For first-time college students, applying to college can seem as difficult as attending it. Between applications, essays and recommendation letters, keeping track of what you need to know can be overwhelming.
The issue is compounded when you factor in financial aid or how you’re actually going to pay for college. Whether you’re applying to private or public colleges, figuring out how to pay for college can be a confusing and time-consuming process for both students and their parents.
Each year you attend college you’ll have to apply for financial aid again. And with student loan debt at a record high and the cost of attending college continuing to rise, it’s more important than ever to get a good understanding of the steps to applying for financial aid as well as the options for paying for college.
GoodCall has put together this comprehensive guide to financial aid to help students and their families get a better understanding of the options for financial aid and how to maximize college financial aid.
The first step to understanding financial aid is to know what the options are. Zina Kumok, a financial journalist and author of the blog Debt Free After Three, provided GoodCall with a comprehensive breakdown of the different kinds of financial aid available, from free financial aid like grants and scholarships to student loans, which you’ll have to repay after leaving school.
Below are descriptions of the many different kinds and sources of financial aid:
Scholarships can be offered through several avenues: schools, companies, organizations and more. A scholarship is a financial gift given to the student. Unlike other types of financial aid like student loans, you do not have to repay a scholarship. What’s more, there are millions of scholarships out there, relating to just about any interest or experience, from community activism to technology to childhood illness. Students can also receive scholarships for being interested in a particular career, being from a certain area or writing a winning essay.
GoodCall’s Scholarship Guide provides an overview of the kinds of scholarship that are available, including:
External scholarships are awards funded by private groups, including individual donors, businesses, non-profits, foundations and other organizations. They are not typically affiliated with or restricted to students from a particular school.
School-sponsored scholarships are awards affiliated with or provided by individual colleges and universities. Although they may also be funded by private individuals or foundations, they are restricted to students of a particular school (and sometimes of a particular major), and students must usually apply through the school.
Many universities also offer scholarships to current students; often these are through specific schools or departments.
Need-based scholarships are awards based primarily on demonstrated financial need. These can be especially helpful for students whose parents make too much to qualify for federal financial aid programs like Pell grants, but who still need help paying for college.
Merit-based scholarships are awards that do not typically take financial need into account (although some may, to a lesser extent). Instead, these scholarships are awarded based on exceptional talent in a given discipline.
Although there are many general academic merit-based scholarships, some are targeted toward specific majors, sports, art forms, interests and more. Merit-based scholarships may also be awarded to students who demonstrate impressive volunteer work or commitment to a particular field.
Renewable scholarships versus non-renewable scholarships
Renewable scholarships award scholarship winners a certain amount of money each year they attend college (usually up to four years). Receiving these awards for multiple years is often contingent on maintaining a certain GPA or enrolling in a certain major.
Non-renewable scholarships provide winning students with funds for only one year – in fact, previous winners are often forbidden from applying to the same non-renewable scholarship two years in a row.
Searching for scholarships
There are many websites that specialize in listing scholarships from around the country. GoodCall has a scholarship search engine with thousands of scholarships available. With a scholarship search engine, you can filter through and identify the scholarships that best match you and even those that you’re more likely to have a good chance at winning.
School websites are another place to search for scholarships. Often, school websites will offer scholarship information, including both scholarships offered by the school as well as outside scholarships or scholarship databases and search engines.
Like scholarships, grants are given to students without the expectation of repayment. In other words, it’s free money. The main distinction is that many grants are often determined by financial need. Though, there are also many grants that are merit-based or that are reserved for students majoring in high-demand areas, with ties to the military, or who are members of underrepresented groups, in addition to the other types of situations.
All levels of government offer college grants to students, from the federal to the local level. Students can also apply to grants from colleges, non-profits or private companies. As with other forms of aid, applying for the FAFSA is the first step to receiving your grant options. Do this early – wait too late and most grants will already be given out.
Below is an overview of some of the types of grants available from the federal government as well as from individual states:
Federal Pell Grants
Federal Pell grants are available to undergraduates with financial need. The amount of award students receive is determined by financial need, cost of attendance, status as a full-time or part-time student, and enrollment plans for the academic school year.
