The Financial Aid Process

By: K.W. Abbott

The financial aid process is comprised of the following four steps:

(1) After applying to college, the student must file the appropriate financial aid applications. The two basic types of financial aid applications are the FAFSA (Free Application for Federal Student Aid) and the PROFILE (the Financial Aid Profile Form).

FAFSA

There are 3 ways to file a FAFSA: (1) by manually completing the form and mailing it to the FAFSA processor; (2) by filing electronically through the college (not all colleges have this capability); and (3) by filing on the internet by contacting:

http://www.fafsa.ed.gov

To receive aid from the federal student aid programs the student must:

* Show financial need

* Have a high school diploma

* Be enrolled in college

* Be a U.S. citizen or eligible noncitizen

* Have a valid social security number

* Make satisfactory academic progress

* Certify the aid will be used for educational purposes

* Not be in default of a federal loan

* Be registered with selective service

* Not be convicted of possessing or selling drugs

PROFILE Form

The Financial Aid Profile form is used by some private colleges to calculate the Institutional Methodology EFC (Estimated Family Contribution). The PROFILE may require the applicant to answer questions in addition to the basic application questions. These questions are known as "Section Q Questions" and unfortunately, there are no instructions on how to accurately answer these questions.

(2) Receive and review the Student Aid Report (SAR). In 4 - 6 weeks (1 - 2 weeks when electronically filed) after filing the FAFSA form, a student should receive the SAR form. The SAR form indicates the student’s EFC on the upper right corner of the first page. Errors or estimated tax information must be immediately corrected or updated on this form and the form re-filed.

(3) Verification of the applicant's information s required of at least 30% of the financial aid applications filed. If a student is picked for verification, there will be an asterisk accompanying the Expected Family Contribution (EFC) amount on the SAR. Verification can vary from merely providing a tax return to sending in detailed family financial information (at some private colleges). Using estimated numbers on the FAFSA or inconsistency of data submitted on the application may lead to an increased chance of being verified.

(4) Receive and review the colleges' Award letters. The Award Letter states the amount of the financial aid and types of financial aid offered to the student. A student may accept, deny, or appeal, any part of award letter.

                                                                                                             National Institute of Certified College Planners

The College Admission Process

By: K.W. Abbott

Students must apply to be accepted at a college. That is pretty obvious, right?? You would be surprised what is overlooked during the college admission process! There are several ways in which a student can be informed early of their admission status:

Early Action - The student can apply to a college by an early deadline (set by a particular college) to guarantee admission without obligating the student to attend that college. The student then usually files for financial at the college under the same deadlines as a regular student applicant.

Early Decision - The student can apply to a college by an early deadline to guarantee admission, but is obligated to attend that college under a binding contract. Early decision applicants file for financial aid early and are offered a financial aid award at an early date. Some colleges make "early decision" binding only if the financial aid offer is mutually agreeable.

Early Notification - The college notifies the student of their admission status as the admission office makes its admission decision. The student applies for financial aid in the same manner as would a regular financial aid applicant.

Early Read - The college computes the student's Estimated Family Contribution (EFC) early and estimates the student's financial aid award. Since this computation usually takes place early in the fall of the year, the student must submit estimated financial information to the college.

                                                                                       National Institute of Certified College Planners

Federal VS. Institutional Methodology EFC Formula

By: K.W. Abbott

There are two formulas by which the Expected Family Contribution (EFC) of a family can be computed: The Federal Methodology and the Institutional Methodology.

All colleges use the Federal Methodology (FM). It is used as the basis for distributing federal financial aid funds. The Institutional Methodology (IM) is used by some private colleges. It is used as the basis for distributing the individual college’s private funds. Federal financial aid funds are distributed on the basis of the FM, even though the college uses the IM to distribute its own private funds.

The Institutional EFC is usually higher than the EFC calculated using the FM formula. The IM takes into consideration items such as the personal residence and family farm assets. The financial aid office also has the discretion to add back certain income items such as depreciation or business losses. The financial aid office can also add back asset items that have been disposed of prior to the filing of the financial aid application, but were in the family’s possession during the year.

The IM formula gives several options to the financial aid office at the university. The family’s EFC should be calculated using both the FM and IM formulas. This is to prevent an unpleasant surprise for the family that calculates its EFC using the FM formula and has a student who attends a college that uses the IM formula to calculate a higher EFC.


