Time to study up!
Whether your student is college-bound in the fall or still in the early years of their high school career, understanding the college financial aid world is probably an important part of your--and their--education.
That's why we at LearnVest are offering this crash course in college financial aid lingo on everything from FAFSA to Ford. This list is especially helpful if you're in the middle of deciphering a financial aid offer letter.
1. Free Application for Federal Student Aid (FAFSA)
Each year, the office of Federal Student Aid provides more than $150 billion in financial assistance to more than 13 million students--and the FAFSA is how they do it.
The federal financial aid application is filled out every year by current and prospective college students. By submitting your FAFSA, you can become eligible to receive grants, loans or work study to help fund your kid's studies.
The FAFSA is free to submit and available online, and every college student should submit it every year. The deadline for the FAFSA varies by state--but some aid is first come, first served, so it's best to be the early bird on this one.
Beginning with the 2017-2018 academic year, you'll be able to submit your FAFSA as early as the October before your aid year using tax data from two years prior to your aid year.
2. CSS (College Scholarship Service)/Financial Aid PROFILE
The CSS/Financial Aid PROFILE is a nonfederal online application for financial aid. Nearly 300 schools in the U.S. use it to determine financial aid eligibility and connect students with nongovernmental aid, from internal funding to scholarships and loans. You should submit a PROFILE only if your college or scholarship program instructs you to do so.
The PROFILE is more thorough than the FAFSA and determines aid eligibility a little differently, considering factors such as your family's medical expenses, debts, home equity and business net worth. Unlike the FAFSA, the PROFILE has a fee (for the 2016-2017 academic year, it was $25 for the first school and $16 thereafter), though eligible students may apply to have it waived.
3. Student Aid Report (SAR)
After you've filled out your FAFSA, you'll receive a Student Aid Report that will handily summarize all the information you provided in your FAFSA application. You can request your SAR online or through the mail. When you receive it, review it carefully to make sure all information is correct and complete. If you do find an error, you'll need to correct and resubmit your FAFSA.
4. Cost of Attendance (COA)
A school's cost of attendance is the estimated full cost of completing one academic year as a full-time student at that institution. It includes everything from tuition and textbooks to room and board, personal living costs and transportation.
It's important to note that your actual cost of attendance may differ from what your school projects, depending on factors like whether you accrue extra costs like lab fees or save money by renting textbooks instead of buying.
5. Expected Family Contribution (EFC)
The Expected Family Contribution is a calculated dollar amount that helps determine a student's eligibility for financial aid, based on information provided on financial aid application forms such as the FAFSA and PROFILE. If you fill out multiple forms, you may have multiple EFC numbers.
The formula for calculating EFC accounts for your family's income, assets, benefits (like unemployment or Social Security), household size and the number of family members currently attending college.
Colleges subtract your EFC from the cost of attendance to calculate your financial need at their institution.
6. Net Price
Net price is the amount that a student will ultimately pay out of pocket to attend an institution for one academic year, after subtracting any "gift aid" like scholarships and grants. Your net price is the sum of your Expected Family Contribution, "self-help" aid such as work opportunities and loans that must be earned or paid back, and any unmet financial need.
Trying to figure out your dream school's net price? An online calculator is a good place to start.
Grants are essentially free money gifted to students to help fund their education. They are generally need-based and may come from the federal government, your state government, your school, or other private or nonprofit sources.
- Federal Pell Grants, which for the 2016-2017 award year will offer students up to $5,815 in aid;
- Federal Supplemental Educational Opportunity Grants (FSEOG), which offer a certain amount of aid to each participating school to distribute among its eligible students;
- Teacher Education Assistance for College and Higher Education (TEACH), which offers grants to students pursuing coursework that will prepare them for a teaching career; and
- Iraq and Afghanistan Service Grants, awarded to students who lost a parent serving in Iraq or Afghanistan.
Like grants, scholarships are gifts that don't need to be repaid. While grants are usually need-based, scholarships are more likely to be merit-based. Your student may be able to receive a scholarship for academic achievement, athletic performance, community service and the like. You may even be able to receive scholarship money from a parent's employer, particularly if either parent works at a college or university.
To find scholarships, talk to a high school counselor, visit your college's financial aid office, research foundations pertinent to your student's interests, or try online search engines like the U.S. Department of Labor's Scholarship Search tool, which allows you to search through more than 7,000 scholarships, fellowships, loans and other financial aid opportunities.
9. Work Study
The Federal Work Study program helps eligible students earn money to cover college costs by providing them with opportunities for part-time work at their school. Work study students make at least federal minimum wage and may hold a variety of jobs, from shelving library books to working at a campus office to assisting a professor in her research.
Unlike grants or scholarships that are awarded in a lump sum, this aid is earned throughout the year based on hours worked, so it may be better used as pocket money rather than to cover tuition fees at the beginning of the semester.
- Direct Subsidized Loans, available to undergraduates with demonstrated financial need; the U.S. Department of Education pays the interest while you're in school at least half-time, for the first six months after you leave school, and during a period of deferment;
- Direct Unsubsidized Loans, in which students don't need to demonstrate financial need to be eligible but pay interest at all times;
- Direct PLUS Loans, available to graduate or professional students and parents of undergraduate students who do not have an adverse credit history; and
- Direct Consolidation Loans, which allow you to combine multiple federal education loans so you only have to keep track of one monthly payment.
11. 529 Savings Plan
A 529 plan is a tax-advantaged savings plan designed specifically to let you save for future educational costs. These plans vary slightly by state, but across the board earnings from a 529 are not subject to federal tax if those dollars are used for qualified college or other post-secondary education expenses, such as tuition, textbooks, room and board and even laptops.
12. American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit is a credit of up to $2,500 for qualified college and post-secondary education expenses for an eligible taxpaying student or a taxpayer claiming the student as a dependent. To be eligible, the student must be enrolled at least half-time for one academic period beginning in the tax year, and still be in his or her first four years of higher education.
This story originally appeared on LearnVest.
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