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Grants, Loans, Scholarships
Unless you have money stuffed in the mattress and it's pretty thick, you're probably looking for financial aid. There are three major categories of financial aid for education: Grants, Scholarships, and Loans.
- A Grant does not have to be repaid and is money given to a student based on various criteria, most often it is based on need.
- A Scholarship is also money given to a student that does not need to be repaid. Scholarships differ from grants in that they are awarded for any number of reasons, from need to academic or athletic achievement. Scholarships also often take other things into account such as, ethnic background, musical accomplishment, academic interest or other attributes.
- A Loan is money that you or your child borrows that must be paid back. Some loans will require repayment while your child is still in school, or just after graduation. Often, repayment includes a grace period of six to nine months after graduation.
No college plan would be complete without applying for grants, loans and scholarships. Now if your chip off the old block isn’t exactly a rocket scientist or a star athlete, that’s OK. There are many scholarships available for all kinds of students, but many of them aren’t widely publicized. You just have to ask.
Applying for Financial Aid
Even if you’re pretty sure that you won’t qualify for financial aid, you should still apply. You might be surprised.
Financial aid officers have some latitude in determining what data is used to calculate a family's Expecting Family Contribution (EFC). You’ll need a current tax return to complete some portions of the form.
Completing the Form
The student's income and savings is counted more than parents' income, therefore, it’s wise not to gift money to your student since it will count more toward the score and will hurt your chances of getting more financial aid.
You should submit the financial aid form as soon after January 1st as is possible after gathering the financial information. Note that many colleges also require that you submit other financial aid forms to apply for aid available from that school.
Grants
Grants, like scholarships do not have to be repaid. Pell Grants, from the federal government, are usually awarded only to undergraduate students who have not earned a bachelor's or a professional degree. Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and nonfederal sources might be added.
If you are eligible for a Pell Grant, you will receive the full amount you qualify for. Your Expected Family Contribution (EFC) is the number that will determine if you’re eligible and how much you can receive.
The maximum Pell Grant for the 2004-2005 award year (July 1, 2004 to June 30, 2005) is $4,050. How much you get will depend on:
- Your EFC score
- The cost of the college you chose
- Whether your child is enrolled full- or part-time
- If your child attends school for a full academic year or not
You may receive only one Pell Grant in an award year, and you may not receive Pell Grant funds from more than one school at a time.
If you receive a Pell Grant, those funds can be credited to your school account, paid to you in a check or a combination of the two.
You can still receive a Federal Pell Grant if your child is enrolled in a college less than half time, however, you won’t receive as much as if you were enrolled full time.
Any service that asks you for a fee to find grants and scholarships may be a scam, but at the very least is a waste of money, not an efficient use of your money. Seminars that promote scholarship help, unless possibly run by your child's high school guidance office or the college admissions office. These are sales pitches.
Where do you start to find scholarships and grants?
Unfortunately, you need an organized system to find, apply for, track and win the scholarship money. Many grants and scholarships are not based on need and therefore are open to families that don't qualify for other forms of financial aid.
Your plan: there can be great rewards for finding these scholarships, but there will be a lot of work. The key will be organization. You can go home and tell your college-bound student that he or she just got another part-time job: finding financial aid.
Set your student to work:
- Surf the Internet
- Talk to the guidance officer at school
- Look through materials in the guidance office
- Talk to the college financial aid office
- Look for money given by groups that your student or you may be affiliated with (Lions Club, etc).
Your student should consider keeping a portfolio of work, such as volunteering at a local nursing home or art work produced. Have your student enter contests for art, music, writing and so on.
SEOG Grants
Supplemental Education Opportunity Grants are given to low-income students. Eligibility for this will also be found from your EFC score.
Loans
There are a number of loan options available you can use to make up the shortfall between financial aid and your piggy bank. Some are for the student to pay back and some are geared to the parents.
Here are some loan options available to you in today's market. Not all loans are right for every situation so each loan should be evaluated on an individual basis to see if it fits your needs.
Student Loans
The most familiar type of loan is the Student Loan. These may come under the Federal Family Education Loan Program (FFELP).
Some student loans are made through participating banks and are guaranteed by the FFELP. Some may be obtained directly from the federal government through the William D. Ford Federal Direct Loan Program. The interest rates on these loans are adjusted annually each July 1st, based on the rate of the 91-day U.S. Treasury bills with a cap of 8.25 percent.
Even if your child does take out some student loans, it's important to remember:
- Right after graduation, forms will be sent to the student to agree on the terms of repayment
- Student loans may get a small deferment, depending on the type of loan, of six to nine months. Some loans may start repayment right after graduation
- Repayment of these loans is an extremely important responsibility. Defaulting on your student loans will have an impact on your credit rating and ability to borrow money in the future.
- There are no prepayment penalties so that if your child gets a raise or bonus, some of that could go toward the repayment of the loan.
PLUS Loans
If mom or dad are willing tostep up and borrow some money on behalf of their student, PLUS Loans (Parent Loans for Undergraduate Students) are available. The criteria for these loans are not based on need, however your credit score will determine eligibility and rate.
Repayment of these loans begins immediately, with a maximum interest rate of nine percent adjusted each July. You may take up to 10 years to repay the loan, made directly through participating commercial banks.
Stafford Loan
Another loan option is a Stafford Loan. A Stafford Loan is a government-guaranteed loan which offers low interest rates and deferred payment options. There are two types of Stafford Loans: subsidized and unsubsidized.
Subsidized loans are available based on financial need. The federal government pays the interest on the loans while the student is in college, during the six-month post-school grace period, and during periods of deferment.
Unsubsidized loans to students are awarded without regard to need, but borrowers pay interest while in college, or may accrue the interest to be paid later.
Loan fees of up to four percent may be charged on Stafford loans, although some lenders and guarantors may waive the fees. Typically, application is made through the school financial aid office, which will direct the processing through an approved lender. The lender then disburses the payment electronically to the school.
Perkins Loans
Students with extreme need may be eligible for Perkins loans. They are low interest (five percent) loans. Repayment is required after graduation.
Bank Loans
Local Banks may have education loans for students or parents. These may or may not be federally subsidized. Always weigh the interest rate and repayment agreement against other options.
More Help – Tuition Tax Credits
A tax credit is an amount of money you can subtract from your federal tax bill. It is a dollar-for-dollar reduction of the amount you owe. If you have family members in college, and your income doesn't exceed certain limits, you may be eligible for a credit of up to $1,500 per year for certain qualified expenses.
These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor.
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