All Your Financial Aid Basics

Financing your college education can be a challenge, but we're here to arm you with the right information and advice to help you get the perfect scholarship.

This guide will take you all the way from finding the right scholarship to writing a strong application to maximizing the money once you get it. Give this guide a chance you'll sure to be happy with your decision.

Basic Types of College Financial Aid - College Financial Planning Guide - Factors that Affect Your Financial Aid - Top 10 Tips for Receiving More Financial Aid - Educational Tax Credits - College Tax Deductions

Basic Types of College Financial Aid

A successful college experience is all about finding a college that is the right fit for you. Whether you choose a public or private school, college can be very expensive. The average annual cost of a private four-year university is $25,143, and $6,585 at a public four-year university. Whether you choose to be residential or at-home student, these high costs make it likely that most people can benefit from some sort of financial aid.

Financial aid is monetary assistance that is given to students through various government programs, nonprofit organizations, individual schools and universities, and private donors. There are as many thousands of different types of financial aid available, but here are some basic kinds to help you get your search started:

Loans

When you borrow money from a bank, it is known as a loan. All loans, whether private or government-backed, must be repaid. It is easy for students to get in over their heads with loans as a result of seemingly low interest rates and confusing terms, so be sure to know all about any loan agreement before you sign it.

Loans come from a few different sources. The most popular source for student loans is the United States government. The maximum size of these loans is usually set by the school that the student wishes to attend. It can include coverage for housing, tuition, and other expenses, or be limited to tuition only. The easiest way to determine your eligibility for government loans is to visit www.fafsa.ed.gov . There you can find a variety of tools to determine which government loan will best fill your academic needs. Government student loans do not need to be repaid until the student has left school, but after matriculation the student must repay the loan with interest. Some people will not qualify for government loans, including students who are not U.S. citizens, men who did not register for selective service, and students enrolling in unaccredited programs.

In addition to government loans, there are private loans available to students who are looking for an alternative way to finance their education. Private loans are arranged with a bank, and require the student to have established credit or a co-signer who does. Private loans will usually have higher interest rates than government loans.

Grants

Grants can also play an important role in financing a student's education. A grant is a gift of money that does not need to be repaid. Grants come from all types of organizations, including large corporations (like Microsoft and Google) and civic societies. Many corporations offer grants for the children of their employees. Most grants require the student receiving the grant to maintain a minimum GPA to continue to qualify. Unlike loans, grants will have no effect on your credit and are preferable to loans in most ways.

Scholarships

Some students are able to get financial assistance in the form of scholarships. A scholarship is a financial award that is bestowed on a student for their academic performance, personal talents, or other traits. Almost all universities and colleges offer some sort of scholarship for their students. Mostly these are general scholarships available on the basis of GPA, academic and work record, and artistic or athletic abilities. Scholarships must be applied to individually (there is no "common application"), and it is important that the candidate take the time and effort to fill out the application with care as these scholarships tend to be very competitive.

Beyond the scholarships offered by schools, there are also thousands and thousands of scholarships available to students from all sorts of private organizations. Interested in computer science? Companies like Microsoft, Google, and Cisco give out a certain number of scholarships every year. Are you an artist? Check out the various websites that offer scholarships specifically for those that are creatively orientated. If you have a certain interest or special trait, do some online research. You may find that there is a scholarship completely catering to you.

Article Resources

School Grants
Sallie Mae
Federal Student Aid

College Financial Planning Guide

Maintaining your grades while managing your financial aid budget is a challenge in today's highly competitive environment. Making informed and intelligent financial aid decisions that meet both your enrollment and fiscal objectives is imperative to your success.

Often times, college financial planning strategies are the last thing discussed when someone is planning for college, but financial planning is essential and very serious business. College can be extremely expensive, and without the necessary planning, some students can find themselves left struggling to come up with the money to make their payments. College can cost up to $50,000 a year, so by planning as early as possible and saving as much as you can, you can ensure that you get the best education available. Here are some tips to keep you on top of financial planning:

Stay informed

To make the best financial aid investment possible, it's important to be an informed customer. The more you know about funding, the better prepared you'll be to make the right financial choices.

