An Introduction to Financial Aid
Adapted with permission from "Financing Education Beyond High School," a presentation by the National Association of Student Financial Aid Administrators.
In view of the rising cost of higher education, the ability to continue your education beyond high school may depend upon the ability of financial assistance. What is financial aid? Where does it come from? What kind of assistance is available? Who is eligible? How do I apply? This presentation will help you find answers to those questions.
What is Financial Aid?
Financial aid consists of scholarships, grants, loans, and employment opportunities which are available to help students pay for the cost of attending the postsecondary institution of their choice. Most financial aid resources are intended to supplement, not replace, the financial resources of the family.
Types of Financial Aid
There are two major categories of aid: merit-based and need-based.
Merit-based aid is generally awarded in recognition of special skills, talent and/or academic ability, with little or no attention given to the family's ability to pay educational costs.
Need-based aid, as the name implies, is awarded based on the financial need of the applicant and his or her family.
Federal unsubsidized loan programs are not need-based, but they nevertheless are an important source of funding for many students and families. These include the Federal Unsubsidized Stafford, Direct Unsubsidized, Federal PLUS, and Direct PLUS loans.
What is Need?
Need equation Need is defined as the difference between the cost of attendance at a particular institution and the family's ability to pay for those costs. The amount your family is expected to pay is commonly referred to as Expected Family Contribution, or EFC. The difference between the cost and the EFC is called "financial need."
Need Varies Based on Cost
Cost of attendance is not a constant figure. It varies by type of school and the costs associated with attending that school. For example, the cost of attendance at a private college or university is usually higher than that of a public college or university.
While the cost of attendance varies from school to school, in theory, your Expected Family Contribution will remain constant. So your need for assistance will vary depending on the cost of attendance. If your EFC is less than the amount it costs to attend a particular school, then you will be eligible for need-based financial aid programs. But if your EFC is greater than or equal to the cost of attendance, you will not be eligible for assistance from need-based financial aid programs. However, you may be eligible for non-need-based loans.
To estimate the cost of attendance at a particular school, consult the catalog of that school. In your estimate, be sure to include:
* tuition and fees
* room and board
* books and supplies, transportation, and miscellaneous personal expenses
* loan fees
* study abroad costs
* dependent or elder care expenses
* expenses associated with a disability
* expenses for cooperative education program
Your family's ability to pay (the EFC) is calculated using a process known as "need analysis." Need analysis is based upon the following principles:
* To the extent they are able, parents have the primary responsibility to pay for the education of their dependent children.
* Parents will, as they are able, contribute funds for their childs' education.
* Students, as well as parents, have a responsibility to help pay for their education.
* The family should be evaluated in its present financial condition.
* A need analysis system must treat all families in an equitable and consistent manner, while recognizing that special circumstances can and do alter a family's ability to pay.
Free Application for Federal Student Aid (FAFSA)
Free Application for Federal Student Aid Your Expected Family Contribution is calculated based on personal and financial information you provide on a form called the Free Application for Federal Student Aid (FAFSA). The FAFSA is available in two formats: paper and electronic.
You may obtain paper FAFSAs from their high school guidance offices, local libraries, or from the financial aid offices at the schools you are interested in attending. Once you and your parents have completed the paper version FAFSA you must mail it to a FAFSA processor. FAFSA processors are responsible for key entering the FAFSA data into a computer system and electronically transmitting the data to a Central Processing System, or CPS.
Rather than using a paper FAFSA, you may apply for federal financial assistance electronically using one of three methods. Most schools can key in and transmit your paper FAFSA using a system known as Electronic Data Exchange (EDE). If you have an IBM-compatible computer and a modem (or access to one), you can use a software application called FAFSA Express to transmit your application directly to the Department of Education. Finally, you may submit your FAFSA over the World Wide Web FAFSA Express is a software application for IBM-compatible computers using one of the Department of Education's electronic applications: Electronic Data Exchange (EDE), FAFSA Express, or FAFSA on the Web.
