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Subject: FAQ: Financial Aid, Scholarships, and Fellowships [Monthly posting]
This article was archived around: 21 May 2006 04:23:01 GMT
Last-Modified: Tue Dec 19 11:2158 by Mark Kantrowitz
This post is a compilation of answers to frequently asked questions about
student financial aid and college scholarships.
*** Student Financial Aid FAQ ***
Copyright (c) 1995-2001 by FinAid Page, LLC. All rights reserved.
Written by Mark Kantrowitz, publisher of the FinAid and eduPASS web
This FAQ may be freely redistributed in its entirety without
modification provided that this copyright notice is not removed.
This article is provided AS IS without any warranty on its accuracy.
 The Best Financial Aid Web Sites
 Overview of Financial Aid
 Determining Financial Need
 Consequences of the Need Analysis Formula
 Don't Assume You Don't Qualify
 Applying for Financial Aid
 Beware of Scholarship Scams
 The Unclaimed Aid Myth
 General Advice
 Financial Planning Tips
 My School Didn't Award Me Enough Aid!
 Common Questions and Answers
 Answering Your Questions
***  The Best Financial Aid Web Sites
The three most useful free web sites devoted to financial aid and
college planning are:
+ FinAid (www.finaid.org)
+ FastWeb (www.fastweb.com)
+ US Department of Education (www.ed.gov)
FinAid provides an extensive directory of other quality web sites, as
well as a large collection of financial aid calculators (including a
financial aid estimator, loan repayment calculator, and savings plan
designer), the free Ask the Aid Advisor service, and in-depth
information and advice about all aspects of student financial aid.
FastWeb provides the largest, most up-to-date, and most popular free
scholarship search. Why pay a scholarship search service to use their
database, when you can search the best database for free?
The US Department of Education provides detailed information about
federal student aid programs.
***  Overview of Financial Aid
The major sources of money for college are the federal government, the
state government, the private sector, and colleges and universities.
Most financial aid programs are "need-based". This means that the
amount of aid you receive depends on your financial situation. Most
government sources of aid are need-based. Other sources of financial
aid are "merit-based", which usually depend on academic, artistic, or
athletic talent, and may use your grades, test scores, hobbies, and
special talents as awarding criteria.
There are two basic types of financial aid: GIFT AID and SELF-HELP
AID. Gift aid is money that does not need to be paid back, and
includes GRANTS based on financial need, SCHOLARSHIPS based on
academic, artistic, or athletic merit, and FELLOWSHIPS for graduate
students based on academic merit. Self-help aid includes LOANS and
Although scholarships are awarded primarily based on merit, the amount
of the award may depend on financial need. Scholarships provide funds
toward tuition, fees, and other required educational expenses. Most
scholarships do not provide funds for living expenses.
Most fellowships provide a stipend for living expenses in addition to
funds for tuition, fees, and other required educational expenses.
Residential fellowships provide support for a student to use an
institution's facilities, such as special library or museum
collections. Dissertation fellowships support students while writing
Some forms of gift aid, such as ROTC scholarships and certain medical
fellowships, require a few years of service in exchange for the
financial aid. If one fails to complete the service requirement, then
one must pay back the award. But most forms of gift aid do not need to
be repaid and do not include a service requirement.
Loans are normally repaid with interest, and may be either a student
loan or a parent loan. Some loans do not need to be repaid until the
student has graduated or otherwise left school. Some loans include
forgiveness provisions for students entering particular professions or
serving in national need areas. Loans represent more than half of all
financial aid. Most students graduate with $10,000 to $20,000 in debt.
Student employment includes federal and state work-study programs,
assistantships, and regular part-type employment during the academic
year and summer vacation. Numerous studies have found that students
who work 10 hours a week do better in school, presumably because the
work obligation forces the student to learn time-management skills.
Work-study programs provide employment during the academic year that
should be "career oriented", although some students receive
gopher-type jobs. The work is typically limited to 10 hours a week,
with part of the salary subsidized by the government. Most students
who receive work-study jobs are undergraduate students, but graduate
students sometimes meet the eligibility requirements.
Teaching Assistantships and Research Assistantships normally provide
graduate students with a full or partial tuition waiver and a small
stipend and require them to perform teaching and/or research duties.
Most sources of financial aid require that you be enrolled at least
half-time, though some awards are restricted to full-time students.
There may be other restrictions as well. For example, most federal aid
programs are restricted to US citizens, permanent residents, or
eligible non-citizens. If you are a US citizen, male, and have reached
age 18, you must be registered with Selective Service to receive
***  Determining Financial Need
Your school's financial aid administrator calculate your financial
need using information supplied by you. If you are classified as a
dependent student, as are most undergraduate students, your parents
will also be required to supply some information.
Much of this information is contained on the Free Application for
Federal Student Aid (FAFSA). The FAFSA must be submitted for you to be
considered for virtually all need-based aid, including most federal
and state sources of financial aid. Some schools may require the
Financial Aid PROFILE (formerly known as the FAF or "Financial Aid
Form"), or a supplemental application form for additional information.
Most schools suggest you submit the FAFSA as soon as possible after
January 1 of your senior year in high school (the year you'll be
starting college) and no later than May 1. The FAFSA should normally
be submitted by March 1 for you to be eligible for most state aid.
(Do not submit the FAFSA before January 1, or it will be automatically
The FAFSA requires financial information for the previous tax year.
For example, for the 2000-2001 academic year, you must provide 1999
financial information. Even though you may not be able to complete
your federal income tax return until March or April, you should not
wait to file your FAFSA until your tax returns are filed with the IRS.