Parents and students often assume that they will not qualify for financial aid, but nowadays financial aid comes in many different forms through grants, scholarships, low-interest loans, and work programs. Explore your options and talk to the financial aid office at your school. They may have some good resources that are not open to you.

Budget and save

One of the first things you need to do in planning for your college future is to establish a savings goal. Without a doubt, the easiest way to pay for college is to save your funds. Even if you only put away fifty dollars a month, that money can go a long way when added up. You may have to cut back on luxuries while you attend school and while this may be difficult, it is worth the effort in the long run.

Scholarships

Considering a scholarship is a wise decision when planning your college financial strategy. Scholarship money is yours to keep without having to pay it back, which can definitely be a big help in paying for college. Scholarships are available from businesses, colleges, religious groups, private institutions, and more. Search online and apply for as many scholarships as possible. High school and college counselors can also be a big help in this area.

Work-Study programs

Work-study programs are government run programs that pay colleges to employ students in part time jobs in exchange for housing and tuition. These programs are primarily needs based and work on a first come first serve basis. Talk to you college or university about your options in this area.

Invest in your college education

Most people look at the price of a college degree as an expense, but what if you looked at it as an investment? Statistics show that college graduates earn over 50% more than those who only completed high school or earned a GED certificate. Over the course of your life, the additional earnings resulting from this investment will easily exceed the amount you paid for school.

Be flexible in your college financial planning

Programs and investments will continue to evolve, as will your own unique personal circumstances. Review your financial planning situation periodically and make adjustments whenever it seems appropriate.

Save now for more freedom later

Saving for your college education now is the best way to ensure that you have more freedom and more options later. After all, you want to be able to select a college that offers the best education, and not necessarily the best financial aid.

Many college financial planning strategies are available to help you maximize your college savings. Selecting the best strategy is critical, and must be carefully considered before choosing. The decisions you make now can have a significant impact on your future career later on.

Article Resources

FinAid
U.S. Department of Education
US News Education

Factors that Affect Your Financial Aid

The type of college savings account you choose will likely play a role in how much financial aid you will be offered. Here are six key factors that greatly affect financial aid:

Expected Family Contribution

When it comes to calculating your expected family contribution (EFC), income usually amounts to a bigger factor than assets. How your college savings account might affect aid eligibility is not as important as what shows up on your tax returns.

Who owns the loan?

In the EFC equation, who owns the college savings loan is an important factor. The federal formula figures in 35% of the student's assets, and just around 5.5% of the parents' assets. If you're looking to score a larger aid package, try to keep assets in the parents' name.

Dependency Status

Most students entering college straight out of high school are considered dependent students, so parents are normally expected to contribute to their child's education expenses. The amount of financial aid a student receives typically depends on their parent's income and assets, as well as those of the students themselves. In rare cases when a child can be considered an independent student, only their assets and income will be calculated, resulting in a larger financial aid package.

In special circumstances, the FAA can change your dependency status by reviewing certain documents if they believe your case warrants it. An override decision from the FAA is final and cannot be appealed to the Department of Education.

Class Load

Fluctuations in the number of credits you take per term may affect how much financial aid you are eligible to receive. Before making changes to your schedule, check with your financial aid office for specific details.

School Transfer

Student aid may not automatically transfer with the student to a new institution. Students should contact the financial aid department at the new school to determine whether or not they will be eligible to receive aid. Students with federal financial aid must have an electronic version of the Free Application for Federal Student Aid (FAFSA) results sent to the new institution.

Sources of income

Another factor that will typically have a large impact on your financial aid package is the sources of your income. Income can come from employment, stocks, interest from bank accounts, rental property, and other sources of cash. The financial aid formula calculates the adjusted gross income (AGI) reported on your tax return.

In addition to your salary, other factors figured into your AGI include money from social security, veteran non-education benefits, child support, earned income tax, child tax credit, payments to tax-deferred pension or savings plans, workers compensation, and more.

Once all of these are added up, the government deducts the Hope and Lifetime Learning tax credits, federal work-study, fellowships, and scholarships reported as income. The result of these calculations equals your total income for the purposes of aid.

The bottom line

The bottom line is that if you've done your financial aid home work and submitted all your applications, then your first-pick school is as invested in you as you are in them, and they should make you a great offer. If you're lucky, your school may offer an early decision about your financial aid status as well, so you can make your final decision and move forward.