Federal Supplemental Educational Opportunity Grants (FSEOG)
FSEOGs are available to undergraduates with exceptional financial need at participating schools. Students who are eligible for Federal Pell grants and have the most financial need are awarded FSEOGs first. Each participating school receives a set amount of funding for FSEOG awards. Once this money is allocated, no more can be disbursed for that year to students who apply afterwards.
Teacher Education Assistance for College and Higher Education Grants (TEACH)
TEACH grants are available to undergraduate and graduate students studying to become an elementary or secondary school teacher. Students must commit to teach in a high-need area at a low-income school for at least 4 years within 8 years of graduation. If this requirement is not met, the grants are converted to student loans and must be repaid.
Iraq and Afghanistan Service Grants
Iraq and Afghanistan service grants are available to the children of members of the US military who died as a result of military service in Afghanistan or Iraq following the events of 9/11. Students must have been under the age of 24 or enrolled at least part-time in college or vocational school at the time of the parent or guardian’s death. Students must also meet the eligibility requirements for the Pell grant, except for the Expected Family Contribution requirement.
Grants for American Indians, Alaska natives and native Hawaiians
Grants are also available from the Bureau of Indian Education for eligible American Indian and Alaska native college students. The Office of Hawaiian Affairs also offers a range of grants and scholarships for native Hawaiian students.
State-based college grants
Individual states offer a wide range of grants, including: economic need-based grants, academic or merit-based grants, grants for students pursuing high-need fields (in STEM, nursing, and teaching for example), grants for students from very low-income backgrounds, grants for minority students, grants for foster care youth, grants for students with disabilities or special needs, grants to veterans of the US military or National Guard, and more. To find more information on state-sponsored grants, click on a state:
If you’re going to take on debt to pay for school, federal loans are the way to go. They usually offer more repayment options for students and better interest rates. These repayment options include income-based repayment, deferment and more. Many private loans offer little help to graduates struggling to make their payments.
The U.S. Department of Education has two federal student loan programs: the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program.
To apply for federal loans, students and their parents have to fill out the Free Application for Federal Student Aid, known as the FAFSA. The FAFSA application determines eligibility for federal aid, need-based scholarships and more. It takes into account the parents’ or guardians’ income and decides how much and what kind of aid a student should be given.
Under the Direct Loan Program, there are four types of loans available to students:
Direct Subsidized Loans
Direct subsidized loans are available to undergraduate students with demonstrated financial need. These loans do not accrue interest while you are still in school nor during the six-month grace period after you leave school. Borrowers are also not responsible for paying interest during a period of deferment of student loan payments.
Direct Unsubsidized Loans
Direct unsubsidized loans are available to undergraduate, graduate, and professional students. For Direct unsubsidized loans, the student does not have to demonstrate financial need to be eligible. However, unlike subsidized loans, unsubsidized loans begin accruing interest immediately, including while the student is in school or recently out of school as well as during periods of deferment or forbearance. If you do not pay the interest that accrues on Direct unsubsidized student loans, it is capitalized and added to the principal amount that you owe.
Direct PLUS Loans
Direct PLUS Loans are available to graduate or professional students and/or parents of dependent undergraduate students to help pay for education expenses in the event that other sources of financial aid fall short. Direct PLUS loans are also known as Graduate PLUS loans and Parent PLUS loans. These types of loans carry higher interest rates and loan origination fees in comparison to Direct subsidized and unsubsidized loans.
Unlike other student loans, Parent PLUS loans are taken out by parents directly. While students can make payments themselves, their parents will still be legally and financially responsible for those payments.
Direct Consolidation Loans
Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer, made possible by the Health Care and Education Reconciliation Act signed by President Obama in 2010. The interest rate for the new single loan is a fixed rate and is determined by the weighted average of the interest rates on all of the loans being consolidated. You may also be able to extend your repayment period for up to 30 years. This will lower monthly payments in the short-term but result in more interest being paid over the life of the loan.
Federal Perkins Loans
The Federal Perkins loan is another option only available to undergraduate, graduate, and professional students with high financial need. Unlike Direct federal loans, the student must repay the school, not the federal government.