Instead, use estimated income information and submit the FAFSA as soon
as possible after January 1. This practice is completely acceptable
and recommended, especially if you anticipate your family circumstances
changing during the subsequent year.
The following documents from both student and parents, as appropriate,
will assist you in filling out the FAFSA:
+ US Income Tax Returns (IRS Form 1040, 1040A, or 1040EZ) for the
fiscal year that just ended and W-2 and 1099 forms.
+ Records of untaxed income, such as Social Security benefits,
AFDC or ADC, child support, welfare, pensions, military subsistence
allowances, and veterans benefits.
+ Current bank statements and mortgage information.
+ Medical and dental expenses for the past year which weren't
covered by health insurance.
+ Business and/or farm records.
+ Records of investments such as stocks, bonds, and mutual funds,
as well as bank Certificates of Deposit (CDs) and recent
statements from any money market accounts.
+ Social Security numbers.
Four to six weeks after you file the FAFSA, you will receive a Student
Aid Report (SAR). The SAR summarizes the information you provided on
the FAFSA and indicates the Expected Family Contribution (EFC).
The determination of financial need depends on two numbers:
+ The Cost of Attendance (COA) for your school. This may also be
known as the school's "budget".
+ The Expected Family Contribution (EFC). This is the amount of
money your family is expected to contribute to your education.
Your financial need is the difference between the COA and EFC:
Financial Need = COA - EFC
The amount of financial aid for which the student is eligible will be
based on this number. Your school will try to meet this demonstrated
need through a financial aid "package", which combines aid from federal
and state sources with loans, institutional grants, and student
Unfortunately, your school may not be able to provide you with
financial aid to meet your entire demonstrated financial need. Many
colleges and universities must create a "Unmet Need" or "Need Gap"
between the cost of attendance and the amount you can afford to pay
because of limited funds. Schools have limited funds available for
financial aid, and they must determine how to best allocate the funds
to their neediest students. Very few schools can afford to meet the
demonstrated need of all their students, so most assume that all
students and/or parents must pay a certain minimum amount, regardless
of their need. Others give financial aid only to the neediest
students. You're expected to obtain the funds for the unmet need or
gap through summer or term-time employment earnings and educational
loans, including the Federal Parent Loan for Undergraduate Students
Moreover, your financial aid package may be reduced by any "outside
resources" you receive. A resource is something that is available
because the student is in school, and is normally counted after need is
determined. For example, if your parents have contributed money to a
prepaid tuition plan, the money received from that plan toward the
student's education will be subtracted from the determination of
financial need. Other resources include VA educational benefits and
outside scholarships. Thus the determination of the school's financial
aid package is actually based on
Remaining Financial Need = Financial Need - Resources
So even though resources do not affect the size of the Pell Grant the
student will receive, they do affect the amount of Stafford or
campus-based aid available. They are often counted 100% toward meeting
need, and the university will reduce the size of the financial aid
package to compensate. Resources represent a direct reduction of cost
(e.g., a prepaid tuition plan cuts the amount of tuition the student
will pay) and therefore less need.
[A few schools will "reward" students for bringing in outside
scholarships by using a portion of the outside funds to reduce the self
help level, or by using them to reduce the loan portion of the financial
aid package and not the institutional grants.]
The school's "budget" or COA will include tuition, fees, room and
board, books and supplies, travel, and personal and incidental
expenses. In many cases there is a standard fixed budget amount for
some of these categories. For example, the budget amount for travel
may vary depending on the student's home state. Likewise room and
board expenses may be reduced and travel expenses increased for
Budget allowances are used only for determining the estimated expenses
that a student will experience during the enrollment period. Actual
costs will vary depending on the your particular lifestyle. If special
circumstances should warrant a higher budget amount, consult your
financial aid administrator, who is permitted to increase your budget,
if appropriate, with documentation. For example, students with child
care expenses or expenses related to a disability may be able to get
their budget increased to compensate. If your books and supplies cost
more than the amount in your budget, save your receipts and show them to
a financial aid administrator.
The federal formula approved by Congress to calculate the EFC
is called the Federal Methodology (FM). The federal methodology is
used to determine eligibility for federal funds. If a college or
university relies on a different formula for awarding its own funds,
that formula is called the Institutional Methodology (IM). Different
colleges and universities may use different institutional methodologies.
The EFC is the sum of the student contribution and the parent contribution:
EFC = Student Contribution + Parent Contribution
An independent student is not expected to have a parent contribution.
To be classified as independent for Federal aid purposes, a student must
either be 24 years of age or meet one of the following exceptions
1. be married
2. have a dependent
3. be a graduate or professional student
4. be a ward of the court or an orphan
5. be a veteran
Some schools (mostly private) expect both natural parents to contribute
to their children's educational expenses, regardless of a divorce or any
court orders to the contrary. In cases of divorce where the custodial
parent remarries, the financial information for both the custodial
parent and the step-parent must be included on the FAFSA as well as any
child support and/or alimony received from the non-custodial parent.
If a student is classified as independent because of marriage, the
spouse's financial information must be included on the form.
