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Financial Aid: 101
Paying for Postsecondary Education
John M. Szentesy, M.Ed.Associate Director of Financial Planning-Mansfield University
Agenda
Session I– Types and Sources of Financial Aid– Application Process– Eligibility
Session II– Federal, State and College Financial Aid Programs
Session III– Next Steps—Determining Affordability– Resources
Financial Aid: 101
Session: I
Types and Sources
Application Process
Eligibility
What is Financial Aid?
Financial aid consists of funds provided to students and families to help pay for postsecondary education expenses
Types of Financial Aid
Gift Aid – Free money– Grants and Scholarships
Self-Help– Loans and work programs
Merit-based aid based on academic ability, special talent or achievement, program of study, family or ethnic background
Need-based grants, loans and employment based on income, assets, other factors
Where does the money come from?
Federal Government State Government Colleges and Universities Private Scholarship Sources:
– HS Counselors– Clubs & Organizations– Employers– Internet scholarship Searches
Basic Principles
Joint responsibility of the student and parent(s) to pay, to the extent possible, unless the student is independent per federal determination
Need-based financial aid is determined by a federal calculation based on the FAFSA
Not all families qualify for need-based financial aid.– There is no guarantee you will get any need-based financial
aid to pay for higher education
Application Process
Free Application for Federal Student Aid (FAFSA) is a federal form used to determine student eligibility for the following:
– Federal programs, such as Pell Grants, work programs, and student loans
– State programs, such as Pennsylvania State Grant, state work programs, and other special programs
– Campus based aid such as need based grants and scholarships
When to apply
The FAFSA may be filed beginning on January 1st of the upcoming award year– Must be completed each year
For the 2014-15 award year this would be January 1st, 2014
Ways to apply
Complete the FAFSA as soon as possible after January 1st of the year for which the student is seeking financial aid– On-line at www.fafsa.gov
Safe, secure, skip logic, built in edits Complete the FAFSA on the Web worksheet Print the confirmation page when complete
www.fafsa.gov
Apply for PA Grant from FAFSA confirmation page
Signing the FAFSA on-line
Student and parent sign electronically with a Personal Identification Number (PIN)
Apply for the PIN at www.pin.ed.gov Don’t lose it, write it down Can use for future FAFSA filing, corrections,
parents can use for other children’s FAFSA Use to sign federal loan applications
IRS Data Retrieval Tool
Real time request to the IRS for tax data IRS will authenticate tax payer’s identity
– Match found, results to applicant in a new window– Applicant chooses whether or not to transfer data
to the FAFSA Available early February 2014 FAFSA correction to select IRS Data
Retrieval Tool
Whose information goes on the FAFSA?
Divorced or separated parents (the parent that provides more that 50% of support)
Step-parents – YES Adoptive parents – YES Foster parents – NO Legal Guardians – NO Anyone else the student is living with – NO
Who is Independent?
24 years of age or older Veteran (includes active duty personnel) Working on a graduate degree Emancipated minor in legal guardianship Orphan, in foster care, or ward of the court at
anytime when the student was age 13 or older Have legal dependents other than a spouse Student deemed homeless by proper authority
Other Financial Aid Forms
Know what financial aid forms each school requires– FAFSA required by all schools, PHEAA, and some
scholarship organizations– State Grant Form (SGF) required for 1st year students
(maybe required for subsequent years)– CSS (College Scholarship Service) profile required by
schools and scholarship organizations (Privates) www.collegeboard.com
– Institutional Financial Aid Forms
KNOW YOUR DEADLINES!
School Deadlines ???– Date and necessary forms
PA State Grant Deadline– May 1st, 2014-first time and renewal applicants
Federal Deadline– June 30th, 2014 - end of award year for 2014-15
How is financial aid determine?
Expected Family Contribution (EFC)
Parent’s income & assets– Excludes primary home value
Student’s income & assets Size of the family Age of older parent Number of children in college
How is financial aid determine?
Cost of Attendance (COA)
Determined by the school Tuition and fees Room and board Books and supplies (allowance)
Personal expenses & transportation (allowance)
How is financial aid determined?
Cost of Attendance – Expected Family Contribution = NEED
Cost of Attendance (COA) is determined by the school
FAFSA process calculates the Expected Family Contribution (EFC)
The school attempts to fulfill NEED with financial aid programs
– Gift aid or free money first– Self-help: loans and work programs
Eligibility Examples
Low Medium HighCOA $17,000 $27,000 $47,000EFC $15,000 $15,000 $15,000
Need $2,000 $12,000 $32,000
Financial Aid Office notifies student by an Award Letter, which indicates the types and amounts of aid provided to the student.
Reviewing Financial Aid Award Letters
After reviewing the award letters, students should be sure to know and understand the following:
– How much of their financial aid is gift aid and how much is not?
– Which awards are based on need and which on merit?– Are there any conditions on the gift aid; in particular, is
there a GPA requirement?– Will their awards change from year to year?– Will institutional awards increase as tuition increases?