Most schools now participate in the Department of Education's Electronic Data Exchange, known as EDE. With EDE, you can submit a paper FAFSA to the school, and the school can enter and transmit the application data electronically to the Central Processing System. You may also be able to enter the FAFSA information yourself using EDE at the school. Check with the schools you are planning to attend to see if they participate in EDE.
FAFSA Express is a stand-alone software application tool that allows you to apply directly to the Department of Education for Title IV assistance. The software for FAFSA Express can be loaded and transmitted from any IBM-compatible computer that has a modem. The screens in FAFSA Express resemble a paper FAFSA and include on-line help and instructions. FAFSA Express was developed for use by high school counselors, in libraries, Educational Opportunity Centers, and college financial aid offices. In addition, if you have the required hardware (PC and modem), you may install copies of FAFSA Express on their own PCS and apply for financial aid from home.
FAFSA on the Web is an Internet application developed by the Department of Education that you may use to apply for financial aid. Using the U.S. (Domestic) version of Netscape Navigator 3.0 or higher, you may complete and submit their FAFSA information directly to the CPS.
Processing the FAFSA
When the CPS receives applicant data, it runs your (and your parents') demographic, income, and asset information through a federally mandated formula to calculate an official Expected Family Contribution (EFC). Next, some of the information that you provided on the FAFSA is compared to information stored in various federal databases. The results of these matches are printed on a Student Aid Report (SAR), which will be mailed to you. The EFC is also printed on the SAR. The CPS also forwards applicant information and analysis directly to each school listed on the FAFSA. Institutions use this information, usually in conjunction with other documents that you submit to the school, to determine eligibility for federal aid, and often institutional and state aid as well.
When you receive the Student Aid Report from the CPS, review the information reported on the document for accuracy. Because the FAFSA is often completed before tax forms have been filed, you may have reported estimated information on the FAFSA. When the SAR is received, if you have more accurate information about your family's income or there are corrections that need to be made, you must correct the information on the SAR, sign it, and have at least one parent sign it (if required), and return it to the address listed on the SAR. The school to which you are applying may be able to make these SAR corrections electronically, so before sending the SAR to a FAFSA processor for corrections, check with the school to see if they can perform the changes.
When corrections are received, the FAFSA processor will key enter the changes, transmit the changes to the CPS who will recalculate the official EFC, and mail you a corrected SAR. Once again, you should review the information on the SAR for accuracy.
In most cases, unless the school instructs you otherwise, the SAR does not need to be submitted to the school you wish to attend. This is because schools that participate in the Department of Education's Electronic Data Exchange (EDE) will receive the student's information electronically, so these schools do not need the student's SAR (in fact, schools that receive ISIRs from the CPS cannot require a student to submit his or her SAR). You should, however, should keep a copy of the SAR for your records.
Unless you indicated "no" on question #102 of the FAFSA, your FAFSA information will also be transmitted by the CPS to the state agency so that you may be considered for any state-sponsored financial aid programs. In some states there may be a separate application for state funds. Check with your school or state agency to find out if a separate application is required, and when the application deadline is.
At this point, it is important to note the distinction between "need" and "need analysis." Need has already been defined as the difference between the cost of attendance and the Expected Family Contribution (EFC). In other words, your "need" represents the amount of money you lack, and thus need in addition to the Expected Family Contribution (EFC) to afford the costs associated with attending a particular postsecondary school. Need is determined by the school.
Need analysis, on the other hand, focuses on determining the amount your family can reasonably be expected to contribute towards your educational expenses for a given year, and is the mechanism used to calculate an Expected Family Contribution (EFC).
In general, the need analysis formula considers several financial factors when determining how much your family can reasonably be expected to contribute toward educational expenses. The two most influential factors are a family's income and asset equity.
How the EFC is Calculated
Four calculations are involved in computing the expected family contribution: available parent income, available parent assets, total parental contribution, and student contribution.