The student contribution assesses 35% of the student's assets and 50%
of the student's earnings after subtracting a small threshold from the
The parent contribution depends on the number of parents with earned
income, their income and assets, the age of the older parent, the family
size, and the number of family members enrolled in postsecondary
education. Income is not just the adjusted gross income from the tax
return, but also includes nontaxable income such as social security
benefits and child support. The Higher Education Amendments of 1992
eliminated home equity from the EFC, but many private colleges and
universities still use a parent's home equity as a way of rationing
their school's own grant and scholarship funds. Money set aside for
retirement in a pension plan such as a 401K, IRA, Keogh, or 403b is
usually not counted as an asset. However, the funds contributed to a
tax-deferred retirement program during the previous year must be
included on the FAFSA as "other untaxed income". In addition, an asset
protection allowance shelters a portion of the assets from the
calculation of the parent contribution. The asset protection allowance
increases with the age of the parents to allow for emergencies and
retirement needs. The asset protection allowance for most parents of
college age children will be approximately $40,000. The parent
contribution assesses a maximum of 5.64% of parent assets and 20% to
50% of parent income, after subtracting various allowances.
The full need analysis formula is rather complex. If you want an
estimate of your EFC, use the free financial aid estimation calculator
on the FinAid site. It will let you play "what-if" games.
***  Consequences of the Need Analysis Formula
The FinAid site also includes a list of tips on how to arrange your
finances so as to maximize your eligibility for need-based financial
aid. Here's just a taste of FinAid's analysis.
1. The parent contribution is divided by the number of children
in college. Changes in the number of family members in college can
significantly affect the amount of aid received. For example, even
families that are well-off may become eligible for financial aid when
two or more family members are enrolled in college at the same time. So
parents should not assume that they are ineligible for aid just because
they make too much money or own a house.
2. The assets and income of parents are "taxed" by the federal
methodology need analysis formula at a much lower rate than those of the
student. This means that it may not be to the advantage of the parents
to shift income and assets to their children, despite the tax savings.
Generally, no more than 5.64% of a parent's assets (excluding their home
equity and retirement programs) are expected to be used for the child's
educational costs. For most parents, the first $40,000 or more
of their assets (depending on their age and family size) will be
ignored completely in the federal methodology need analysis formula.
On the other hand, student assets are "taxed" at 35%, a much higher
rate. This suggests that college funds should be saved in the
parents' names and not the child's (the difference in aid
eligibility wipes out any tax savings from Uniform Gift to Minors
Act asset transfers), and spend down the student's assets before
using any of the parents' assets to pay for the student's education.
3. The financial aid award or "package" is based on the assets and
earnings for the year before the student matriculates in college. So
parents should be careful about financial activity the year before
their children enter college. For example, parents who avoid
creating capital gains during the child's senior year in high school
will be at an advantage in the federal methodology need analysis system.
Likewise, they may wish to wait until after the child has entered
college to withdraw money from pension plans to pay for college expenses.
***  Don't Assume You Don't Qualify
Don't assume that you don't qualify for financial aid. Virtually all US
citizens or eligible non-citizens enrolled at least half-time are now
eligible for some form of financial aid, including the Federal
unsubsidized Stafford Loan and the Federal Parent Loan for Undergraduate
Students (PLUS). Even if you don't qualify for a grant, you may still be
eligible for other forms of financial assistance.
Many families don't apply for financial aid because they believe that
they earn too much money or own a home, or because their friends and
relatives have told them that they won't qualify. They then prevent
themselves from getting any aid by failing to apply for it. You don't
need to be poor to get financial aid. For example, some loans and
scholarships are available regardless of need, and the number of family
members in college can significantly affect your eligibility for aid.
Also, as mentioned previously, a parents' home equity or retirement
programs are no longer considered in the federal methodology need
analysis formula. There are several factors in addition to income that
are used to determine your eligibility for financial aid, and there is
no simple cut-off based on income. Talk to the school's financial aid
administrators if you have any questions.
You can't get aid if you don't apply. So you should definitely fill out
the FAFSA and apply for financial aid if you feel you may need
Do not think of the federal student assistance programs as
charity. They are designed more as cash flow assistance than a
handout, allowing you to spread the expense of college over many years.
It is important to apply for financial aid before admission, even if
you think you won't qualify during your first year. For example, the
Brown University Guidebook for Undergraduate Financial Aid says
"... it is important that students who plan to apply for admission to
Brown apply for financial aid as well if they have reason to believe
that the costs of attendance exceed what they and their parents can
reasonably be expected to contribute. Only under the most extraordinary
circumstances is it possible to grant scholarship aid to first year
students who failed to apply for aid before admission. Budget
limitations may also preclude the granting of University scholarships
to new upperclass applicants."
Moreover, don't apply only to those schools you think you can afford.
The more expensive schools may provide larger financial aid packages to
compensate for the greater cost of attendance. Do not reject any school
simply because of the high cost of tuition and room and board. Tuition
and living expenses are like list prices; universities offer financial
aid packages as discounts against the list price to bring the cost
closer to what you can afford. Compare schools based on the bottom
line, not the list price. You may find that the difference in the
bottom line is not as significant a factor as you previously assumed.
Do not limit your initial choice of schools by the high price tag.
It is, however, a good idea to apply to several different types and
costs of schools for insurance purposes. Just as you apply to one or
two safety schools that you are sure will admit you, you should also
apply to a few schools you are certain you can afford.
Certainly college costs should be one of the factors you consider when
deciding where to go to school, but it shouldn't be the *only*
Many students and parents avoid the financial aid office, thinking of
the financial aid office as "the enemy". Most financial aid office
employees are dedicated (underpaid and overworked) professionals who
want to help you as much as they can. Their job is to distribute
limited funds fairly to all the students. Within their constraints,
however, they will do their best to ensure that you can afford to
graduate from their university. True, their estimate of what you can
afford may not match your own assessment, but they aren't out to get
you. They will try to help you if you ask.
