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Finding Financial Aid for College

Federal financial aid programs are intended to make up the difference between what your family can afford to pay and what college costs, and it's available to virtually everyone. If you think your income is too high, keep in mind that most Americans qualify for financial aid in some way, shape, or form.

The amount you’re expected to be able to pay is referred to as the expected family contribution, or EFC. The federal government and college financial aid officers use needs-based formulas that analyze your family’s financial circumstances.

The federal guidelines not only take into account your income and assets, but also consider the size of your family and the number of your family members in college. Although your child may not qualify for grants (money that doesn’t have to be repaid) or the most attractive financial aid possible, she likely will need to go through the financial aid application process (submitting the Free Application for Federal Student Aid [FAFSA] application) and be turned down before she can apply for other financing. And you will qualify for the Federal PLUS loan, presuming your credit is okay.

To obtain an estimate of what your expected family contribution would be, visit the College Board Web site and use its EFC calculator. Working through the College Board’s EFC calculator only takes a few minutes, and it gives you valuable feedback regarding what to anticipate as your EFC. In order to complete this calculation, you need these documents:

  • Prior year tax returns for parents and student

  • Recent paycheck stubs for parents and student

  • Confirmation of any Social Security benefits received by parents or student

  • Statement illustrating balance in Medical Spending Account of parents

  • Statement illustrating any child support paid by parents

  • Amount of any work-study earnings or financial aid received by student

  • List of medical and dental expenses for the preceding year

  • Bank account statements for both parents and student

  • Listing of assets owned (in the name of) student’s siblings

  • Fair market value of parent’s residence less outstanding mortgage(s)

  • Listing of other real estate and investments owned by parents or student (excluding assets in qualified retirement plans, annuities, and life insurance)

  • Fair market value of equity in any business owned by parents or student

  • Fair market value of equity in farm owned by parents or student

  • Value of any assets held in trust for student

After calculating your EFC, take a look at your options regarding federal student loans. With all loans, one of the primary issues you need to consider is the interest and any loan acquisition fees. The least expensive loan is generally the one with the lowest interest rate. With the federal student aid programs, the cheapest loans are as follows:

  • Perkins loans have the strictest needs-based requirements. A student may borrow up to $4,000 per year. The current interest rate is 5 percent, and payments don’t commence until the student graduates.

  • Subsidized Stafford loans are also needs-based loans. A student may borrow up to $2,625 in the first year of undergraduate studies, $3,500 in year two, and $5,500 in years three through five. The loan must be repaid over ten years.

  • Unsubsidized Stafford loans are not needs-based loans. The amount that may be borrowed is identical to the Subsidized Stafford loan program if the student is your dependent. However, if your student is independent, he may borrow up to $4,000 in each of the first two years of his undergraduate program and up to $5,000 in years three through five. The interest rate on this type of loan is also 6.8 percent per year, as of the writing of this book. However, the federal government doesn’t pay any of this interest on behalf of the student. Repayment begins six months after graduation, and the loan must be repaid over ten years.

To get the most recent interest rates on student loans and detailed instructions about how to obtain these loans, visit the College Board’s Web site.

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