Federal Student Loans
They’ve waited. They’ve watched the mail for weeks. Finally, the letter arrived: Students are getting notice that they’ve been accepted to the school of their dreams! But after the moment of excitement and congratulations wears off , the realization sets in: it’s going to cost money to go to school.
Even if a family has prepared for years, saving money, investing in 529 plans and being on top of completing their student’s FAFSA, now is a crucial time to pay attention to information from schools and have a clear understanding of the financial aid award letter.
Financial aid award letters are sent to students in the weeks after receiving their acceptance letter to a school and reflects the cost of attendance as well as the financial options available to families to help pay for their student’s education. As the letters state, a student’s place in the schools incoming class cannot be reserved until a deposit is received based on the financial award letter. But families should take the time to understand their award letter before submitting any form of deposit, as these deposits are not refundable if a student decides not to attend a particular school.
Currently, there is no standard format for schools to report the financial aid being offered to a student. So families should use these tips to better understand what is being offered and make a smart comparison between what different schools will cost. The school with the lowest tuition fees might not always be the best financial choice thanks to financial aid awards. Knowing how to read the financial aid award letter can make all the difference.
- Find “free money”
Many schools offer students institutional scholarships or grants. These types of funding can be seen as “free money” because students and families don’t have to repay this money after graduation. Make sure to look for words such as “scholarship” or “grant” in the name of the financial award. These awards are often given to students based on the information in the Student Aid Report created when completing the FAFSA, based on income or family responsibility. Families may miss these awards because they do not technically apply for them separately.
- Consider loans and work study options separately
To help show families how they can meet the cost of attendance at their school, award letters will also include options that require repayable loans or other options that require further action by the student, such as work study programs. Since there is no standard format for separating these options from other “free money,” families need to recognize that any loans taken out, be they private or federal Stafford loans, will require repayment by either the student or parent (depending on the loan) after graduation. This is not funds being offered by the school, but money that will require repayment.
- Know the difference between “direct” and “indirect” costs.
Attending college features a variety of costs, but not all of them will necessarily be covered the financial aid offered in the award letter. The “cost of attendance” on a financial aid award letter applies to direct school costs, such as tuition, room and board. Indirect costs, such as books for classes or travel to and from school are not considered in an award letter. These costs are those that the student and family will have to bear personally.
- Determine if awards are for one year or more.
Many families fall into the trap of thinking that the financial award letter reflects the costs and awards for all four years of school when, in reality, the letter reflects the cost for one year of school. While many of the loans listed on an award letter will be available to students each year, many of the grants or scholarships listed may require a new application each year or, in some cases, are only available for one year. Determining which of these awards are renewable, or the length of the award, can help families avoid an unpleasant surprise.
- Make sure the award letter is final.
In some cases, an award letter might not reflect the final amount of aid being offered to a student. If any section of the letter uses words such as “estimated,” “tentative” or “pending,” the school may not have all the information from a student’s FAFSA or other document needed to make a final determination of aid. Once this information is provided, it may have an impact on the amount of aid that the student is finally offered.
Understanding the financial award letter that students receive can lead to some difficult decisions about where a student should go to school. By making the best effort to compare award letters from all schools that have accepted a student, families can make an informed choice of which school fits best with a student’s goals while creating a financial plan that will avoid any bad surprises or unexpected debt down the road.
Financial Aid Awareness Month is dedicated to helping families and students of all ages better understand the options available to them as they look to fund their educational goals and dreams. Iowa College Aid has dedicated a page to discussing some of the common issues facing those looking for financial aid.
Our staff of financial aid experts have also helped out this month, with advice on how to overcome financial aid issues (see last week’s post). This week they address two of the common myths that students have about applying for grants and scholarships and how to debunk them.
Myth #1: We make too much/my parents make too much – I won’t get anything
Family income is definitely a factor when it comes to handing out financial aid. The best kind of financial aid is always the “free” kind – the scholarships and grants that are given freely with no expectation of being paid back later. And often it’s this “free” money that has a “financial need” component to it. Many scholarship and grant providers want to give their awards to students who show some kind of financial need, and when a student’s/family’s income is high, usually the financial need is low.