***  Applying for Financial Aid
The Free Application for Federal Student Aid is a prerequisite for
applying for federal and state aid, as well as many college aid
programs. You can obtain a copy of the form from your high school
guidance counselor, your college financial aid administrator, or your
local public library. You can also complete the form online, at
and get your results back quicker than with the paper form. Questions
about the form should be directed to 1-800-4-FED-AID.
Some colleges will require their own forms, the CSS PROFILE form, or
special supplemental forms.
To apply for private sector scholarships, visit the FastWeb site at
FastWeb provides the best free scholarship search. It compares your
profile against a large database of scholarships, providing your with
a list of matching awards. You will then need to write to the
scholarship sponsors to obtain current application materials. In some
cases you will be able to apply directly online through
FastWeb. FastWeb also provides a college search database and other
***  Beware of Scholarship Scams
College costs a lot of money, and there are some companies that try
to take advantage of students and parents. The lure of "FREE MONEY"
can fool even skeptical people.
Every year there are a few scams based on imitations of legitimate
foundations and scholarship search companies. Be cautious if you must
pay money to get money -- it almost certainly is a scam. Foundations
are set up to give money away, not get it. A $10 or $20 application
fee may seem rather innocuous, but if the "foundation" receives a few
thousand applications, they can pay out a $1,000 scholarship or two
and still pocket a hefty profit, if they give out any money at all.
The most common types of scholarship scams are scholarships with an
application fee, scholarship matching services that guarantee results,
and high pressure sales pitches disguised as a free financial aid seminar.
If you have questions about financial aid or are suspicious about a
program, go to your college's financial aid office. (If you are still
in high school, ask the financial aid office at a local college for
advice.) They can provide you with the accurate and current
information, and verify whether a foundation is legitimate.
The FinAid site includes an extensive collection of information about
identifying the many types of scams, how to report them, pending
legislation concerning scholarship scams, and law enforcement efforts
to date. See
for more information.
***  The Unclaimed Aid Myth
You may hear that millions or billions of dollars of scholarships go
unused each year because students don't know where to apply, but this
simply isn't true.
Most financial aid programs are highly competitive. According to the
National Postsecondary Student Aid Study conducted by the National
Center for Education Statistics at the US Department of Education,
only 1 in 25 students (that's 4%) receive private sector scholarships
and the average amount received is about $1,600.
The most common version of the unclaimed aid myth is that "$6.6
billion went unclaimed last year". This myth is based on a 1976-1977
academic year study by the National Institute of Work and Learning
that estimated that a total of $7 billion was potentially available
from employer tuition assistance programs, but that only about $300
million to $400 million was being used. This money goes unused because
it can't be used, is a 20-year-old estimate that has never been
substantiated, and is not available to the general public. Only
eligible employees whose employers offer tuition assistance and who
are enrolled in an eligible program can take advantage of such
programs. There are no unclaimed scholarships. Popular variations on
this myth include the figures $2.7 billion, $2 billion, $1 billion,
and $135 million.
***  General Advice
For information about college-controlled aid, talk to the financial
aid administrators at the school. You will find out about any special merit
scholarships when you apply for financial aid at the school. A recent
trend is for many second tier schools (and even a few top rank
schools) to offer non-need merit-based aid to attract top students.
When looking for private sources of aid, use the following sources:
1. Public Library. Spend a few hours in the library looking
at scholarship books. It doesn't take much time and the
librarians are knowledgable and can help you. There may
also be a bulletin board with information about local
2. Use an online scholarship search. It takes less than 5
minutes to search an online scholarship database like
FastWeb, and you'll find scholarships you might not have
You should also think of any organizations to which you belong that
might have aid funds available: religious organizations, fraternal
organizations, clubs, athletics, veterans groups, ethnic groups,
rotary clubs, unions, and your and your parents' employers. If you are
presenting a paper at a technical conference, many conferences have
travel funds available to enable students to attend the conference.
When considering whether to use a book, look at its copyright
date. You don't want to waste time with a book that is too old, since
the information does change.Books about federal student aid should be
no more than one year old. Books listing individual scholarships
should be no more than three years old.
Always write to the scholarship sponsor for up-to-date information,
enclosing a self-addressed stamped envelope for the application
Every high school student should consider checking the "yes" box on the
ETS Student Search Service form or the ACT Student Profile Form,
releasing your information to scholarship programs. Some scholarship
programs, such as the National Merit Scholarship Corporation (NMSC),
rely on this information for determining eligibility, and if
you don't check the box you won't be considered for the award.
Graduate students who applied for the National Science Foundation (NSF)
or Hertz Foundation graduate fellowships as undergraduate seniors
should know that they can apply a second time as first year graduate
students. If you didn't win a NSF as a senior, ask for a copy of your
evaluation forms. Often the evaluations will be rather explicit in
identifying the weaknesses in your application, and you can address
those areas the second time you apply.
Complete the FAFSA online at http://www.fafsa.ed.gov, instead of using
the paper form. You will get the results quicker, and they will be
more accurate. Don't forget, however, to print the signature sheet,
sign and mail it, or they will not process your FAFSA.
Be very careful not to miss any deadlines.
Ask the school's bursar office about the availability of installment
payment plans. Many universities will let you spread the cost of
tuition out over the full year, instead of requiring you to pay a lump
sum up front.
***  Financial Planning Tips
Financial planning is the process of designing a plan to meet your
financial goals. It involves identifying the goals (e.g., saving for
your retirement, paying for your children's education, buying a
house), your current position (net worth = assets - liabilities; net
cash flow = income - expenses), and the steps you need to take in
order to reach those goals. Just knowing how much you spend on monthly
expenses can be an eye-opening experience. Given this information, you
can then play "what if" games and make better decisions for your
1. It pays to save.
Even though the federal methodology need analysis formula will take
parent assets into account when calculating the family contribution,
it is still worth saving money for college despite the "savings penalty".
