In our discussion of 'Who's
paying?', we must consider financial aid. Almost one half of
all students going on to postsecondary education receive some
form of financial aid.
Will education savings affect
the amount of financial aid available? Yes, but probably not
as much as you might think. Financial aid eligibility should
not be a primary concern when determining how much to save for
a child's education. It may be a factor in where you keep that
savings and in whose name you hold that savings but it should
not keep you from creating an education savings plan.
Financial Aid packages are
based on financial need. The process starts by figuring the
'expected family contribution' or EFC. These are the resources
a family will be expected to contribute to the student's
education expenses. When figuring the EFC a family's income,
assets, family size, number of parents, age of parents and the
number of family members enrolled in post secondary education
are considered. Generally no more than 5.6% of assets in a
parent's name will be considered available for education
expenses. On the other hand 35% of assets in the student's
name will be considered available for education expenses.
Most financial aid today
comes in the form of loans that will need to be paid back. Any
education savings can help to insure that your children won't
graduate and start their careers with an overwhelming debt
load.
Let's talk about the types of
financial aid and then we'll discuss how a student qualifies
for financial aid.
Types of Financial Aid
Grants
provide financial aid that
does not have to be paid back and are usually based on
financial need.
Pell Grant Program
- A federal program providing grants to low income
undergraduates to assist in paying for postsecondary
education. Individual grants range from $400 to $4,050 a year
and are based on the family's financial need, the cost of
education at the school the student attends and the length of
program in which the student is enrolled.
Federal Supplemental
Educational Opportunity Grants (SEOG) -
Federal and institution funds
providing grants to low-income students to supplement aid
received from Pell Grants and other sources. Awards range from
$100 to $4,000 a year. The student must be attending or
planning to attend an accredited college or university.
North Dakota State Student
Financial Assistance Program (State Grant Program) -
Federal and state funds
provide annual grants of $600 to the students with the most
financial need.
Institution based grants -
Each school, college or university may also offer grants
funded by the institution. These grants may be based on
financial need, academics, athletics, music etc.
Scholarships
provide funds that do not need
to be paid back and come from a variety of sources.
Scholarships are often offered on a merit basis meaning a
student qualifies due to high academic performance, artistic
talent or athletic abilities.
Loans
provide funds for education
that will need to be paid back, often at low interest rates.
Payments are often deferred until the student has finished
school.
Subsidized Stafford
Loan - This is a
federal low-
interest loan based on financial need. The federal
government pays (subsidizes) the interest while the student is in
school.
Interest rates may vary and are now in the 3 - 3.5% range
and by law,
cannot exceed 8.35%
Unsubsidized
Stafford Loans -
This is also a federal low-
interest loan based on financial
need. However, in this case the
federal government does
not pay the interest while the student is
in school. The
student may pay the interest as they go to school
or allow the
interest to accrue. The student will not need to make
payments
on the principle of the loan while they are in school.
PLUS Loans
-
A Federal
Parent Loan for
Undergraduate Students (PLUS) is
money borrowed by the
parents of
the dependent student. The interest rates may vary and
are now in
the 4 - 4.5% range and by law, cannot exceed 9%.
Monthly payments may start as soon as the money is loaned out.
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.
Perkins Loan Program -
This loan is also a
low-interest loan
at 5% interest and based on financial need.
The college or
university provides these loans to the student.
Payments and
interest are deferred until the student graduates
or leaves school.
The balance on Perkins loans can be forgiven
when the graduating
student works in a career field or an area
considered in need. An
example would be a math teacher working
in a school serving a
low-income area.
Federal Work-Study Programs -
This federal program
offers part-time jobs to students who then use the earnings to
help pay for their education expenses. The federal government
provides 75% of the funds and the school provides the other 25%.
The jobs are generally on campus and the pay is usually equal to
the federal minimum wage.
Who should apply for Financial
Aid? - Students
should apply for student financial aid every year they plan to
attend a post secondary school even if they think they do not
qualify. There are many factors affecting eligibility for
financial aid and those factors may change from year to year.
It does not cost anything to apply and the government and the
school will then figure what the student is eligible to receive.
How to apply
for Financial Aid -
All you need
to do is fill out the Free Application for Federal
Student Aid (FAFSA) and send it in. The FAFSA is available in a
paper version from your high school counselor, the financial aid
office at the school of your choice, the public library, or by
calling 1-800-4-FED-AID. If you would like to fill out an online
version of the FAFSA you will find that at
http://www.fafsa.ed.gov/.
Return to Saving for
Education topics:
The Value of Education
What Will It Cost?
Who's Paying?
How To Make It Happen
It's Never Too Late
Resources
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