Not all scholarships and grants are need-based, however. If your student is motivated, they can seek out scholarship and grant opportunities that are based on skills, abilities and interests, grades, musical, athletic or dramatic talent, essay-writing, or a number of other merit-based achievements. The key is looking for them. You know the saying, “you can’t win if you don’t play”? That same philosophy applies to scholarship competitions. Investing some time online searching for “scholarships for high school juniors” or “scholarships for journalism majors” or, if writing essays isn’t a strength for your student, “no essay scholarships” might provide some avenues of funding.
Myth #2: My parents aren’t helping me pay for college so I can’t get financial aid.
Students who are financially independent from their parents can often access additional student loan funds, but a parent’s unwillingness to pay for college doesn’t make you financially independent from them.
The primary circumstances that cause a student to be financially independent are:
- Orphan/ward of court/foster care/emancipated minor/legal guardianship/homeless status
- Veteran of the Armed Forces of the United States
- Graduate or professional student
- Student’s marriage
- Student provides support to dependents
Detailed information about these circumstances can be found on the federal Department of Education website https://studentaid.ed.gov/sa/fafsa/filling-out/dependency
If a student has no contact with their parents, or if the student doesn’t reside with their parents because of an abusive or neglectful situation, the student can approach the financial aid office at their college for special instructions on how to complete the parent section of the FAFSA or to determine if there’s a need for a dependency override.
Financial Aid Awareness month encourages students who are getting ready to attend (or are currently attending) college to put together a game plan that helps them achieve their college dreams in the most cost effective way possible. Completing the Free Application for Federal Student Aid (FAFSA) is the first step and a vital one. But once that’s done, where do students go to figure out how to get the money they need for college.
Iowa College Aid not only awards and administers state grants and scholarships for Iowa students, but helps students stay on top of all the resources available to help them graduate college with as little debt as possible.
The financial expert team from Iowa College Aid ranked the ways for students to fill that gap between the money awarded to students in a school’s financial aid award package and the cost of attending the school of their dreams. Here are their top picks:
You filed your FAFSA, you submitted the State’s Financial Aid Application, you met the deadlines and you’ve done the math – your financial aid is just short of covering your tuition bill. You still need a few more dollars to pay for the semester and buy books, what else can you tap into?
Savings and 529 Plans: The first resource to explore is your own savings account or 529 account. If you (or your parents) have been saving money for college, now is the time to use it! Not only has the money been set aside for this purpose, but using savings or college investment accounts could reduce or eliminate the need to borrow additional loans.
Explore private scholarships: There are many scholarship search websites that allow you to create a profile and search for scholarships that fit your skills, abilities and interests and often scholarship essays can be tweaked and customized allowing you to use the same essay multiple times. Make sure to read directions carefully and pay attention to deadlines. And don’t rule out “fun” scholarships like those found on unigo.com – who knows, maybe your creative 250 word essay on what flavor of ice cream would you be could score you a $1,500 scholarship?
Payment plans and paychecks: Since colleges bill you for the entire semester at once, it can be overwhelming to get a bill in the mail for the whole semester. But what if the amount you owe could be divided into 4 or 5 monthly payments? If you’re working part-time, maybe it becomes more manageable to think about making monthly payments to your college when you know you have a paycheck coming.
Parent PLUS and other student loan options: If borrowing more money becomes an option, talk to your Financial Aid Office about which loans are available to you (and your parents) and which loans have the best repayment terms and interest. Your student loan options will differ depending on if you have a co-signer, or if you want to start repayment after you graduate (versus starting repayment while you’re still in school), or if you want a fixed or a variable interest rate. Your Financial Aid Office can help you sort through options and pick the loan that works best for you.
Since November is Financial Aid Awareness Month, we’re providing students and families with tips and information for helping pay for college at all ages: high school senior, current college student, adult learner and more. While finding ways to get financial help with your college education is important, making sure students use that money wisely is possibly even more important.
