College Financial Aid Options
College financial aid is money that students can use to pay for their college tuition, books and supplies, and living costs. With millions of parents and college students being financially unable to pay for college — especially in these difficult economic times — financial aid can be the only way to a college education.According to The College Board, more than $140 billion was given to students in financial aid between 2007 and 2008.It’s important for parents and students alike to be familiar with the kinds of financial aid available.
The FAFSA, or Free Application for Federal Student Aid, can be found in the high school guidance counselor’s office or online. This application is the first step toward finding federal financial aid to attend college. The government, as well as the student’s prospective college, will review the application and determine the student’s eligibility.
Borrowing Money for College
There are a lot of resources available for parents who need to borrow money for college. Certain types of loans created specifically for this type of need can be applied for, and are easier to repay than personal loans.
The Perkins Loan is available for low-income families and students with no other option for attending college. A 5% fixed interest rate is applied, and students don’t have to start repaying for nine months after completing college. Students who enroll in certain teaching, military, or public service jobs may be able to have their loans canceled completely, thus obtaining their college education for free.
The Stafford Loan comes with a fixed interest rate as low as 5.6%. Low-income students can receive subsidized loans that do not accrue interest until six months after graduation, or the student leaves school. Students can also receive unsubsidized Stafford loans, but interest on the loan accrues immediatelyt. As with the Perkins loan, the FAFSA determines eligibility for low-income students.
Parent PLUS Loan
The Parent Loans for Undergraduate Students (PLUS) is available to families who are not considered low-income, but must have good or excellent credit. The loans pack a fixed 8.5% interest and repayment must start within 60 days of receiving the loan. Some parents may be able to defer the loan until after the student completes college.
Many different types of scholarships are available for students who wish to attend college, but it’s important to find the ones you're eligible for. Certain organizations have scholarship money available, such as churches, unions, employers, high school clubs, government organizations and even corporations.
Consider scholarships that require minimal effort to apply for, and provide larger amounts of money. Some scholarships will decrease the amount of financial aid students are available to receive, so it’s important to choose wisely. If certain prestigious scholarships are within reach of a student, it may be more important to apply for these as opposed to any type of scholarship.
Grants are sometimes available to certain students, such as minorities, Native Americans, women, and exceptionally talented students. Grants may be available through government organizations or private organizations and citizens. Grants.gov is a great place to find available grants and apply for them.
There are two important tax credits parents and students should know about if their adjusted gross income is less than $58,000 a year for single individuals and $119,000 a year for married individuals.
The Hope Credit
This credit can allow individuals to deduct $1,800 from taxes owed, and the credit can be used against student loans that are being paid on. Individuals must have at least $2,400 in college tuition expenses in order to use this credit.
The Lifetime Learning Credit
This credit allows parents to deduct $2,000 for each student attending college and $4,000 for students in midwestern disaster areas. This credit cannot be used if the Hope Credit is being used for the student already.
Tax credits are different from deductions in that deductions reduce the amount of taxable income one owes the IRS while tax credits reduce the taxes owed — dollar for dollar.
It’s important that parents or students fill out the FAFSA and any financial applications as early as possible. While some deadlines may be in the middle of the year, many types of financial aid are highly competitive and if the applications are not filled out quickly enough, the money can be lost to other students. By understanding the different types of financial aid available to college students, parents and students can determine the best types of aid for their situation.