Not all universities offer the Perkins loan program and the amount of funding available at each school is limited and offered on a first come, first serve basis.
Many students receive private loans when they’ve exhausted all other options. Private loans have a bad rap for having high-interest rates and few repayment options.
Private loans can have either variable or fixed interest rates. Fixed interest rates stay the same over the course of the loan, while variable rates change depending on the market and other factors. Fixed rates are generally preferred because variable rates may change quickly, surprising graduates who suddenly can’t afford their new payments.
Popular private student lenders include Sallie Mae, Discover, Student Loan Network, Citizens Bank and more. These lenders offer various repayment terms, incentives and consolidation services. You should compare rates between private lenders to see which will offer the best rates and terms.
Work-study is a type of grant given to a student in exchange for working for the university. Undergraduate, graduate and professional students who prove financial need are eligible to receive work study. Eligibility is usually determined by completing the FAFSA and a limited amount of funds are available so, again, it’s important to complete the FAFSA early. Both full-time and part-time students may be eligible for work-study funds.
Students granted work-study funds must search for and secure a work-study job to access this form of financial aid. Generally, students cannot work beyond what their award permits for each semester or school year. Though, there are exceptions to this rule if the department or organization wants to keep a student on staff and is able to pay the student for work beyond the award amount.
Some popular work-study jobs include helping in the administrative offices, working at a library on campus, assisting in the computer lab, tutoring and helping a professor with research. In rare instances, universities will allow students to work for an organization not directly affiliated with the school.
Not all schools offer work-study, and hours are often limited. Work-study jobs generally pay the hourly minimum wage, though some positions do pay more depending on the type of work a student will be doing. For students who are enrolled full-time and work less than part-time, income earned through work-study is eligible to be taxed on both the federal and state levels but exempt from FICA taxes.
Completing the FAFSA & Financial Aid Applications
The first step to securing financial aid is to complete the Free Application for Federal Student Aid (FAFSA). By completing the FAFSA, students are considered not only for federal aid like the Pell Grant and other federal grant programs, work-study and federal student loans but also for state aid and some school-sponsored scholarships.
Students and their parents (if the student is a dependent) will need to create a Federal Student Aid ID in order to access and electronically sign the FAFSA. To complete the FAFSA, students must input their identification information and their parent/s (if dependents), including Social Security, Driver’s license, and alien registration numbers (if not a U.S. citizen). To complete the FAFSA, students must also have on-hand tax documents and financial information for themselves and their parents (if dependents), which includes bank statements, Federal tax forms with W-2s, as well as records of investments, assets (excluding the family home) and untaxed income.
One important change that affects students filling out the FAFSA for the 2017-2018 school year is that the tax and financial information reported will be for the prior-prior year, from 2015. And going forward for the 2018-2019 school year, the information reported will be from 2016 and so forth. Students filing the FAFSA for the 2017-2018 school year and going forward will also be able to complete the FAFSA as early as October 1, 2016, a change from prior years when the period to apply began in January.
The FAFSA is not the only place to find financial aid. For some types of financial aid like external scholarships and some school-sponsored scholarships, students must complete individual applications for each award in order to be considered.
Many private colleges and some public universities also require students to complete the CSS/Financial Aid Profile® to be considered for financial aid that is awarded by the institution and certain scholarship programs. The information needed to fill out the CSS profile is similar to the FAFSA, and the College Board has an interactive presentation available at its website to help guide students and parents through the application process.
Students must complete the FAFSA (and CSS profile, if applicable) for each year they plan to enroll in school. To maximize financial aid, they should also complete individual applications for scholarships, which have deadlines throughout the year and may add to financial aid for the current or future school years, depending on the type of award.
Misconceptions About Financial Aid
The cost of college is a major concern for both students and their parents. However, many students don’t experience the maximum benefits of financial aid because they don’t understand all of the dynamics involved in the process.