Apply to your first-choice schools as early as possible, so you can weigh the financial aid packages that are offered to you and decide which route will be the best for you to take in the long run. If the school you want to apply to also offers options for getting early answers on financial aid packages, go for it! That way even if you don't get the answer you want, you still have time to apply to the other schools on your list.

Article Resources:

Sallie Mae
Fin Aid
Federal Student Aid
FAFSA

Top 10 Tips for Receiving More Financial Aid

1. Apply early.

When applying for financial aid, there is nothing that works better than applying early. Most students will receive their financial aid in the form of loans, grants, and scholarships from a few institutions, but almost all students use the federal government's education assistance programs. To be eligible for any of these, you must complete a Free Application for Federal Student Aid (FAFSA) form. These applications are processed on a rolling basis, so those who apply earliest will have the most funding available.

2. Apply for aid before you know where you are going.

When preparing to move from high school to college, most students will not know which school they'll attend until the spring of their senior year. Fill out the FAFSA form and submit it before you know where you'll be going. This will help you narrow your college search based on how much aid you know you are receiving.

3. Fill out FAFSA online.

There is an online version of the FAFSA form called FAFSA on the Web that is available from the Department of Education. It is processed much more quickly than a pen and paper FAFSA form, and can help your scholarship and aid search get off to a good start. Here is the link for further information:

http://www.fafsa.ed.gov/

4. Look for private scholarships and grants.

Spend some time looking at some of the many free resources for scholarships and grants that are available on the internet. Make sure to know exactly who you're dealing with before giving anyone money to help you with your college funding search.

5. Fill out the CSS profile.

Some colleges now require students to fill out the profile, an application used by the College Scholarship Service. It can help connect you to sources of funding you may not have known about before. Again, do this early so you have time to explore any doors that might open up. Here is the link for further information:

https://profileonline.collegeboard.com/prf/index.jsp

6. Look at your student aid report.

After you submit your FAFSA form, you will receive a Student Aid Report (SAR) along with a letter of acknowledgement from the government. Make sure all the information on the report is accurate to ensure you get the right amount of aid.

7. Know your EFC.

A SAR profile will let you know the amount you or your family will be expected to pay for college, known as your Expected Family Contribution (EFC). The EFC is how much you and your family will need to contribute before any financial aid rewards are given. There are many free EFC calculators available on the Internet.

8. Look over any award letters.

In April or May, students applying to colleges for the first time will receive financial aid award letters from any colleges they applied to where they were eligible for financial aid. The award letters let you know how much financial aid you will receive from that school.

9. Apply for a student loan.

If the aid offered by your institution of choice is insufficient, you may want to apply for a federally subsidized or private student loan. Federal Stafford Loans and Federal Parent Loan for Undergraduate Students (PLUS) loans are low-interest, subsidized federal loans, but you must be eligible through FAFSA to apply for them. There are no requirements for obtaining a private student loan, other than that you be enrolled at least half time at an institution. Make sure to know all the terms before entering in to any loan agreement.

10. Hold out for a Better Offer

If you've explored all your options and you still aren't happy with the financial aid package your desired school is offering, you can attempt to negotiate with the financial aid office of that school. It greatly helps your case if you can show an award letter from one or a few other schools that show a better package than your chosen institution is offering.

Follow these tips and you'll be on your way to the best financial aid package you can get!

Educational Tax Credits

Education tax credits are designed to alleviate some of the costs of higher education for yourself or a dependent. Two popular education credits which may benefit you are the Lifetime Learning Credit and the Hope Credit. Because of their status as credits rather than deductions, you may be able to subtract them in full from your federal income tax.

Lifetime Learning Education Tax Credit

The Lifetime Learning Credit is open to undergraduate, graduate, and professional degree courses, and includes instruction to acquire or improve job skills. Under the Lifetime Learning program, your credit equals 20% of the first $10,000 of post-secondary tuition and fees, for a minimum credit of $2,000 per tax return.

