NDSU Extension Family Economics Economics

North Dakotans Saving for Education

Resources - Explanation of Terms

Financial Aid - Funds provided by the government or school to help pay for a student's education which include gift aid (grants and scholarships) and self-help aid (loans and work).

Financial Aid Package - The grants, scholarships, loans and work-study employment offered from all sources (federal, state, institutional and private) to a student to assist them to pay for postsecondary education.

Financial Need - The difference between a student's total cost of attendance, the expected family contribution, and any other financial assistance the student will receive (like scholarships). What is left is considered the financial need.

Fixed Interest Rates - Interest rates that do not change during the life of the account or loan.

Free Application for Federal Student Aid (FAFSA) - Form used to apply for student financial aid and other need-based aid. As the name suggests, no fee is charged to file a FAFSA.

Grant - A type of financial aid based on financial need that the student does not have to repay.

Higher education expenses - Tuition, room and board, fees, books, supplies and equipment needed for enrollment or attendance at any eligible school or institution.

Home Equity - The market value of a home minus the remaining unpaid principal on the mortgage.

Individual Retirement Account (IRA) - A tax deferred retirement savings account available to individuals not covered by a company pension plan.  The IRA funds are not taxable until they are withdrawn at retirement.

Money Market Account - A savings account offered by a bank.  The account requires a minimum deposit and a minimum balance. The account invests in certificates of deposit and treasury bills and pays a rate of interest that rises and falls with the economy.

Merit-based - Merit-based financial aid depends on your academic, artistic or athletic merit or some other criteria, and does not depend on financial need to qualify or determine your eligibility for scholarships.

Mutual Fund - an investment that uses cash from a pool of savers to buy a wide range of securities, like stocks, bonds, and real estate managed by an investment company. Shares in a mutual fund represent fractional ownership of the   total value of the mutual fund.

Need-Based - Need-based financial aid depends on your financial need and does not depend on academic grades or test scores.

Non-qualified withdrawal - A non-qualified withdrawal is one that isn't used for higher education expenses and therefore may be taxed.

Parent Contribution (PC) - The amount of money a student�s parents are expected to pay toward education expense from their income and assets.  The amount is determined by using need analysis formula. This amount is included in the Expected Family Contribution.

Parent Loans for Undergraduate Students (PLUS) - Federal loans available to parents of dependent undergraduate students to help pay the child's education. Parents may borrow up to the full cost of their children's education, less the amount of any other financial aid received. PLUS Loans may be used to pay the Expected Family contribution

Pell Grant - A federal grant that provides funds based on the student's financial need.

Perkins Loan - The Perkins Loan has one of the lowest interest rates and is awarded by the school�s financial aid administrator to students with exceptional financial need. The interest on the Perkins Loan is subsidized while the student is in school

Postsecondary Education - Simply means any education following secondary education which is commonly known as High School.

Prepaid Tuition Plan - A college savings plan set up by each state that is guaranteed to rise in value at the same rate as college tuition. For example, if a family purchases shares that are worth half a year's tuition at a state college, they will always be worth half a year's tuition, even 10 years later when tuition rates will have doubled.

Qualified higher education expenses - Qualified higher education expenses include tuition, room and board, fees, books, supplies, and equipment needed for enrollment or attendance at an eligible institution, plus certain expenses for a "special needs" student. Money used to pay these expenses may be tax exempt.

Scholarship - A form of financial aid given to students to help pay for their education. Scholarships are a form of gift aid and do not have to be repaid. Many scholarships are awarded on a merit basis for academic, athletic or artistic talent.

Stafford Loans - Federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren't. The interest on the subsidized Stafford Loan is paid by the federal government while the student is in school and during the 6 month grace period. Interest on the Unsubsidized Stafford Loan may be paid while attending school or allowed to accrue.

Student Contribution - The amount of money the student is expected to contribute to his or her education and is included as part of the EFC. Usually a student is expected to contribute about 35% of his or her savings.

Rule of 72 - math formula that determines the number of years needed to double your money at a given interest rate.   Here's how it works: you divide 72 by the interest rate. Therefore, money invested at 10% interest rate will double in 7.2 years.

Return - The amount of money a saver receives from a savings account or an investment over and above what they initially deposited or invested. The return is usually figured as a percentage on a yearly basis.

Tax Credit - A dollar amount deducted directly from the income tax you owe

Tax Deduction - An amount deducted from your income before your income tax liability is figured.

Tax-deferred - Money that's tax-deferred isn't subject to taxes until it is withdrawn.

Tax-free withdrawals - Tax-free withdrawals are those from a 529 plan that are used for qualified educational expenses

Variable Interest Rates - Interest rates on loans or savings accounts that are tied to an index of the economy and change periodically as the index changes.