Your home equity and retirement savings aren't counted, and an
age-dependent asset protection allowance shelters some of your
assets from the need analysis. Moreover, parent assets are assessed
at a very low percentage rate.
Try saving at least $100 a month from the date of birth. This
probably won't cover the full cost of the child's education, but it
can make a difference between being able to pay for college and not.
If you can afford it, $400 or more a month is a much better target.
When there are many years before matriculation, you can be more
aggressive in your investment strategy. As college approaches,
however, you should shift from risky investments like stocks to
more secure investments like CDs. Two years before college you
should sell the securities in order to avoid realizing the capital
gains during the tax year upon which need analysis is computed.
Education is one of the best financial investments you can make. A
bachelor's degree yields an increase in lifetime earning potential
of nearly half a million dollars according to Census Bureau data.
This is equivalent to a 20% annual return on investment.
2. Don't play asset shifting games.
The financial need of most families are assessed primarily on
income, not assets. Remember, the value of your home and retirement
plans will usually not be included in calculating the parent
contribution. [Although the federal calculation of financial need
does not include home equity, some private colleges and universities
still consider it when awarding institutional grants.] Moreover, the
federal methodology also ignores the first $30,000 to $40,000 in
savings and investments, depending on the number of parents, their
age, and the family size.
Consult an accountant before shifting parent assets to your
children. Although there can be a significant tax benefit, remember that
the federal methodology need analysis system assumes that children
contribute 35% of their assets to their education each year.
The federal methodology assumes that parents contribute a MUCH lower
percentage of their assets, so it is usually better to leave the
assets with the parents. Saving a few dollars in taxes now may cost
a lot more in aid eligibility later.
Some people may advise shifting assets to grandparents, non-custodial
parents (if parents are divorced) or other relatives. Even if such
asset-shifting games are financially sound, they are at best unethical,
if not fraudulent. You haven't lost control over the assets -- your
relatives cannot spend the money as they wish. When you fail to report
these assets on the FAFSA and PROFILE, you are providing false
information. Such actions are as bad morally as stealing from your
neighbors or cheating on your taxes.
For most people parent assets are not really a factor in parent
contributions. The asset protection allowance prevents a threshold
amount of assets from being included in the calculation of the
parent contribution. Student assets, on the other hand, do play a
significant role in the calculation of the student contribution.
3. Ask about the impact of a second income on aid eligibility.
If the second income is low and introduces additional expenses
(e.g., child care), sometimes it does not pay for the second parent
to work. Examine the tradeoffs very carefully.
4. Don't try to finagle the financial aid regulations and policies.
Many financial aid consultants suggest various ways of taking
advantage of loopholes in the financial aid system. Some of these
strategies are sound, but others have backfired on the families who
follow them. For example, a few years ago some "consultants" advised
parents to amend their previous year's tax returns to remove their
child as a claimed exemption. The idea was to qualify the child as
an independent student when applying for financial aid. Not only can
this trigger an audit, but financial independence is not the only
requirement for determining independent status. Parents who followed
this advice lost a fair amount of money in lost tax savings, not to
mention fees paid to high-priced consultants.
If the advice you receive involves questionable ethics, think twice
before following it. There is good advice and there is bad advice.
Good tips include spending student assets before parent assets,
keeping investments in the parent's name, and reducing family income
below the $50,000 threshold that causes assets to be ignored.
Any financial aid administrator will admit that these strategies
take advantage of genuine loopholes in the need analysis formula.
But there are also strategies that try to circumvent the system,
instead of trying to work within the rules. Unethical tips include
hiding assets, trying to qualify a truly dependent child as an
independent, or providing false information on a financial aid form.
5. Try to bargain or appeal to the financial aid administrator only
when the family financial situation has changed significantly or
where a great disparity in aid offers suggests that an error has
Some people may recommend trying to bargain with the school's
financial aid officer to try to increase the aid offer. The only
case in which this will definitely work is if there is a significant
disparity in the net cost of attendance (e.g., more than $2,000) or
if the family's financial picture has changed significantly (e.g.,
death or disability of a parent, fire, serious illness). Most
financial aid administrators will review the award if there is a
good reason for doing so, but all will refuse to get into a bidding
war with other universities. This is especially true at the Ivy
League schools and top research universities.
If you really want to attend a school but are convinced that you
cannot afford it, talk to a financial aid administrator at the school.
They may be able to help, especially if it looks like they will lose
an outstanding student because of a few thousand dollars difference
in the aid package. They may, for example, be able to modify your
financial aid package so that your outside scholarships reduce the
loans and not the institutional grants, or suggest other sources of
6. Don't lie or act in an unethical manner.
If the financial aid administrator believes that false information was
provided on the financial aid forms, they can require additional
documentation or even disallow your claims. Many schools go through
a process known as verification, in which a high percentage of their
students are required to provide full documentation of every piece
of information listed on the financial aid forms.
Read the certification paragraph about providing false information
that appears on the front of the FAFSA form. In particular, the
FAFSA states that
any person who intentionally makes false statements
or misrepresentations on this form is subject to fine
or imprisonment or both under provisions of the United
States Criminal Code
That includes the student and his or her parents. If you received
funds as a result of providing false information, you will be
required to repay those funds.
7. Start looking for aid early.
Start planning for your children's education as soon as possible.