Higher education journalist Terri Williams revealed to GoodCall seven misconceptions that either limit or completely stop students from receiving the maximum financial aid for which they are eligible:
“My family makes too much money for me to apply for aid”
Regardless of your family income level, don’t make the mistake of automatically assuming that you won’t be able to get any type of aid. According to Hans Hanson of College Logic, “Nobody makes too much money for submitting the Free Application for Federal Student Aid (FASFA). It is not just an application for financial aid; rather, it can trigger other awards, such as grants or work-study programs, along with federal loans.”
That’s because other factors besides family income are also considered. Jayne Schreck, Associate Vice President for Financial Aid at Monmouth College, says, “The student’s income, assets of both the student and parent, the family size, and the number of members in the household who will be attending college in a given year are also considered.”
In fact, Schreck says that many families who fall into the middle/upper-middle income bracket qualify for assistance in years when they have multiple children in college.
“I only need to fill out the FASFA form”
While it’s true that you do need to complete the FASFA form, other documentation may also be required. At some institutions, Schreck says you may need to complete an institutional application for financial aid as well. “These institutional applications may ask for additional information – not previously reported on the FAFSA – which will enable the school to consider the student for additional sources of funding.”
Schreck explains variations in the scholarship process as follows:
- At some institutions, scholarships are awarded automatically while at other institutions, there are specific applications that must be submitted in order to be considered for scholarships.
- At some institutions, academic scholarships are determined and awarded by the academic department or college within the larger university. While at other institutions, academic scholarships are determined in a central location like the financial aid office.
And Hanson adds, “Many colleges, specifically private schools, are now requiring the College Scholarship Service (CSS) profile to be submitted with the application. The CSS profile is then used by the college in determining university need-based aid.” Hanson says the profile is not an optional form if the college requires it for admission.
“As long as I turn in my forms by the deadline, I should be fine”
Many students don’t understand that waiting until the deadline may affect their aid package. According to Hanson, “Financial aid awards are distributed on a first-come, first-serve basis with early applicants generally receiving priority treatment for funding.” Hanson warns that waiting too long may cause students to miss their opportunity to receive funds.
Beginning with the 2017-2018 FAFSA, students will be able to submit their FAFSAs as early as October 1, 2016, using the prior-prior year tax information from 2015.
“My grades aren’t good enough to qualify for a scholarship”
If you don’t have top-tier grades, you may not qualify for an academic scholarship, but there are other types of scholarships available. “Scholarships are awarded for such things as talent, involvement, leadership, athletics, etc. depending on the type of institution,” says Schreck. She also says that grants tend to be awarded as a result of a family’s financial need and help to make attending college affordable and accessible to a great number of students from a variety of backgrounds.
Hanson notes that merit scholarship awards are often used as a sales and marketing tool to incentivize an accepted student to enroll. “In many cases, the merit scholarship represents a ‘sticker-price discount’ off the cost of college,” explains Hanson.
“If I didn’t get anything last year, I won’t get anything this year”
You might – and you might not. “The amount or sources of funding available may change from year to year, as the family’s income, family size, or number in college changes,” explains Schreck.
“If I transfer to another school, my financial aid package remains the same”
Higher education institutions have their own unique processes, so your aid package may undergo significant change if you transfer to another school. “While it is true that each school uses the same information that’s received on the FAFSA, it is not true that each college applies it the same,” says Hanson. In fact, he says each college has its own strategy and philosophy regarding how it handles financial aid.
Schreck explains this using an example, “The funds received through the federal Pell Grant or a State grant may be partially determined based on the cost of the institution and, therefore, differ from school to school. Private institutions such as Monmouth College that may initially be believed to cost more than a state institution often end up costing a family less due to the significant amount of grants and scholarships offered to students who attend.”
“I’m going to get as much in loans as I possibly can because I’ll have a well-paying job after college”
Student loan debt among consumers under 30 is estimated to be $369 billion. Though graduating from college is generally associated with higher earnings, spending 10, 20 or 25 years repaying student loans can take an important toll on those increased earnings.
That’s why it’s important to understand the real cost of student loans over time. For example, having student loan debt can delay your ability to purchase a home and build savings.
So be careful not to get more money than you need, or your student loan may haunt you long after your college memories fade.