Financial Aid: 101
Session II:Federal, State, and Campus based Financial Aid Programs
Federal Programs
Pell Grant (maximum award $5,645) must be high need
Campus based aid—determined by FAO– FSEOG max $4,000– Perkins Loan max $5,500– Federal Work-study variable by school
For most programs, student must be enrolled half-time
Goes to financially needy students first
Federal Programs—service based
www.studentaid.ed.gov TEACH Grant (must meet teaching commitment) Iraq and Afghanistan Service Grant Aid for Military Families
www.americorps.gov
PA State Grant
Full-time in PA max $4,348 Part-time in PA max $2,174 Out of State up to $600
– CT, DE, MA, ME, OH, RI, VT, WV, and DC All other States up to $400
– NY, NJ, and MD - $0 Amount determined in part by COA Must be at least half-time to be eligible
Other State Programs
www.pheaa.org
State work-study-job related to major Educational Assistance Grant (EAP) National Guard Chafee Education and Training Grant – administered by the
Department of Welfare Blind and Deaf Beneficiary Grant Postsecondary Educational Gratuity Program (PEGP) Partnerships for Higher Education (PATH) PA Targeted Initiative Program (PA TIP Program)
Federal Direct Loans
Effective July 1, 2010, all federal loans are made directly through the U.S. Department of Education
Web-based application– www.studentloans.gov– Federal Pin is used for authentication
Federal Direct Student Loans
Subsided Student Loan-no interest while in school– 3.86% fixed interest rate– 1% origination fee deducted from disbursements– 6 Month grace period
Unsubsidized Student Loan-interest accrues while in school and during grace
– 3.86% fixed interest rate– 1% origination fee deducted from disbursements– 6 Month grace period
Federal Direct Student Loans
Dependent
Student
Base Loan Amount
Subsidized/Unsubsidized
Additional Unsubsidized Loan Amount
Freshman $3,500 $2,000
Sophomore $4,500 $2,000
Juniors & Seniors
$5,500 $2,000
Additional Federal Direct Student Loan Eligibility
Independent Student AND students whose parents cannot borrow a PLUS Loan
Base Loan Amount
Subsidized/Unsubsidized
Additional Unsubsidized Loan Amount
Freshman $3,500 $6,000
Sophomore $4,500 $6,000
Juniors & Seniors $5,500 $7,000
Repayment Example
Loan Balance $23,000Interest rate 3.4%Loan Term 10 years
Monthly Payment $228.65
Number of payments 120
Total Payments $27,437.73Total Interest $4,437.73
It is estimated that you will need an annual salary of at least $27,438.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.8. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $18,292.00, but you may experience some financial difficulty. This corresponds to a debt-to-income ratio of 1.3.
Source: www.finaid.org
Federal Direct PLUS Loan
For parents of dependent students Credit Check is required, yet no debt-to-income No borrowing limit Annual loan maximum is the COA – other financial aid 4% Origination fee will be deducted from the disbursement Principal amount can be deferred while student is in school
(interest will accrue) 10 year repayment period 6.41% Fixed Interest Rate $10,000 Loan amount = ~$118.00 monthly payment
Private/Alternative Education Loans
Student borrows in their name Co-signers usually required. Some loans offer a co-
signer release option Based on credit scoring & debt-to-income Repayment may be deferred while in-school Fees, interest rates, loan amounts, and repayment
provisions vary by lender and are generally more costly than federal loans
Compare loans before making choices and read the fine print!
Borrowing for Higher Education
Always consider Federal loans first. They have the best interest rates and repayment provisions
Borrow in the following order:– Federal Perkins Loan– Federal Direct Student Loan– Federal Direct PLUS Loan– Private/Alternative Loan
Financial Aid: 101
Session: III
Next Steps
Resources
Determining Affordability
Approach this as though you are not buying a school, you are buying an Education
Look at the sticker price. Tuition costs range from $2,500 to $40,000 plus Room & Board
Understand that in Higher Education there is no direct correlation between cost and quality
Be open minded and diverse in college searches Think in terms of yesterday’s money, today’s money, and
tomorrow’s money Determine how much you can afford to borrow Set some parameters right up front
What you can be doing now!
Gather personal financial records for parents & student
Determine your financial resources to pay for college File your tax return early and utilize the IRS Data
Retrieval Tool Request your pin for parent and student
– www.pin.ed.gov– Required to apply for Federal Student Aid
What you can be doing now!
Perform Scholarship Searches– www.fastweb.com– www.finaid.org
Estimate your federal aid eligibility– www.fafsa4caster.ed.gov
PA residents review the State Grant Website– www.pheaa.org
What you can be doing now!
Review the Federal Loan Programs– www.studentloans.gov
Review Private/Alternative Loan Programs– www.elmselect.com
Utilize college planning websites– www.studentaid.ed.gov– www.collegeboard.org
Tips
Know and understand key dates Ask questions Review all loan terms and conditions Avoid using retirement funds Avoid high interest rate products like credit cards Provide a valid email address Keep all copies of your paperwork Make a sound investment—choose a college you
can afford
Other Resources
Federal Student Aid Information Center– 800-443-3243
PHEAA: 800-692-7392 Youcandealwithit.com Myfedloan.org Educationplanner.org
QUESTIONS
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