Most parents wait until the beginning of their child's senior year to
start worrying. This is often too late to make a difference. Encourage
your children early on in academics and athletics, and start saving as
early as possible. There are many sources of financial assistance,
but you have to start searching for this aid early. It is never too
early to start planning for your children's education.
8. Plan for the cost of education.
College costs typically increase at about nearly twice the inflation
rate. Plan accordingly.
9. Indicating the wrong tax return form on the FAFSA can negatively affect
eligibility for some aid programs, such as the Pell Grant.
Many parents choose to file the 1040 even though they are eligible
to file the 1040A or 1040EZ. Likewise, companies like H&R Block often
automatically file the 1040 form, regardless of the AGI or earnings.
This can sometimes cause their children to not qualify for the Pell
Parents should ask their tax preparers whether they would have
been eligible to file a 1040A or 1040EZ. The question is NOT whether
you would have gotten a bigger refund with the 1040, just whether you
would have been eligible.
11. Loan repayment.
When repaying your educational loans, try to make as large a
payment as possible. The longer you take to repay the loan, the more
interest you will pay. A shorter loan period will save you money in
the long run. There is also never a prepayment penalty for paying
off a loan early.
If you are having trouble repaying your loan under the standard
10-year repayment plan for FFELP loans, consider consolidating the
loan with a longer term. You may want to consolidate your loans
anyway, to reduce the amount of paperwork associated with servicing
several loans. Some graduates have found it necessary to consolidate
their loans in order to qualify for a mortgage. There are other
repayment options that may also help.
If your loans are unsubsidized (i.e., the government does NOT pay
the interest while you are in school), try to avoid capitalizing
the interest. This can significantly increase the size of the loan,
especially if you are in school for an extended period (e.g., for a
Talk to your bank about setting up an automatic payment plan, where
a fixed amount of money is withdrawn from your checking account
each month to pay for your loan. This may help you manage the
repayment, if you find it difficult to avoid spending money while
it is in your checking account.
Remember, your student loans will show up on your credit report.
Defaulting on your student loans can have serious consequences for
your ability to get credit for purchasing a home. Contact the
lender *before* you stop making payments, not after, since you may
be eligible for a deferment or a forbearance.
11. Divorce and prenuptual agreements do not shelter funds.
Many universities require both natural parents to provide for
their children's education. Only when the custodial parent (the
parent with whom the child lived the most during the past 12 months)
remarries does this obligation shift from the non-custodial parent
to the step-parent.
Thus, if your parents are divorced and the custodial parent has not
remarried, the income and assets of both (natural) parents must be
on the university financial aid form. This rule holds even if the
non-custodial parent refuses to supply the required information.
(The financial aid administrator may make an exception in cases of
documented spousal abuse or abandonment. In general, however, getting
divorced is not an effective means of increasing eligibility for
If the custodial parent has remarried, the step-parent's income and
assets must be included on any financial aid form, including the FAFSA.
By step-parent, we mean the new spouse of the custodial parent,
not the spouse of the non-custodial parent.
There are no exceptions, even if the step-parent refuses to provide
any money for the step-children's support or to supply the required
financial information. It may seem cruel, but no information, no
aid. If the parent and step-parent do not comply with the reporting
requirements, the student is out of luck. It is the student's
responsibility to get the parents to cooperate.
Likewise, prenuptual agreements are ineffective at sheltering
assets from the calculation of the parent contribution. If a
step-parent is being counted in place of a natural parent, then all
of that parent's assets should be considered subject to the
determination of financial need.
However, any child support and/or alimony received from the
non-custodial parent must be included on the FAFSA.
The federal need analysis system treats step-parents as though they
were natural parents if
+ they are married to the custodial parent (the natural parent
whose information is being reported on the FAFSA), or
+ they have legally adopted the student
The step-parent's income must be reported for the entire base year,
even if the marriage did not occur until the subsequent year.
Likewise, the system does not recognize prenuptual agreements.
***  My School Didn't Award Me Enough Aid!
Most family complaints about insufficient financial aid derive from the
practice of "need gapping" described in section . There is little
that can be done about this, other than applying for scholarships and
fellowships, working during the school year and summer, and applying
for educational loans.
Howerver, if there is a significant discrepancy between the amount of
aid awarded and your financial need, perhaps you didn't bring some
special circumstances to the attention of the financial aid
administrator. Make an appointment to review your financial situation
with a counselor in the financial aid office, especially if your family
circumstances have changed since the financial forms were filed. If the
circumstances warrant, they may be able to adjust the amount of
financial aid for which you qualify. This process is known as
Professional Judgment (PJ). For most families, however, the increase
will be limited to the amount of educational loans, with the
institutional grants remaining unchanged.
There are several special circumstances that families sometimes forget
1. Affecting the cost of attendance:
+ Unusually high supply costs (e.g., art students)
+ Child care expenses
+ Expenses related to a disability (e.g., braille machine
and readers for blind students, transportation expenses
for handicapped students)
+ Health insurance for students who are no longer covered by
their parents' health plan.
2. Affecting the parent contribution:
+ Death of a parent
+ Unemployment of a parent for 10 weeks or more
+ Change in income due to a change of jobs, a reduction in
the number of hours worked, or retirement
+ Loss or reduction of alimony and child support received (or an
increase in alimony and child support payments)
+ Divorce or separation of parents after submission of the FAFSA
+ Loss or reduction of disability and unemployment benefits
+ Losses due to natural disasters, such as floods, tornados,
hurricanes, and mine subsidence
+ Unusual medical/dental and nursing home expenses
+ Child care expenses
+ Casualty and theft losses
If you encounter these circumstances, you may need to provide estimated
income information on your financial aid form instead of relying on the
past year's financial information.