Lowering Expected Family Contribution
With the cost of a college education skyrocketing, finding ways to increase the amount of Federal financial aid college students receive is becoming more and more important for families. Donna Fuscaldo, finance and higher education journalist, provided GoodCall with some industry tips for improving your chances at getting free and/or low-cost college financial aid
One way to do that is to lower their expected family contribution by reducing their income reported come tax time, explains Fuscaldo.
When it comes to determining how much, if any, federal financial aid a student will receive, the government looks at your Expected Family Contribution (EFC), the year in school, current enrollment status and the cost of attending the college or university. While some of that is out of your control, the Expected Family Contribution can be controlled to some degree.
To come up with EFC, the government looks at a family’s taxed and untaxed income, assets and benefits like unemployment or Social Security. The family size and number of family members who will attend college during the year also impacts the amount a student receives. A lower EFC score means a student is eligible for more federal financial aid, and vice versa, the higher the score, the less they’ll be eligible for.
For families that want to maximize the amount they receive, there are ways to lower the Expected Family Contribution without running afoul of the law. From tax loss harvesting to smartly lowering income, here’s a look at some strategies that can get help get more financial aid.
Limit increasing income before applying for aid
Need-based aid is heavily weighted toward a family’s income but not certain types of assets, so anything you can do to reduce your income through asset management is going to get your student more aid. That’s not to say you should blow your life’s savings just to get more financial aid, but there are smart ways to lower the amount of family income reported on the Free Application for Federal Student Aid (FAFSA).
According to Mark Kantrowitz, Senior Vice president and Publisher of Edvisors.com, one of the ways to keep a lid on your income is to pair stock gains in the market with losses. Known as tax loss harvesting, investors will often sell a winning and losing stock at the same time to reduce the amount they pay in capital gains taxes. That not only saves them money that would otherwise go to the Internal Revenue Service, but it also results in lower taxable income. But keep in mind that the government looks at your tax return from two years ago. So if you have a child entering college in the 2018/2019 school year, for example, the tax loss harvesting should happen in 2016.
Max out tax-advantaged savings accounts
In addition to offsetting any investment gains with losses, families can also legitimately lower their reported income by maxing out tax-advantaged retirement savings plans like 401(k)s and IRAs. The more money you put in, the less income you show come tax time. People can also increase contributions to Health Savings Accounts or other tax-smart investments or savings plans that legitimately reduce taxable income.
“The key is to make sure you don’t let the tail wag the dog,” says JJ Montanaro, a certified financial planner at USAA. “Don’t make any moves unless it makes true financial sense.” Take annuities as an example. Putting all your money in an annuity will reduce the amount of income you claim, but doing that isn’t going to make financial and investment sense. Taking a distribution on a retirement plan is also going to increase your income, so that is something a family should refrain from doing when applying for aid.
Keep the 529 out of grandparents names
Lots of families use tax-advantaged college savings plans to sock away money for post-secondary school, but the name on the account can have a huge impact on how much aid a family is eligible for. According to Kantrowitz, if the grandparents own the 529 plan, the distribution of the money counts as untaxed income to the student and will thus reduce the aid eligibility by as much as half of the distribution amount. “There are workarounds,” says Kantrowitz. “You can change the account owner to the parent or wait until the senior year in college to take the distribution.”
Pay down high-interest rate debt
For families who have a lot of money in savings and are looking for ways to reduce their income, a smart way to go about doing that is to pay down high-interest-rate debt. Let’s say you have $75,000 sitting in a savings account and you have $25,000 in outstanding credit card debt. Paying that off would still leave you with a sizeable nest egg and at the same time, reduce your expected family contribution. Though, this strategy doesn’t make sense if it means leaving you with no savings.
At the end of the day, before employing any strategies to lower your income and thus increase the amount of financial aid the family will get, you have to weigh the pros and the cons. After all, you don’t want to make moves that will put you in financial harm just to save a few bucks on the cost of college. There are scholarships and grants that can help in paying for school.
Military Financial Aid
For generations, joining the military has been a solid choice for many students after completing high school. Higher education journalist Eliana Osborn explained to GoodCall some of the college financial aid opportunities that are available to members of the military and their families.
