Federal Financial Aid for College How will you pay for college? This is the question that both parents and students around the country must come to grips with. American families are faced with a tremendous obstacle -- the high cost of attending college. For many families it can be the largest expense they will ever encounter -- more than the purchase of a home with less time to make the payments. Over the last decade, tuition and fees at our nation's universities have been escalating at a rate above inflation, causing rates at some private colleges to approach up to $30,000 per year. The cost of tuition, room and board for the average college student climbed more than 5% this year while the national inflation rate was only 2.5%. This is painful news, but don't get discouraged; plenty of financial aid is available for students seeking an education. However, it does require specialized knowledge to acquire the funds. This special launch edition of the COLLEGE ADVISORY REPORT will equip you with the fundamental knowledge needed to understand and get your fair share of the financial aid pie. There is money available for every student that sincerely desires an education. A common belief is that only low income families are eligible to receive assistance. This simply isn't true. The purpose of financial aid programs is to assist all students whose access to a post-secondary degree is barred by excessive tuition and costs. Sources of aid and types available According to a recent report published by the College Board, college students received a total of $34.6 billion in financial assistance during the 1992-93 academic year, marking an increase of 7.9% from the previous year's total. $25.5 billion was from federal grants and loans, $2.1 billion was from state grants, and $7 billion was directly from the colleges. Common Misconception One common misconception is that a major portion of financial aid money comes from private source scholarships (foundations, organizations, religious groups, etc.). The fact is that only 1% of student aid is derived from private scholarships. This misconception was started by scholarship search companies which advertised that there were millions of dollars in unclaimed private grants and scholarships that they could help students find. These companies are extremely misleading and their services are of very little value. Unfortunately, many families make this source of aid their number one, and only priority -- A HUGE MISTAKE! When you decide where to look first, head for the table with the biggest plates (federal government, state government and colleges). Don't crawl under the table looking for crumbs. The federal financial aid process Getting financial aid is a process which begins in January of the year the student will be attending college and it usually takes several months after filing the financial aid forms before the student will now the status of their application. therefore, it is crucial that your family complete all financial aid forms as soon as possible after January 1 since aid is given on a "First Come First Serve Basis." If you file late, you run the risk of getting lesser aid or possibly none at all. Now, let's review the specific steps for acquiring "need-based" aid. To get need-based aid you must show that you have financial need. Steps to getting financial aid 1. Complete appropriate financial aid forms. Free Application for Federal Student Aid (FAFSA) or Financial Aid Form (FAF). 2. Student/parents need to sign the forms and date them. 3. Completed FAFSA & FAF forms must be sent to the College Scholarship Services. There is an application fee for FAF. The FAFSA is free. 4. Four to six weeks later, the student will receive a Student Air Report (SAR). On the SAR there will be either a request for further information or a number called the Expected Family Contribution (EFC). 5. If additional information is needed or you locate mistakes, make the changes and send the application to the address provided. You are now back to step 4. 6. If everything is approved, sign the SAR and send the original to the college the student is considering. If the student is considering numerous schools, send each of them copies. The Financial Aid Office (FAO) will use key data from the SAR to determine whether or not the student will get financial aid. 7. Verification of data provided on the Financial Aid Forms may be required by the FAO and could include a review of the student/parent's federal tax returns, income verification, and additional school financial aid forms. 8. Normally, the school's FAO reviews the information and sends the student a "Financial Aid Award Letter," informing the student and family of the financial aid package. 9. The student must then take signed Award Letter and additional loan forms to school of choice. 10. Process can take from six weeks to four or more months before financial aid monies are received. 11. If the Award Letter and all verification documents have been received, the student may ask for a deferment of payments for tuition and fees, and on-campus housing costs as well as a voucher for books. This would be an option n the case where the parents needed more time to pay the fees. More on the financial aid forms and student aid report COMPLETE FINANCIAL AID FORMS -- This is where the process begins. The student can not get aid if he or she doesn't complete the appropriate forms (FAFSA & FAF) which are provided by the high school guidance office and/or the college financial aid office. The FAFSA is the single most important document for securing aid because it determines eligibility for federal aid (Pell Grants, Stafford Loans, Supplemental Educational Opportunity Grants, Perkins Loans and Work Study). The form asks for detailed information about the parents/students income, as well as savings and investments in the year prior to attending college. It is a prerequisite for getting money from the colleges. In other