Getting the most of your money in school is vital to keeping your finances under control. Scholarships and grants might only be allowed for specific school costs, while student loans will have to be paid back (with interest) after graduation. So having a good game plan when it comes to finances in college can pay off not only in school, but for years after graduation.
- Make a budget. Commit to creating a monthly budget AND live within your budget each month.
- Utilize a calendar. A calendar is not just for plotting your class schedule, campus organizational meetings, and social events. A calendar can be an effective tool for managing the due dates for your monthly bills—rent, cell phone bill, car payment, utility bill, etc. Making note of due dates helps to ensure that you will not miss a payment and potentially harm your credit history.
- Shop around for text books. Many bookstores, as well as online retailers, offer used textbooks for much cheaper than buying a “new” textbook. If you won’t want to keep your textbook for future reference after a class has concluded, consider renting a textbook for the semester.
- File the FAFSA on-time, every year. If you plan on attending college in the upcoming school year, be sure to file your Free Application for Federal Student Aid (FAFSA) prior to your college’s priority deadline. Doing so will ensure you are considered for all financial aid opportunities the school has to offer.
- Get a part-time job. A part-time job can allow you to meet your basic needs, as well as reducing the amount of student loans you need to borrow. Working 15 hours per week at a part-time job can dramatically reduce your need for student loans to cover living expenses. Additionally, most colleges have numerous on-campus employment opportunities for students.
- Plan early for a summer internship. During the first week of the spring semester, visit your college’s career placement office and discuss your desire for an internship during the upcoming summer with a career advisor. Career advisors can provide information about companies looking for interns, as well as information regarding career fairs on campus. Many internships pay a stipend or salary which can help pay for expenses while you’re in college and can lead to a job after graduation.
- Know your financial aid options. Visit the Financial Aid office on your campus during the first three weeks of the spring semester to discuss your current year’s financial aid and to check into scholarships and grants available for next year.
- Be a savvy shopper. At the grocery store, opt for the store-brand product. It is often significantly cheaper than its name-brand counterpart, and the money you save can be used to pay interest on your student loans or keep you from having to borrow more loans next year.
- Protect your Personal Information. If you aren’t already, start safeguarding your Social Security Number, credit card and bank account numbers, along with any other non-public personal information. Shredding sensitive information will ensure it doesn’t fall into the wrong hands and can help protect you from identity theft.
- Separate Needs from Wants. Although it may seem like you need that morning latte from the local coffee house to start your day; at $3.50 per day, that adds up to $1,277.50 per year! Make your financial choices based on what is necessary to meet your basic needs, and avoid wasting money and borrowing more to satisfy your wants.
Even implementing some of these tips into your regular routine will turn you into a smarter consumer when it comes to money and help set you up for a bright financial future.
As we come to the conclusion of College Application Month, many students are putting the final touches on applications that will lead them to the next step in their educational journey. While the national conversation around the importance of continuing education past high school gains much attention, so to does the issues surrounding paying for it. Regardless of politics, the fact remains that paying for college stands as one of the biggest challenges for students and their families.
Getting a head-start on putting together a financial plan is always a good idea for any prospective student. Here are some tips for families to consider now to ensure that they limit the amount of student loan debt accrued while still in school:
Borrow only the amount you need
Many borrowers make the mistake of taking out more loans than necessary. To avoid doing this, create a budget to determine how much loan money will be needed and avoid using loan money to pay for unnecessary expenses, such as trips to the movie theater or expensive dinners.
Consider a part-time job
If a student’s academic schedule allows, they should consider finding a part-time job on campus to help supplement the cost of unexpected expenses. Be sure to check with the financial aid office to see if students qualify for work study, which gives the opportunity to work on campus.
Compare award letters
Once a student receives their financial aid award letter, compare loan offers by reading the fine print. If federal loans are not enough to cover the cost of education and a student is considering private loan offers, be sure to shop around for the best interest rates and repayment options.
Take college credit while in high school
Taking AP, dual credit or college credit courses while in high school can give students a head start on achieving your intended major. Find out the general education requirements at the college a student plans to attend and take courses that will fulfill those requirements. Doing this can help students graduate from college early, which means borrowing less in student loans.
