What you need to know about financial aid BEFORE choosing a college.
The high cost of college often results in families taking on too much debt. Thousands of families pay too much for college every year because they don't understand the basics of financial aid and don't know the right questions to ask.

Basics: Part 1
There are three types of financial aid for college: grants or scholarships, loans and work-study.

Grants and scholarships: money that you do not need to pay back.
Most grants and scholarships come from the federal and state government or from the colleges themselves.

Loans need to be paid back after college.
There are loan programs available from the federal and state government. Most of these loans have relatively low interest rates. There may also private loans available although these generally have a higher interest rate.

Work-study is a job offered on or off the college campus that enable you to earn money to help pay the cost of college.

Basics: Part 2
Need based aid vs Merit (non-need) based aid
Need based aid is given by colleges to students who have demonstrated financial need.
The Free Application for Federal Student Assistance (FAFSA), not you, determines the amount of need for federal grants and scholarships. Many colleges also require a form known as the PROFILE. The FAFSA is filled out after January 1. A new FAFSA and PROFILE is required every year the student is in college. Do it EARLY!
www.FAFSA.ed.gov (FAFSA)
http://tinyurl.com/ybpulvu (PROFILE)

The FAFSA and PROFILE ask questions about the income of the parents and student using your tax return and other information. They also ask questions about the money you have in savings or investments. The PROFILE is more detailed than the FAFSA. Some assets are not considered by the FAFSA, such as retirement accounts. The PROFILE considers some assets that the FAFSA does not.

Once the FAFSA is completed it is used it to determine how much your family can pay for college. This is your expected family contribution or your EFC. Your EFC is the same regardless of the cost of the college. The colleges that use the PROFILE use it to determine what your family can pay for college. The results of the FAFSA and Profile may be different.

When filling out the forms make sure you understand the questions. MANY families make mistakes on the forms that can cost them thousands of dollars in financial aid.

Your need is the cost of the college minus your EFC. For example, if a college costs $20,000 a year and your EFC is $5,000, your need at that college is $15,000. If a college costs $40,000 a year your EFC is still $5,000. Your need is $35,000.

Merit-based aid, also called "non-need based aid," includes scholarships typically for students who have the grades the college is looking for or have some other talent such as athletic or musical talent. Many colleges also look at the student's extracurricular and community activities. Many colleges offer little or no merit-based aid so make sure you ask. Here is a link to a community service scholarship

Finally, when exploring colleges you should ignore the cost of the college. That's right. Ignore the sticker price of the college. You don't have to pay the sticker price if you do your homework.

Questions to ask the colleges

1. What percent of need do you meet?
Remember that EFC, or expected family contribution that the FAFSA determined? A few colleges will meet 100% of your need. Others meet less than 100% of need. Need is defined as the cost of the college minus your EFC. So what does it mean if a college says they will meet 100% of your need? It means that once the FAFSA or Profile form has determined how much you can pay for college, the college will pay 100% of the rest of the bill. Remember that the FAFSA and PROFILE might have a different calculation of need.

Colleges will typically meet the need you have using a combination of grants, loans and work study. Most colleges will award work study and loans first. Remaining need will be supplied by grants. The colleges will typically have a standard loan and work study amount that they award and you should ask about what these numbers are when investigating the college. Remember, just because a college says that they meet 100% of need that does not mean that the assistance you get will be free. Loans that you receive can add up quickly and at the end of college you can find yourself owing THOUSANDS of dollars.

Here is an example of a financial aid award from a college that provides 100% of need with a student who has an EFC of $15,000.

Total cost of college $45,000
EFC: $ 15,000
Need: $30,000
Financial aid award
Work study: $ 2,000
Loan: $ 5,500
Grant: $22,500

At a college that meets 100% of your need you pay $15,000.

But most colleges don't meet 100% of need. Here is an example of a college that meets 80% of need.

College Cost: $45,000
EFC: $ 15,000
Need: $30,000
80% of need of $30,000: $24,000.
Student pays $21,000 ($15,000 EFC plus the additional $6000 that the college does not cover).

Until you know what percent of need the college meets, don't eliminate a college from consideration just because its sticker price is expensive.

2. Do you have merit (non-need) based aid?
Some colleges that don't meet 100% of need do offer scholarships for some students. If the student is near the top of the application pool for the college they may get some money if they qualify for merit aid.
Ask the college:

Do you give merit based aid?
How many merit awards are available?
What is average of the merit awards made last year?
What is the range of merit awards made last year?
What are the qualifications to receive one of these merit awards?

Merit aid is available even for families that don't qualify for need based aid. If your student can qualify for a merit based award you won't need to pay the sticker price of the college.

3. How is financial aid determined after the first year?
Some colleges have a policy of providing good financial aid for the first year and then substantially reducing the grant aid in the following years while increasing loans. Ask the college how it determines financial aid after the first year and what the average loan is after the first year. Ask if the merit aid is for one year or for 4 years.

4. What is the average loan amount at graduation for those students who have loans?
This question will give you the best indication of the amount of loans that the college requires compared to other colleges in which you may be interested. Although most students will have some loans when they graduate, you don’t want this amount to be any more than necessary.

5. What is your policy regarding outside scholarships?
Many colleges will subtract money earned in outside scholarships from your financial aid package. Some colleges will reduce the loan burden by the amount of the scholarship, but other colleges will reduce your grant money. If the college reduces the amount of loans you have to take out that is a benefit to you. There is no benefit to you if the college reduces the grant aid.

6. What is your packaging policy?
Most colleges give a financial aid package that includes grant money, loans and work study. But each college
combines this money differently. Specifically you want to know:

What percentage of an aid package from your college is grant vs. self-help (loans, work study)?

Do you have a preferential packaging policy? Preferential packaging is when a college gives a better financial aid package to a student with a stronger academic background than to another student with the same financial need but with a weaker academic background..

7. What is your four year graduation rate?
This is an important question that rarely gets asked. If the college has a high four year graduation rate, you will most likely only have to pay for four years of college. However, if the college graduates most students in six years then you can plan on paying for six years of college, not four, which will likely increase by thousands of dollars the money you have to borrow.

Conclusion
If you ask these questions you can make an informed decision in paying for a college education and minimize the debt that you will have at graduation.

If you are still confused or just want some more help in sorting through all the options that you have and want to avoid unmanageable debt contact me for a FREE 1 hour consultation. Also, visit the College Assistance web site.

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