words, the colleges will not give their financial aid money to a student that has not applied for federal aid. The reason: Colleges have limited funds, therefore it is their feeling that the student should go first after the big money available from the federal government. Also, the student may be able to use the FAFSA to apply for State and college aid. However, some states and colleges may require additional information. Contact your State agency, high school counselor, or financial aid office to find out whether you can use the FAFSA to apply for State and college aid, and what types of aid are available. The deadline for filing the FAFSA is May 1, 1995 for the 1994-1995 school year. However, if you file after March 1994, your chances of getting aid are slim. You may still get money for summer school though. Check with the colleges where the student is applying for FAF deadlines. The Financial Aid Form (FAF) is used by many colleges, universities, and scholarship programs to award their own private funds. These institutions and programs combine FAF and FAFSA information to make their decisions about these funds. The FAF and FAFSA ask different but related questions. Some schools require both, while some only want one. ASK YOUR GUIDANCE COUNSELOR OF COLLEGE which forms are accepted by the schools the student is interested in attending. STUDENT AID REPORT -- The agency which processes the student's FAFSA will send a Student Aid Report (SAR) to the student's home address. The student will receive the SAR three to four weeks after applying for federal aid using the FAFSA. It contains two very important pieces of data: the Pell Grant Index and EFC. The Pell Grant Index (PGI) number determines your pell grant eligibility (the number is printed at the top right of the page). A Pell Grant is given by the federal government to needy students and does not have to be repaid. The expected family contribution is used in determining the student's eligibility number for the campus-based, Stafford Loan programs, etc. The SAR has three parts If the student is eligible for a Pell Grant, he or she will get all three parts. The student will receive only two parts if he or she is not eligible. Part 1: The Information Summary, which contains instructions to review your SAR for correctness and other information about the results of your application. Part of that information is a Pell Grant Index (PGI) number, which determines the student's Pell Grant eligibility and an Expected Family Contribution (EFC) number used to determine eligibility for the Stafford Loan and campus-based programs. Part 2: The information Review Form, which shows you how the information you provided was recorded by the computer. If there is need for added information or corrections, you will hear about it in this part. After you make the required changes, if any, sign the Certification Statement on the back and return Part 2 only to the Federal Application Processing Center (the address is on the back of Part 2). Part 3: Known as the "Payment Document," which the student gets only if he or she is eligible for a Pell Grant. This part is for the school's use. If all the information is correct on the SAR, submit all three parts to the financial aid administrator, who will in turn use the data to determine the amount of the student's Pell rant award. What happens next? Present the original SAR to the college the student will attend. If the student is undecided about he school and he or she has applications at several schools, hold on to the original SAR, and send copies to these schools along with a copy of your family's income tax return (there is a good chance it will be requested). What if the student is ineligible? Even though the students' SAR may state that he or she is ineligible for a Pell Grant, it is important to send it to the college. The school's financial aid office will want to ensure the student made an effort by applying for a grant and the financial aid officer will use the EFC (Expected Family Contribution) number. It will not be held against the student for not being eligible and the school will need it to consider the student for other types of aid. What if eligibility has not been determined? If eligibility has not been determined, this means you didn't completely or correctly fill out the application. Part 1 will contain comments asking you to confirm, correct or add information on whatever was missing. Make the corrections on Part 2, sign the Certification Statement and mail Part 2 only to the processing center at the address listed on the back of Part 2. Special Circumstances: If there is a change in the student's personal situation after he or she has received the SAR, such as a job layoff or a pay cut, reduction in your family assets or an increase to family expenses due to doctor bills, etc., the student should immediately notify the financial aid administrator at the school. How much will the family pay? In analyzing the students aid application, the processing agency will use the federal methodology formula, which calculates what is officially called the "expected family contribution" -- the amount the federal rules assume the parent can afford to pay toward the student's annual college costs. (Use the EFC Work sheet on the next page to figure out your EFC.) Now that you know how the EFC is determined, your main priority should be to get this number as low as possible prior to filling out the FAFSA. The lower the EFC the better the student's chances of demonstrating financial need and he or she will pay less out of pocket. Your EFC will be the same at each school applied to -- it does not change. If the EFC is $10,000 and the school costs $10,000, of course the student will not be eligible for federal aid. It is necessary to show financial need in order to get federal financial aid. The two elements which determine financial need are the EFC and the cost of the particular school. Remember! Financial need