and private loans with consistently high quality servicing and flexible repayment terms. Citi Student Loans is one of these lenders. FinAid maintains a list of education lenders, guarantee agencies, servicers and secondary markets who offer federal and private student loans, as well as advice on preferred lender lists and choosing a lender and tips on identifying the lenders that currently hold or service your loans.

Loan forgiveness programs (in which the borrower's loans are paid off in exchange for volunteer work, public service or military service) offer an option for easy repayment. If you are having difficulty repaying your education loans, see Defaulting on Student Loans before you decide to skip a payment. It offers you some alternatives. Loan Cancellation and Discharge Forms can be found on the US Department of Education web site.

Also, FinAid provides numerous calculators that can help you better understand your borrowing options. The loan calculators offer estimates of monthly loan payments, estimates of the amount of debt you can afford to repay, an analysis of the cost of capitalizing the interest and tools for comparing loan costs.

Use FinAid's Student Loan Checklist to keep track of your student loans.

Some students, because they do not have prior experience with debt and loan amortization, do not appreciate how much their loans will cost them. FinAid provides some tips concerning calculating the cost of interest.

Help with Loan Problems

If you are having a problem with your federal student loan, contact the FSA Ombudsman at the US Department of Education. The FSA Ombudsman is dedicated to helping students resolve disputes and other problems with federal student loans. The FSA Ombudsman will research your problem in an impartial and objective manner and will try to develop a fair solution. The FSA Ombudsman does not have the authority to impose a solution. Nevertheless, many students have found the FSA Ombudsman to be helpful in resolving disputes with lenders. You can contact the FSA Ombudsman by phone at 1-877-557-2575, by fax at 1-202-275-0549, by mail at U.S. Department of Education, FSA Ombudsman, 830 First Street, NE, Fourth Floor, Washington, DC 20202-5144, or by email at

Another source of assistance is the Student Loan Borrower Assistance Project run by the National Consumer Law Center. Their web site includes a detailed loan FAQ, a step-by-step guide to resolving loan problems and a list of lender and guarantor ombudsmen. The National Consumer Law Center does not, however, provide legal advice about individual cases. The web site also includes a section devoted to policy and legal issues and analysis concerning education debt. They also publish Student Loan Law, a detailed legal guide to remedies for borrowers who are having trouble repaying their student loans.

The American Bar Association has launched to help the public understand the risks associated with student loans and other forms of consumer debt.

Private Student Loan Consolidation

Private Student Loan Consolidation

Private student loans cannot, in general, be consolidated with federal student loans. The low interest rates on federal consolidation loans are not available to private education loans. Nevertheless, there are several options for refinancing private education loans.

Since most private education loans do not compete on price, a private consolidation loans is merely replacing one or more private education loans with another. So the main benefit of such a consolidation is obtaining a single monthly payment. Also, since the consolidation resets the term of the loan, this may reduce the monthly payment (at a cost, of course, of increasing the total interest paid over the lifetime of the loan).

However, since the interest rates on private student loans are based on your credit score, you may be able to get a lower interest rate through a private consolidation loan if your credit score has improved significantly since you first obtained the loan. For example, if you've graduated and now have a good job and have been building a good credit history, your credit score may have improved. If your credit score has increased by 50-100 points or more, you may be able to get a lower interest rate by consolidating your debt with another lender. You can also try talking to the current holder of your loans, to see if they'll reduce the interest rate on your loans rather than lose your loans to another lender.

Home Equity Loans

Private education loans tend to have interest rates that are in the same ballpark as home equity loans. If your private education loan has a variable interest rate, you might consider using a fixed rate home equity loan to pay off the private education loan, effectively locking in the interest rate.

Education Lenders

The following education lenders will consolidate private education loans. These are private consolidation programs, so the interest rates are dictated by the lender, not the government. There may be additional fees charged for originating these loans.

You should not consolidate your federal student loans together with your private education loans. They should be consolidated separately, as the federal consolidation loans offer superior benefits and lower interest rates for consolidating federal student loans.

When evaluating a private consolidation loan, ask whether the interest rate is fixed or variable, whether there are any fees, and whether there are prepayment penalties.

The lenders are listed in alphabetical order. No significance should be inferred from the order in which the lenders are listed.

Lender Description
Chase Private Consolidation Loan [Note: This information is based on Chase's web site, which lists "current as of" dates ranging from 6/2/08 to 11/21/08, so this information might not be up-to-date.] $7,500 minimum. $150,000 cumulative borrowing limit. No fees. 30 year repayment term. Interest rates of one-month LIBOR + 5.25% to one-month LIBOR + 10.25%. 0.50% interest rate reduction with a creditworthy consigner. Cosigner release option after 36 months of on-time payments, provided that credit criteria are satisfied.
NextStudent Private Consolidation Loan $7,500 minimum. $300,000 maximum. Up to 30-year term. No prepayment penalties. Variable rate loan. Interest rates of 3-month LIBOR + 1.00% to 3-month LIBOR + 1.75% during the first year and 3-month LIBOR + 5.00% to 3-month LIBOR + 5.75% after the first year. Interest rates vary quarterly. Origination fees of 0% to 5%. No prepayment penalties.
Student Loan Network Private Loan Consolidation $10,000 minimum. $300,000 maximum. 20-year term for loans less than $40,000. Up to 30-year loan term for higher amounts. Variable rate loan. Interest rates of 3-month LIBOR + 5.00% to 3-month LIBOR + 8.5%. Origination fees of 1% to 5%. No prepayment penalties. Cosigner release after 48 on-time payments, contingent upon primary borrower credit.
Wells Fargo Private Consolidation Loan $5,000 minimum. $40,000 to $100,000 maximum, depending on credit. Aggregate loan limit of $100,000 (including other education debt). Up to 15-year term. Variable rate loan. Interest ranges from Prime + 0.0% to Prime + 6.75%. No origination fees. Up to 0.50% interest rate reduction for auto-debit. 0.5% interest rate reduction after making 48 initial on-time monthly payments.