                                                                           National Institute of Certified College Planners

College Loans - Federal Unsubsidized Stafford Loans

By: K.W. Abbott

Unsubsidized Stafford Loans are not need-based loans.  If there is no financial need, the student can still receive an Unsubsidized Stafford Loan (subject to the Subsidized Stafford Loan limits).  A student must file a financial aid appication to receive this loan.  The interest ratre and repayment terms are the same as the Federal Subsidized Loan.  However, the interest is not subsidized by the federal government duing the time the student is in college.  Therefore, these loans cannot be considered financial aid when comparing financial aid award letters from various colleges.  However, repayment of these loans will not start until six months after the student leaves college.

In a situation where a student does not qualify for need-based financial aid because the Estimated Family Contribution (EFC) is greater than the Cost of Attendance (COA), it may be more beneficial for the student to borrow using an Unsubsidized Stafford Loan rather than for the parents to borrow using a PLUS Loan. There may be a greater probabiity that the student will be able to deduct the interest as student loan interest from the Unsubsidized Stafford Loan than the parents will be able to deduct the interest on a PLUS Loan.

When the student leaves college and claims himself/herself on the student's tax retune, the income wil probably be lower than the income phase-out limits for deducting the student loan interest,  The student can then deduct the interest paid on the Unsubsidized Stafford Loan.

Since the interest accrues during college years and repayment to is deferred until after college years for an Unsubsidized Stafford Loan, the student will be be eligible for a substantial student loan interest deduction.  The parents' income level may be greater than the interest deduction phase-out limit ($150,000 for married) and therefore, they will be unable to deduct any of the interest for the PLUS loan on their tax return.

                                                               National Institute of Certified College Planners, LLC 

College Loans - Federal PLUS Loans

(Parents' Loans for Undergraduate Students)

By: K.W. Abbott

Federal PLUS Loans are not need-based.  The borrower pays the interest and repayment begins six months after the student leaves college.  However, if the parent is enrolled in college on at least a half-time basis, the repayment may be deferred while the parent is in college.

The interest rate on Federal PLUS Loans is fixed with an upper limit of 7.9%.  If a parent is not ceredit worthy and cannot obtain a PLUS Loan, the student can borow an additional $4,000 per year in Unsubsidized Stafford Loans for the first year of college and $5,000 for the second, third, fourth and fifth years of college (the limit for an indepemdent student).  The amount of a PLUS Loan that a parent can borrow is limited to the Cost of Attendance minus the financial aid award offered to the student.  The amount of financial aid offered to the student does not include Federal Perkins Loan or college work-study funds that the college determines the student has declined.  In other words, the amount of declined Perkins Loan or work-study does not count as part of the student's finanical aid offer when determing eligibility for the PLUS Loan.

These are signature loans in the parent's name.  If the signatory parent (only one parent must sign for the loan) dies or becomes disabled before the loan is repaid, the remaining loan principle balance is forgiven.  PLUS Loans may be consolidated into one loan and repaid over a period of up to 30 years. 

                                                          National Institute of Certified College Planners, LLC

College Loans - Federal Perkins Loans

Federal Perkins Loans are low interest need-based loans (the rate is fixed at 5%) ranging up to $5,500.00 per year.  The interest is subsidized by the federal government until six months after the student leaves college.  The college determines which students will receive this loan and the amount of the loan. These loans are in the student's name and the student will be entitled to the student loan interest tax deduction.


                                                                National Institute of Certified College Planners, LLC

College Loans  - Federal Subsidized Stafford Loans

By: K.W. Abbott

Federal Subsidized Stafford Loans are fixed rate, need-based loans.  A student can borrow $3,500.00 for their freshman year, $4,500.00 for their sophomore year and $5,500.00 for their junior, year, senior and higher years. The interest is paid (subsidized) by the federal government until 6 months after the student leaves college.  Stafford loans carry both life and disability insurance on the student.  If the student dies or becomes disabled the loan balance is forgiven.  These loans are in the student's name and the student will be entitled to the student loan interest tax deduction.  If the loan is eligible to be bought by Sallie Mae and the student makes the first 48 payments on time, the interest rate will drop 2%.



                                                              National Institute of Certified College Planners, LLC