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Student Financial Aid 101

Parents and high school students dream of the first day of college. Don't let the cost of a higher education dampen your spirits. Help may be available to you in the form of financial aid.

If you're wondering how you're going to afford paying college tuition for yourself or your child, financial aid may be your answer. Financial aid consists of various loans, grants, scholarships, and work study programs.

Federal financial aid packages, administered by the U.S. Department of Education, are given out to more than 8 million students each year; with a total student loan amount over $30 billion. These loans aren't tax deductible, and the repayment schedule typically begins after graduation.

Are You Eligible?

You're eligible for federal Student Financial Assistance (SFA) programs if you:

  • Are a citizen or eligible non-citizen of the United States.
  • Have a valid Social Security Number.
  • Received a high school diploma, GED certificate, or passed an approved "ability to benefit" test.
  • Enroll in an eligible, post-secondary program as a degree or certificate-seeking student.
  • Registered for Selective Service, if you're a male between 18 and 25 years of age.

There may be other considerations and requirements that you'll want to carefully investigate. For example, the amount of financial aid you're eligible for is directly related to your income, so be sure to check with your college guidance counselor or financial aid office. To determine your eligibility for financial aid, you must complete the Free Application for Federal Student Aid (FAFSA) form. Since it can take three to four weeks to process the paperwork, it's recommended that the form be completed in January if you or your child is planning to start school in the fall semester. The U.S. Department of Education recommends going to its website, www.fafsa.ed.gov , for more information and to file the form online.

Expected Family Contribution

After filing the FAFSA form, you'll receive summary information called the Student Aid Report (SAR). The SAR includes the amount you and your child are expected to contribute to the education expense, called the Expected Family Contribution (EFC). Financial aid administrators use this figure, derived from a formula established by Congress, to award your financial aid package. Your financial need is determined by subtracting your EFC from the cost of attending the school (including living expenses). In other words:

Financial Need = Cost of Attendance - EFC


Depending on your level of financial need, you may be eligible for the programs listed below:


Student loans may be a great help to you in paying for college. Student loans are granted at below-market interest rates, require no collateral, and repayment typically doesn't begin until after graduation. Another benefit comes from the Taxpayer Relief Act of 1997 that allows tax deductions for student loan interest payments after January 1, 1998.

Stafford Loan - Available to both undergraduate and graduate students, these loans account for approximately 70%, or $25 billion per year, of all student loan programs in the United States. There are two types of Stafford loans:


  • William D. Ford Federal Direct Loan (Direct Loan)
    • The federal government subsidizes the loans and pays the interest while you're in school.
  • Federal Family Education Loan (FFEL)
    • Banks, credit unions or other private lenders provide the funds, and the federal government guarantees this unsubsidized loan. Interest accrues immediately, but there's a six-month grace period after graduation before repayment begins.

The amount you can borrow depends on various things, such as your financial need and whether or not other loans have been issued to you. The interest rate, adjusted annually, will never exceed 8.25%.

Parent's Loan to Undergraduate Students (PLUS loans) - These loans are issued by banks and other special lenders to parents of dependent children who attend school at least halftime. The interest rate will never exceed 9%, and it is adjusted annually. This loan isn't based on financial need, and you'll need a good credit history to be approved. If you can't get a PLUS loan, your child is eligible to receive additional Stafford Loan funding.

Perkins Loan - Participating schools administer these loans that are available to undergraduate and graduate students who have a high financial need. Carrying a low interest rate of 5%, these loans are funded by the government. The school, which contributes to the amount of the loan, acts as the lender, and repayment begins after graduation. For the 2000 - 2001 school year, the maximum loan amount is $4,000 for undergraduate students and $6,000 for graduate students.



The largest source of grant money is the Federal Government. Unlike loans, grants don't have to be repaid. As the federal grants listed below don't cover all of college tuition, it's a good idea to concurrently apply for state grants that can supplement the funding.

Pell Grant - If your EFC is below a specified amount, you may be eligible for a Pell Grant. They're available to undergraduate students who don't yet have a bachelors or other professional degree. For the 1999 - 2000 school year, awards ranged from $400 to $3,125 per student.


Federal Supplemental Educational Opportunity Grants (FSEOG) - These grants are only available to undergraduates. Administered by your school, awards range from $100 to $4,000 per student for the 2000 - 2001 school year. These don't have to be paid back.


There are billions of dollars available each year in the form of scholarship money. While you don't have to repay scholarship money, you may be held to minimum requirements, such as maintaining a certain grade point average. It's typically available from a college, nonprofit organization, or government agency. Talk with your high school guidance counselor about scholarship options. You may learn about local resources, such as civic groups or school clubs. Check out the Internet by typing "scholarship" in any search engine. You could even be more specific by looking for things like "dance scholarships," "women studies scholarships," or "football scholarships."

Federal Work Study

This campus-based program provides jobs to undergraduate and graduate students who earn money to pay for education expenses. Contact your school's work study office for more information.

There are many ways to finance a college education. Checking out your options early on will give you the opportunity to get the greatest amount of financial aid you can.

If you have any questions about the information contained in this article, contact your high school's college guidance counselor or the financial aid department of the college or university you want to attend. You can also go to the homepage of the U.S. Department of Education at www.ed.gov and search on your topic of interest.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

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