The ABC’s of Financing a College Education

If you are the proud parent of a student who will start college soon, chances are you've been trying to figure out how the two of you are going to pay for that college degree. Fortunately, financial help is available. Financial aid can help pay for tuition, books, room and board, and many of the other costs of higher education.

Financial aid to meet a student's educational expenses is available in four basic categories: scholarships, grants, work-study and education loans. Most students finance their education through a package combining aid from several categories.

1. Scholarships are awarded based on special ability, academic achievement, religious affiliation, ethnic background or special interest and they don't have to be repaid. Scholarships come from many sources, but the student may have to do some detective work to uncover them. Most states and many colleges offer scholarships, so don't forget to inquire about them. College financial aid officers and high school guidance counselors can help direct you to resources outlining programs and requirements. The local library and Web sites are also good places to look. This information should always be free.
2. Grants are awarded based on need and, like scholarships, they don't have to be repaid. In addition to state and institutional grants, there are two federal grants for which students can apply:

   • Federal Pell Grants are awarded to part-time and full-time undergraduate students who show financial need.
     

   • Federal Supplemental Educational Opportunity Grants are a supplement to Pell Grants.

3. Work-study is a federal program offering part-time jobs both on and off campus. The amount that can be earned is based on several factors, including need, other aid received and availability of school funds. Work-study funds don't have to be repaid because work is traded for hourly wages.
4. Education loans are funds borrowed from a financial institution or federal or state government. Education loans must be repaid. There are at least three types of education loans:

   • Federal Perkins Loan is a federal loan program administered by colleges. It is available to both undergraduate and graduate students and based on need and the availability of government funds. The annual interest rate is 5 percent and repayment begins nine months after the student leaves school or drops below half time.
     

   • Federal Family Education Loans/Federal Direct Loans include Federal Stafford (student) Loans and Federal PLUS (parent) Loans. They are available through financial institutions such as U.S. Bank that participates in the FFEL program or through the federal government in the direct loan program. The maximum annual interest rate on Stafford loans is 8.25 percent and 9 percent on PLUS loans.
     

   • Financial institution (or “supplemental”) loans are for students (or their parents) who attend participating colleges and graduate schools. They are not based on need. U.S. Bank, for example, offers a number of supplemental loans where students can borrow up to the entire annual cost of attendance, less financial aid received, at competitive interest rates.

So how can your son or daughter obtain financial aid?

1. In order to receive financial aid, a student must apply each year that he or she is in college. Scholarships and grants are the best types of financial aid because the money never has to be repaid, so students should try to get them first. Check with a high school guidance counselor or the Internet to find out about organizations offering scholarships. One useful site is www.finaid.org. The site gives information about scholarships as well as other types of aid.
2. Next, have your son or daughter pick up and submit a Free Application for Federal Student Aid (FAFSA) from the high school guidance office, college, or the U.S. Department of Education's Web site at www.fafsa.ed.gov. The FAFSA determines how much money a student's family must contribute each year toward college costs, as well as the types and amounts of financial aid for which he or she is eligible. (Some colleges also require their own institutional application to determine financial aid eligibility. Check with the college to verify the requirements.) The financial aid package awarded will include one or some combination of federal, state or institutional grants, scholarships, work-study, or education loans.
3. Finally, if grants, scholarships, work-study, and government loans don't cover expenses, students may apply for a low-interest private education loan from a financial institution such as U.S. Bank. It offers a number of non-federal or supplemental education loans for students who attend participating colleges and graduate schools. This type of loan can be used as a supplement or replacement for federal loans. More information on the U.S. Bank's supplemental education loans can be found on the Web at usbank.com/studentloans or by phone at 1-800-242-1200.

Luckily, virtually any student who wants to go to college can go, regardless of family income. The key is to apply for as many scholarships and grants as possible and apply for financial aid as early as possible, since most financial aid is awarded on a first-come first-serve basis. One last thing — even if you think the student in your family won't qualify for financial aid, he or she should try anyway. There may be more options than you think.

(Courtesy of ARA Content, www.aracontent.com, e-mail: [email protected])