Hope Education Tax Credit

The Hope Credit is valid only for the first two years of post-secondary education (college or vocational school), and can be worth up to $1,800 per eligible student each year. Once accepted, you'll receive a 100% credit on the first $1,200 of qualified tuition and related fees, as well as 50% off the next $1,200. To qualify, you must be enrolled at least half-time for at least one academic period which began during the year, and be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

Education Tax Credit Stipulations

A student cannot claim both education tax credits in the same year, and cannot claim either credit if he/she claims a deduction in the same year. To qualify for either the Hope or Lifetime Learning Credits, you must pay post-secondary tuition and related expenses for yourself, your spouse, or your dependent. Education tax credits may be claimed by either the student or the parent, but not by both. Students who are claimed as dependents are not eligible to receive either of the credits.

Income Limitations on Education Tax Credits

College tax credits are limited over a phase-out range, and if your adjusted gross income (AGI) is below the phase-out, your credits cannot be reduced. If your AGI falls in the middle range, your credits will be reduced. Further, if your income is higher than the phase-out range, you will not be eligible to claim any student tax credits.

No education tax credit or break of any kind is available for taxpayers who are listed as "married but filing separately." Individuals who file separately are not eligible for the Lifetime Learning Credit, the Hope Credit, or the fees and tuition deduction.

What expenses qualify?

Expenses that qualify for education tax credits include tuition and associated fees (registration, student body expenses). Expenses such as books, supplies, equipment, room and board, insurance, health fees, transportation, and living expenses do not qualify for credits.

It is your responsibility to pay for your tuition and fees. You must reduce your qualifying expenses by the amount received from grants, scholarships, or reimbursements from your employer. It is not necessary to reduce your qualifying expenses if you paid for your tuition using borrowed funds (including student loans), or by using gifts from parents or other family members.

Is my school eligible?

All accredited colleges, universities, vocational schools, and other post-secondary institutions are eligible for student tax credits. A good rule of thumb is that if your institution is eligible to participate in federal student aid programs through the Department of Education, you may use tuition and fees paid to the school for claiming any education tax credits.

Article Resources

IRS

College Tax Deductions

Soon after you remove your cap and gown, degree proudly in hand and pictures of congratulatory family members framed on your mantle piece, you will have to make arrangements to begin paying back any student loan debt you have incurred to fund your education. Don't panic. The federal government has been nice enough to cut you some slack and give you a few student loan tax interest deductions.

If you attended a legitimately accredited post-secondary institution that upon successful completion leads to a recognized academic credential, you're in luck. You could qualify for federal income tax deductions that permit you to lower your taxable income based on educational expense considerations.

Qualifications for College Tax Deductions

Before you can take advantage of federal income tax deductions, you must be able to verify to the federal government's satisfaction that the student loan was used to pay for costs stemming from your enrolment at a recognized school in a program—either full-time or half-time—that leads to a degree, professional certificate, or other legitimate credential.

Qualified educational expenses, or expenditures related to the cost of going to an eligible educational institution, include the following:

• Tuition and related fees
• Text books
• School supplies
• Housing and food
• Other necessary costs related to education, such as transportation to and from school

In addition to taking advantage of federal income tax deductions, check out what tax deductions your state government might offer as well. Many states offer very generous income tax deductions that could substantially save you some money.

What Types of Deductions Are Available?

The loan interest deductions on qualified student loans can effectively cut your taxable income by as much as $2,500 a year. A number of conditions must be met before you can legitimately qualify for such deductions, however. These include the following:

• Your modified adjusted gross income must be under $70,000 if filing alone, or under $145,000 if filing with your spouse.
• You cannot be listed as a dependent on another person's tax return.
• You must have paid interest in the 2008 tax year on a qualified student loan.
• You should not choose the 'married filing separately' option.

In addition to talking advantage of this student loan interest deduction provision, you can also make use of the Lifetime Learning Tax Credit and the Hope Tax Credit. You should note, however, that the law prohibits claiming both the Lifetime Learning Tax Credit and the Hope Credit in the same tax filing year for the same student.

Making use of the Lifetime Learning Tax Credit, which relates to specific education-related expenses, can save you anywhere from $2,000 to $4,000. Some things you should consider before applying, however:

• There is no limit to the number of years you can apply for this sort of tax credit.
• You can apply for this credit to cover graduate-level education expenses as well as undergraduate.

Article Resources

IRS
http://www.irs.gov/publications/p970/ch04.html
http://www.irs.gov/taxtopics/tc456.html