There are several programs through the armed services that can help you pay for college—while serving or after–ranging from paying for complete degree programs to professional certifications and career training. Three of the most common opportunities include:
Reserve Officer Training Corps is nearly 100 years old and available at more than 1,000 college campuses around the country. If you receive a ROTC scholarship, you take elective courses along with your regular major requirements.
Each branch of the military has ROTC and its own scholarship programs. Program requirements vary, but by accepting an Air Force ROTC scholarship for example, you commit to:
- Complete a 24-day summer field training course at Maxwell Air Force Base, Alabama (usually between your sophomore and junior years).
- Complete Air Force ROTC General Military Course (GMC) your freshman and sophomore years and the Professional Officer Course (POC) your junior and senior years.
- Accept a commission as an Air Force Officer and serve at least four years on active duty.
In exchange, you will receive money for tuition and fees, a textbook allowance, and monthly living expenses. There are three different levels of scholarships, and requirements are significant. You must have a minimum 3.0 high school GPA, though the average is 3.76. You must complete physical fitness requirements, be a US citizen, and be under 31 years old.
Each year of served duty in the military can make you eligible for free money for college as part of various programs available under the GI Bill. The first GI Bill was signed into law by Franklin D. Roosevelt during World War II, called the Servicemen’s Readjustment Act of 1944. The GI Bill was designed to provide veterans with educational and job training benefits after completing their military service. Since then, additional programs have been added to the GI Bill program and additional bills like the Post 9/11 GI Bill have been signed into law, adding to the benefits available to members of the military and their families.
The US Department of Veterans Affairs has a comparison tool to help members of the military figure out the best ways to apply their GI Bill funding for college or on-the-job training.
The amount of money involved in the GI Bill depends on many factors: how long you serve, whether you are active or reserve, and where you are attending school. For certain high-need jobs, you can get a signing bonus in addition to your promised GI Bill benefits when you join the military and qualify for that position.
One benefit of the Post 9/11 GI Bill that isn’t well known is that it is transferable. Eligible Servicemembers may transfer all or a portion of any unused Post-9/11 GI Bill benefits to family members, including a spouse, child or combination thereof.
Military Spouses Scholarship Program
The My Career Advancement Account (MyCAA) scholarship program provides a maximum benefit of $4,000 for a military spouse to complete a license, certification or associate’s degree in a portable career field within three years.
The purpose of MyCAA is uniquely designed for military families who face frequent moves all over the country and world. By allowing spouses to get training in ‘portable’ jobs, they have more options. That can mean massage therapy licensing, medical transcription courses, or even apprenticeships.
High School Dual Enrollment Financial Aid
Some high schoolers taking advantage of college dual enrollment programs can now get financial help to pay for their college classes. By expanding the Pell Grant to high school students, the Obama Administration hopes to help low-income students participate in dual enrollment, Osborn explained to GoodCall.
Dual enrollment is a one way for high school students to start earning college credits while working toward their high school diploma and still living at home. Columbia University research finds that students who take college classes while in high school earn their diplomas and get into full-time colleges at higher rates than those who don’t. And that is just one positive aspect, as the financial incentives for getting a head start on undergraduate work are even more significant. This is because high school students usually pay a discounted tuition rate, allowing them to pay less overall for a college degree.
And that is just one positive aspect, as the financial incentives for getting a head start on undergraduate work are even more significant. This is because high school students usually pay a discounted tuition rate, allowing them to pay less overall for a college degree.
Pell Grants are available to undergraduate students, but now some motivated high school students with financial need who want to concurrently take college classes can get help paying for dual enrollment tuition with Pell grants. Only dual enrollment courses that count toward degrees are eligible for funding.
Dual enrollment students must complete the FAFSA in order to be considered for Pell grant funding. Colleges and high schools themselves will apply to be part of the program, starting in 2016, which means the program may not be available at every school.
Also, it’s important to take into account that the Pell Grant program does have a time limit. Students can only receive assistance for twelve total semesters. This limit is set to get students making progress toward degrees, not just spending time and funding taking random classes. If a student starts Pell eligibility before becoming a full-time student, he/she will need to consider the financial aid timeline implications carefully.