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College Financial Aid

College Financial Aid

One of the most challenging parts of entering college is understanding the 'financial aid process'. It can be very time consuming and at time, tedious, but if receiving financial aid means the difference between attending and not attending the college of your dreams, then the effort is well worth it! Project-College has a variety of services that can help make this process more manageable and successful.


Let's confirm the basics first…

Put simply, college financial aid refers to any funding that is intended to help students pay educational expenses including tuition and fees, room and board, books and supplies, etc. for education at a college.

Most identify three types of financial aid: Scholarships, Grants, and Loans. We at Project-College also consider 'Savings Plans' as a type of aid that you can take advantage of in the early years prior to you college (and we will be explain further below)

Also, it is helpful to understand that financial aid usually is classified into one of two types of awards: merit-based or need-based.

Merit -Based:
This type of aid is reserved for students that show the greatest talent, usually in the field of academics, arts, athletics, leadership, or music. A student's financial need is not factored into the type of aid.

Needs-Based:
This type of aid is awarded to students who demonstrate the greatest financial need (in other words, individuals with the least money)

TIP: At Project-College, we strongly suggest that you NEVER assume that you will not quality for financial aid. Every college office sets its own specific need-based financial aid levels, which often differ from the federal guidelines, so it is in your best interests to apply for aid whenever possible.



Saving Plans:

With the cost of college rising between 6-9% per year, it is important that parents start saving for their children's education absolutely as early as possible. Saving for your child's education works similar to a 401(k): the earlier you start, the better because of the advantage of compounding interest.

529 Savings Plans:
529 plans offer an excellent way to save for a child's college education because they have higher contribution limits and also more favorable tax treatment than most other investments. 529 plans have two primary types:

Prepaid Tuition Plans:
These plans lock in future tuition rates at in-state public colleges at the current college tuition rate. These plans are usually guaranteed by the state the beneficiary lives in. NOTE: Contributions to these plans do not guarantee admission into any of the qualifying colleges.

Prepaid tuition plans are operated by state governments and are guaranteed to increase in value at the same rate as college tuition. There are two types of prepaid tuition plans:

Prepaid Unit Plans - State sells these plans in units that correspond to a fixed percentage of tuition (e.g. 1 units = 1% of tuition). Units can be purchased all at once or over time.

Prepaid Contract Plans - Parents agree to purchase a specified number of years of college tuition for their child. The actual price depends on the age of the child (the younger the child, the cheaper the purchase price) and the method of payment (lump sum contracts are less expensive than installment payment contracts).

Note: Most prepaid tuition plans can be used solely for tuition, not for room, board or supplies.

College Savings Plans:
These plans are designed to pay for the beneficiary's education expenses. They are different from Prepaid tuition plans in a number of ways, most notably that the funds can be used at any college, both in-state and out-of-state, and contribution limits are significantly higher than those of prepaid tuition plans.

There is additional information that you would need to review when selecting these plans (such as the fact that not all states offer all formats, limitations to withdrawals, and certain other information)

Coverdell Education Savings Accounts:
Coverdell accounts are considered trusts solely created to pay the qualified education expenses of the student designated as the beneficiary of the trust. Coverdell accounts work in a similar manner as Roth IRAs in terms of tax treatment and contributions.

Funds within a Coverdell account can be invested in stock, bonds, mutual funds, and most other investment vehicles. The account can be managed by the owner or a second party (such as a broker).

NOTE: Contributions can be made to both a Coverdell accounts and a 529 plan in the same year but there may be gift tax implications in some cases.



Scholarships:

A scholarship is an award of financial aid for a student to further education. Scholarships are awarded on various criteria usually reflecting the values and purposes of the donor or founder of the award. The main advantage here is that the funds do not have to be paid back to the donor or founder.

The most common scholarships may be classified as:

Merit-based: These awards are based on a student's athletic, academic, artistic or other abilities, and often factor in an applicant's community service record and extracurricular activities. The most common merit-based scholarships, awarded by either private organizations or directly by a student's intended college, recognize academic achievement or high scores on the ACT and SAT standardized tests.

Need-based: These awards are based on the student and family's financial record and will require applicants to fill out a FAFSA to qualify if the scholarship is a federal award. Private need-based scholarships will also often require the results of a FAFSA, which calculates a student's financial need through a formula looking at the expected family contribution and cost of attendance at the intended college.

Student-specific: These are scholarships where applicants must initially qualify by race, gender, religion, family and medical history, or many other student-specific factors. Minority scholarships are the most common awards in this category, and not all are based in the United States. For example, students in Canada may qualify for a number of Canadian scholarships, whether they study at home or abroad.

Career-specific: These are scholarships awarded by a college or university to students planning to pursue a specific field of study. Often the most generous awards are given to students pursuing careers in high-need areas such as education or nursing. In the example of nursing students, they are in high demand, and many schools will give future nurses full scholarships to enter the field, especially if the student intends to work in a high-need community.




Grants:

Grants are another form of financial aid that, like scholarships, have the advantage that they do not have to be repaid. Many times grants are awarded to students with significant financial need. The most common grants are as follows:

Pell Grant Program: The largest grant program in the nation with more than 4 million students receiving the grant each year. Pell Grants are awarded to students who have significant financial need. Eligibility is determined by the federal government's expected family contribution formula.

Federal Supplemental Educational Opportunity Grant (FSEOG): A grant designed to help lower income families make up the difference between the maximum of the Pell Grant and the total cost of a particular college. The FSEOG is funded by both the federal government and the individual college. It is administered by a college's financial aid office instead of by the federal government.

College specific: Certain colleges also offer their own types of grants, both needs-based and merit-based.




Loans:

First we compare federal loans vs state loans vs private loans:

Federal aid is awarded by the federal government, state loans are granted by states, and private loans can be granted by banks, other financial institutions, private foundations and organizations, and even colleges and universities. The key difference between these three loan types is that you have to start making payments on your state loans and private loans when you receive them, but you don't need to repay federal subsidized loans until you graduate or attend your college program on a less than half-time basis.


Subsidized vs. unsubsidized loans:

With federal subsidized loans, the government pays any interest that accrues while you're in school at least half-time. Unsubsidized? Then you pay that interest.

Need-based loans vs. non-need-based loans:

To receive a need-based loan, you need to prove that you don't have the money for college and will rely on college aid to pay for school. Need-based loans are subsidized, so they'll be less expensive to repay.

Student vs. parent loans:

Most college loans are created for students. However, the federal government and some schools offer parent loans, which allows parents to borrow money for their kids' college education. You can learn more about the federal PLUS loan on the Federal Student Aid website, and the financial aid office of each college or university you're applying to can tell you more about any parent loans they offer.

Federal Loan Options:

State and private loans vary by state, but here are the basics on the three federal loans:

Federal Perkins Loans: Fixed-rate, low-interest loan given to students with the greatest financial need. While funded by the government, your college or university is the lender, so you make payments to your school.

Federal Subsidized Stafford Loans: Fixed interest rates; needs-based awarded. The amount you can borrow rises each year of your college degree.

Federal Unsubsidized Stafford Loans: Fixed interest rates; not based on financial need. While you're responsible for all interest rates, you can defer your payment if you need to.




This is a lot of information to review and fully understand... but be assured, Project-College is available to assist.

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