If there aren't any special circumstances, but the financial aid
administrators awarded you less aid than you think you need, you're
probably wondering how you will be able to afford your education. Here
are a few suggestions:
1. Consider a home equity loan. A home equity loan lets you borrow
against the equity in your home, and you can deduct the interest on
your taxes. You can use the home equity loan to pay off your
other debt such as credit cards -- a good idea, since the interest
rate will be lower -- and also use some of the proceeds to pay
for your education.
2. Obtain a Federal PLUS and Unsubsidized Stafford Loans. You do
not need to demonstrate financial need in order to be eligible
for these loans. Of course, if you are eligible for a Subsidized
Stafford Loan, you should use it before you rely on unsubsidized
of educational loans.
3. Part-time work. You can get part-time work during the academic
year, and a summer job during summer vacation.
4. Save money by completing your education more quickly. If you can
graduate in three years instead of four, you'll have saved 25%
of the cost of your education. Advanced Placement (AP) tests,
institutional advanced standing examinations, and taking an extra
course every semester can shave a semester or a year off of your
5. Cut costs:
+ Sell your car and buy a bicycle, or ride the bus and
carpool. If you must keep your car, increase the deductible
on your auto insurance policy to $1,000.
+ Share an apartment to cut housing costs, or live at home.
+ Make long-distance telephone calls only at night, or cut
them out entirely.
+ Learn to cook and stop eating out. There are a lot of
nutritious but inexpensive meals you can make.
+ Sell your TV and VCR.
+ Shopping tips:
- Only buy what you absolutely need, and only when it is
on sale. Consider buying in bulk.
- Buy generic drugs and store brands.
- Eat a full meal before going grocery shopping. Never go
shopping on an empty stomach.
- Buy used textbooks, or sell your books when you're done
- Buy your clothing and furniture at Goodwill, Dollar a
Pound, discount stores, and garage sales.
+ Marry a wealthy spouse.
If you're majoring in a lucrative field, such as business or computers,
don't worry too much about the size of your loans. When you graduate
and get a job, you'll probably be earning enough money to pay off your
educational loans in a reasonable number of years. For other fields,
you should consider how you will be able to repay your loans before
getting too heavily into debt. Likewise, students who intend to go on
to graduate or professional school should carefully consider how their
finances will affect their future options.
***  Common Questions and Answers
This section contains a list of common questions with concise answers.
1. I probably don't qualify for aid. Should I apply for aid anyway?
Yes. Many families mistakenly think they don't qualify for aid, and
prevent themselves from receiving financial aid by failing to apply
for it. In addition, there are a few sources of aid such as
unsubsidized Stafford and PLUS loans that are available regardless
of need. The FAFSA form is free. There is no good excuse for not applying.
2. Do I need to be admitted before I can apply for financial aid at a
No. You can apply for financial aid any time after January 1. To
actually receive funds, however, you must be admitted and enrolled at
3. Do I have to reapply for financial aid every year?
Yes. Most financial aid offices require that you apply for
financial aid every year. If your financial circumstances change,
you may get more or less aid. After your first year you will
receive a "Renewal Application" which contains preprinted information
from the previous year's FAFSA. Note that your eligibility for financial
aid may change significantly, especially if you have a different number
of family members in college. Renewal of your financial aid package
also depends on your making satisfactory academic progress toward a
degree, such as earning a minimum number of credits and achieving a
4. How do I apply for a Pell Grant and other types of need-based aid?
Submit a FAFSA. For student employment, student loans, and parent
loans, you should check the appropriate boxes.
5. Are my parents responsible for my educational loans?
No. Parents are, however, responsible for the Federal PLUS loans.
Parents will only be responsible for your educational loans if you
are under 18 and they endorse your loan. In general you and you
alone are responsible for repaying your educational loans.
On the other hand, if your parents (or grandparents) want to help
pay off your loan, you can have your billing statements sent to
their address. Likewise, if your lender or loan servicer provides
an electronic payment service, where the monthly payments are
automatically deducted from a bank account, your parents can agree
to have the payments deducted from their account. But your parents
are under no obligation to repay your loans. If they forget to pay
the bill on time or decide to cancel the electronic payment
agreement, you will be held responsible for the payments, not them.
6. Why is the family contribution listed on the SAR different from the
family contribution expected by the university?
The federal formula for computing the expected family contribution
is different from those used by many universities. In particular, the
federal formula does not consider home equity as part of the assets.
7. If I take a leave of absense, do I have to start repaying my loans?
Not immediately. The subsidized Stafford loan has a grace period of
6 months and the Perkins loan a grace period of 9 months before the student
must begin repaying the loan. When you take a leave of absense you
will not have to repay your loan until the grace period is used up. If
you use up the grace period, however, when you graduate you will have
to begin repaying your loan immediately. It is possible to request
an extension to the grace period, but this must be done *before* the
grace period is used up.
If your grace period has run out in the middle of your leave, you
will have to make a payment on your student loans.
8. I got an outside scholarship. Should I report it to the financial
If you are receiving any kind of financial aid from university or
government sources, you must report the scholarship to the
financial aid office.
Unfortunately, the university will adjust your financial aid package
to compensate. Nevertheless, the outside scholarship will have some
beneficial effects. At some universities outside scholarships are used
to reduce the self-help level. For example, at MIT 40% of the
scholarship amount is applied toward the self-help level, and the rest
replaces institutional funds. At other universities outside
scholarships are used to replace loans instead of grants.