Consider paying loan interest while still in school
Students who start making interest payments on their student loans while still in college will reduce the total amount they have to repay after graduation. Interest payments are usually manageable. By paying off interest as they go, students can keep outstanding interest from capitalizing on any balances. Allowing interest to capitalize increases loan balances essentially requiring students to pay interest on the interest that has been accrued!
Apply for scholarships
Scholarships can pay for portions or all of a student’s education during an academic year. But students can’t earn scholarships if they don’t apply! Find scholarships specific to a school or department by talking to a representative from the school’s financial aid office or department chair. In addition, the following sites are just a few places to check for scholarships:
- I Have A Plan Iowa® – www.IHaveAPlanIowa.gov
- Fast Web – www.FastWeb.com
- Big Future by the College Board – https://bigfuture.collegeboard.org
- Sallie Mae Scholarship Search – www.salliemae.com/scholarships
- Scholarship America – https://scholarshipamerica.org/
Choose a school that fits into the family budget
Review the financial aid packages from the colleges where students applied and consider how much needs to be borrowed in order to attend each. Keep the goal in mind and select a college where loan debt can be kept at a reasonable level against future income potential
President Obama will join Department of Education Secretary Arne Duncan’s cross-country bus trip stops at North High School in Des Moines today, Sept. 14, before Duncan continues on to Cedar Rapids on Tuesday. While the two Iowa stops draw national attention to the education conversation, today’s visit will also include a major announcement of a change in the FAFSA (Free Application for Federal Student Aid) allowing families to use prior-prior year tax information in order to file the application in a timelier manner. The FAFSA allows students to be considered for many state and federal grants and scholarships, as well as provide colleges with the information needed to match students with grant and aid packages.
Previous FAFSA regulations required families to file with the current year’s tax information, making it much more difficult for families to file the FAFSA before school deadlines for financial aid, many of which came before the traditional April15 tax deadline. President Obama’s Executive Order will ease that difficulty by allowing information to be taken from income information that has already been reported on tax returns the previous year.
For more information on the new change to FAFSA, the National Association of Financial Aid Administrators has created a video that details the benefits of the new FAFSA allowance. The video can be viewed at their website.
Summer is a great time for travel and, for students preparing for college, a great time for college visits. Earlier this week we discussed how to use virtual tours as a tour preparation tool and offered tips for how to get the most out of your campus visit.
Undoubtedly, the best thing a family can get from a campus tour is information. Information about programs offered both academically and socially. But for many the real questions looking to be answered are often the hardest ones to ask: The ones about money. Colleges and universities know that finances weigh heavily on families and are ready to help answer those questions as best they can as part of campus visits.
To help get the best financial picture of how a student will fit at a college or university, ask these questions. It will help clarify just what the financial expectations will be for attendance.
- May I meet with a financial aid counselor today? (Making an appointment with the financial aid department when scheduling the campus visit is the best way to ensure availability, but many schools may have advisors on hand to answer questions as part of the campus visit)
- Is unmet aid included in your financial aid package?
- Does income from an ex-spouse or stepparent factor on your aid calculations?
- How much grant assistance do you provide to those with an Expected Family Contribution of $0?
- To maintain a grant, how many credits must I take each semester?
- Does grant aid continue across all four years?
- If my student receives an outside scholarship, how will it affect the aid package and any institutional grants or awards?
- Are institutional scholarships renewable?
- If my student is attending from out-of-state, do you have state reciprocity agreements? (Reciprocity agreements allow out-of-state students to attend certain programs at in-state prices.)
- What opportunities for work-study or other employment are on campus? Will that income effect aid eligibility?
- How long is it taking current students to graduate and what is their average debt load when they graduate?
- Will the school package loans in accommodation of loan forgiveness programs?
- Do you provide aid for summer classes?
These questions will not only help families better understand the differences in financial aid packages at schools, but will also show financial aid departments that families take a strong interest in understanding the financial options available for funding their students education.
By asking the same questions at various campus visits, families will have a thorough, and important, set of information that will further help them decide which schools are the best financial fit.