is a number. It does not mean the student must be poor. The example below will make this concept clear for you. Financial Need Chart Average Cost Average Cost STATE College PRIVATE College A B Total Cost 10,000 15,000 -EFC 5,000 5,000 =NEED $5,000 $10,000 As you can see, the college costs are different, but the EFC is the same. At school "A" the student is in need of $5,000, while at school "B" the need is $10,000. The annual college expenses minus the EFC equals the FINANCIAL NEED. Also, remember that the total costs of college includes tuition, room and board, books, lab fees, computer fees, mandatory fees, transportation, commuting costs, personal expenditures and miscellaneous. Again, it is necessary to demonstrate financial need in order to receive financial aid. So, in order to increase need you must lower the EFC, choose a more expensive school, or both. This planning should be undertaken prior to completing the FAFSA. After the FAFSA is filed it is extremely hard to adjust your data. EFC WORKSHEET 1. Parent's Income 1992 adjusted gross income on tax return _____ Subtract child support paid in 1992 _____ Add sum of all nontaxable income _____ Add 1992 deductions for IRA/Keogh _____ Subtract 1992 federal/state/FICA taxes _____ Subtract employment expenses if both parents work (lesser of $2,500 or 35% of lower salary) _____ Subtract income protection allowance (from table A) If negative, enter 0 _____ 1. $ _____ 2. Parent's Assets If AGI is $50K or less and you do not itemize deductions on your tax return, enter "0" on line 2. Otherwise, enter total value of your investments (e.g., stocks, bonds, etc.) _____ Sum of all cash, bank and money market _____ Subtract $36K. If negative, enter "0" or if positive, multiply by 0.12 & enter result 2. $ _____ 3. Parent's Contribution Enter total of lines 1 and 2 $ _____ Use this number to find the parents' expected contribution from table B. Divide that figure by the number of family members attending college and enter result on line 3. 3. $ _____ 4. Student's Contribution Enter student's 1992 AGI from tax return _____ Subtract 1992 federal/state/FICA taxes _____ Subtract income protection allowance of $1,750. If negative, enter "0", if positive, multiply by 5% _____ Add 35% of the student's savings and investments, entering the total on line 4. 4. $ _____ Total Family Contribution Add lines 3 and 4. 5. $ _____ COLLEGES FILL THIS NEED AS LITTLE AS 50% AND AS HIGH AS 100%. What do you do if the school doesn't fill 100% of the student's need? Then you must use savings, other loans, etc., or the student can choose a less expensive school. THIS IS HOW THE NEED IS FILLED 1) SCHOLARSHIPS 2) GRANTS 3) WORK/STUDY 4) LOANS REMEMBER: With annual costs averaging about $10,000 -- EVERYONE IS NEEDY! Four strategies to lower the EFC 1) Put others in college. The formula will reduce your family contribution by as much as 40% or more depending on the number of students in college at least six hours. Even mom and dad can take six hours a semester toward a degree or certification. The more in school the lower the EFC. 2) Thoroughly understand the need analysis process-- know the factors considered, the percentages and weights assigned to the data. Decide if adjustments can be made to show your financial affairs in a way that is favorable to you. 3) Use the student's assets first -- If the parents have been saving money for the student's education, use that money to pay part or all of the EFC for the first year of college. This will improve the chances for financial aid during years two, three, and four. 4) Start a family business -- it does not have to be complicated. The federal government will reward the student with a reduced expected family contribution. And finally . . . if you are unhappy with your financial aid award -- negotiate. Colleges typically send Financial Aid Award Letters to students in April. If you are not happy with the offer, you may be able to bargain. For example, if the student has received a better offer from a comparable school, the school of choice may be willing to match the offer. Schools are a business, and the more students they have the more income they receive. Additionally, if the student has outstanding grades and test scores, or would improve the student body's ethnic or geographic mix, you can try telling the financial aid officer that the student can not enroll unless more aid is given. Due to increased costs, many colleges find it harder to attract top applicants, so you just might get a better deal. The federal government allows FAO's flexibility to use professional judgment to assist families when there are compelling reasons to do so or when errors are identified on the financial aid forms that were made by the processing center. Professional judgment would come in to play in a situation where the family claims they are unable to contribute to college costs. In this case, the FAO would require documentation from the family that could substantiate their claims. The documentation might include medical bills, income verification, or other paperwork that verifies financial hardship. If the FAO is convinced that the family cannot pay their expenses, the FAO may lower the EFC, increase the college costs to show more need, or both. This way, the family would be eligible for more aid. So, be nice to the FAO and bring your problems to their attention. You might get help! * * * Dear College-Bound Student and Parent, My name is Todd Blythe, and I'm the editor of College Advisory Report, a bimonthly newsletter dedicated to helping you get the money YOU need for college. I have been advising college-bound seniors and their parents for 4 years now. I have learned little-known secrets that can save parents thousands, and uncovered money-grabbing scams that can cost you dearly. And I share everything I know with you in the College Advisory Report. For more information about the College Advisory Report, contact me at 71261,3467