9. Where can I get information about Federal student financial aid?
Call 1-800-4-FED-AID (1-800-433-3243) or 1-800-730-8913 (if hearing
impaired) and ask for a free copy of "The Student Guide: Financial
Aid from the US Department of Education". You can also write to
Federal Student Aid Information Center
PO Box 84
Washington, DC 20044
or read the publication on the Department's web site (www.ed.gov).
1. I sent in my FAFSA over four weeks ago, but haven't heard anything.
What should I do?
If you haven't received a Student Aid Report (SAR), call the Federal
Student Aid Information Center at 1-800-4-FED-AID or 1-319-337-5665.
You must provide them with your Social Security number and date of
birth as verification.
You can also write to
Federal Student Aid Programs
PO Box 4038
Washington, DC 52243-4038
to find out whether your FAFSA has been processed or to request a
duplicate copy of your SAR.
2. My parents are separated or divorced. Which parent is responsible
for filling out the FAFSA?
If your parents are separated or divorced, the custodial parent is
responsible for filling out the FAFSA. The custodial parent is the
parent with whom you lived the most during the past 12 months.
Note that this is not necessarily the same as the parent who has
legal custody. If you did not live with one parent more than the
other, the parent who provided you with the most financial support
should fill out the FAFSA. This is probably the parent who claimed
you as a dependent on their tax return. If you have not received any
support from either parent during the past 12 months, use the most
recent calendar year for which you received some support from a
parent or lived with either parent.
Note, however, that any child support and/or alimony received from the
non-custodial parent must be included on the FAFSA.
Financial aid applications can be somewhat confusing because there
are several different criteria applied for different kinds of
1. The parent with whom the child lived the most during the past
2. The parent who provided the most financial support to the child
during the past 12 months.
3. The parent who provided more than half the child's support (and
will continue to do so).
4. The parent who has legal custody.
5. The parent who claimed the child as a dependent on their tax return.
As noted above, criteria 1 and 2 are used for determining the
custodial parent, with the first criteria being primary.
For determining household size (the number of family members),
criteria 3 is the most important. However, the student's custodial
parent gets to list him or her even if the custodial parent does not
provide more than half of the student's support. This leads to the
anomalous situation where a student can be counted as belonging to
two different households. For example, suppose the non-custodial
parent remarries and has college-aged children of his own. If the
non-custodial parent provides more than half of the student's support,
he gets to list the student as a member of his household even though
the custodial parent has also listed the student as a member of her
household. (The IRS tax return instructions prevent this kind of double
dipping on tax returns, but the FAFSA instructions apparently don't.)
Criteria 3 is also used to determine whether the student has one or
more dependents, in the rules for specifying whether the student is
an independent student with dependents.
Criteria 4 and 5 are not used in the financial aid formulas, but are
sometimes used to give an indication of the right choice when the
other criteria are insufficient. Criteria 5 is also sometimes used to
substantiate claims made under criteria 3. For example, a financial
aid administrator may ask a parent for a copy of their tax return, to
see whether they claimed the child as a dependent. Criteria 5 usually
implies criteria 3, because the IRS definition of a dependent includes
a 50% support test. There IRS definition includes a few exceptions
where the parent isn't required to provide more than half the child's
support in order to claim the child as a dependent, but in almost
every case, if the parent could not claim the child as a dependent
(criteria 5), they did not provide more than half the child's
support (criteria 3).
3. My parents are divorced, and the parent I'm living with has remarried.
Does my step-parent have to report his or her income and assets on
Yes, provided that the parent you're living with is the one filling
out the FAFSA (your custodial parent). If your step-parent is
married to them at the time you fill out the FAFSA, they must report
their income and assets even if they weren't married to them in the
Myths About Financial Aid:
1. Won't the government take away our home if we apply for aid for our
No. Absolutely not. This myth seems to be pervasive, and causes
many families to avoid applying for financial aid. The government
does NOT take away your home when you apply for financial aid.
2. All financial aid packages include term-time work, and working
while trying to study is bad.
First of all, numerous studies have shown that a small amount of
term-time employement (10 hours per week) improves academic
performance. Secondly, you can always refuse the work-study aid and
pay for the expenses covered by that aid through other means, such
as loans and summer employment.
***  Answering Your Questions
The FinAid site includes much more information than could be presented
in this brief FAQ. It includes, among other things, a glossary of
financial aid terminology, information about the taxability of
financial aid, information about bankruptcy and financial aid, and
anything else you might want to know. If the answer cannot be found on
the site, you can use the FinAid Ask the Aid Advisor service to ask a
question of one of more than 100 financial aid professionals who have
volunteered to answer student questions.
For questions about federal student aid, call 1-800-4-FED-AID
(1-800-433-3243). The TDD number for hearing impaired individuals is
If you never received your Student Aid Report (SAR) after submitting
the FAFSA, or want a duplicate SAR, call 1-800-4-FED-AID or 1-319-337-5665.
If you want to report fraud, waste, and abuse of federal student aid
funds, call 1-800-MIS-USED (1-800-647-8733) to reach the office of the
Inspector General at the US Department of Education.
Selective Service can be reached at 1-847-688-6888. Immigration and
Naturalization Services (INS) can be reached at 1-415-705-4205. The
Internal Revenue Service (IRS) can be reached at 1-800-829-1040.
The Social Security Administration can be reached at 1-800-772-1213.
The National and Community Service Program (AmeriCorps) can be reached
at 1-800-94-ACORPS (1-800-942-2677).