Available Parent Income
Parent Income equation Determining the contribution from parental income involves, in part, totaling all taxed and untaxed income and benefits earned by your parents for the year being reported, and then subtracting any exclusions, such as child support paid. Normally the year reported on the FAFSA is the last complete calendar year prior to the academic year for which aid is being requested, and is commonly referred to as the "base year." For the 1998-99 award year, the FAFSA asks about information for the 1997 calendar year. Before a percentage of all such income is assessed as an EFC, allowances are made for:
* Federal, state, local, and social security taxes paid;
* An income protection allowance which is intended to provide for the basic living expenses of all household members; and
* An employment allowance for households in which there are two working parents or a single parent who works.
The result of these deductions from total income yields "available income." A portion of available income" is expected to be used for postsecondary educational costs and thus becomes part of the parental contribution.
Available Parental Assets
Parent Assets equation A similar computation is performed to assess parental assets:
* Assets, including cash, savings accounts, checking accounts, business and farm equity (after an adjustment to protect income-producing capacity), and investments and other real estate equity (excluding home equity) are totaled.
* An education savings/asset protection allowance to accommodate the retirement, educational savings, and emergency needs of the family is deducted from the total. The amount of the allowance is determined by the age of the older parent and whether it is a one or two-parent household.
* Not all of the family's assets are expected to be used to help finance the applicant's education, since the parents also have other legitimate uses for any discretionary assets they may have. A percentage (12%) of the remaining assets is designated as an income supplement to help measure the parents' relative economic strength, and will be considered available for current educational use.
Total Parental Contribution
Parent Contribution equation Your parents' contribution from assets is added to the available income, and the result is the adjusted available income (AAI). The AAI is multiplied by an assessment rate that increases as the adjusted available income increases. The result is the amount the parents are expected to use to pay postsecondary educational expenses. If more than one household member is studying for a degree, certificate, or other recognized credential at an eligible postsecondary institution on at least a half-time basis, the total parental contribution is divided equally among them to yield a parental contribution for each student.
Student Contribution equation In addition to a parental contribution, students are also expected to pay a portion of their educational expenses to the extent that they are able. The dependent student's contribution consists of:
An amount calculated by adding all of the student's taxed and untaxed income, and subtracting any exclusions, such as Federal Work Study earnings, in the previous calendar year. Federal, state, local, and social security taxes are deducted from income, as is an income protection allowance of $1,750. The balance is assessed at 50%. If the student received Title IV financial aid in that previous year, it is not counted in this calculation. In addition, 35% of the student's assets are included.
Expected Family Contribution Equation
Finally, all of these components are added together. The Expected Family Contribution (EFC) for the dependent student equals a portion of the parents' available income and the parents' contribution from assets, as adjusted for more than one family member attending college, plus the student's contribution from his or her available income and assets.
The analysis for the independent student is similar, except that no parental contribution is expected. Independent students with dependents are treated very much like the formula for parents. Independent students with no dependents other than a spouse are expected to contribute 50% of their available income and 35% of their net assets.
Independent students with dependents other than a spouse are expected to contribute a percentage of their available income, which increases as the adjusted available income increases, and are expected to contribute only 12% of their net assets.
The financial aid administrator then reviews the family contribution figure to determine the reasonableness of the amount the family is expected to pay toward the cost of going to school.
Alternate Methods of Determining EFC
So far, our discussion of need analysis has described the regular need analysis formula that is used in most cases; however, if your family meets certain conditions, the formula may vary. Building this variation into need analysis as a standard approach ensures equitable treatment.
There are two alternate formulas for determining an EFC:
* Simplified Needs Test
* Automatic Zero EFC
Simplified Needs Test
Certain families may qualify for a "simplified needs test." When the simplified needs test is used, none of the family's assets are used in the calculation. Families who qualify for the simplified needs test are not required to complete the asset portion of the FAFSA.
To qualify, a family must have an adjusted gross income that is less than $50,000 and filed, or be eligible to file, either a 1040A, 1040EZ, or 1040TEL, or was not required to file a federal income tax return. If no return is required to be filed, the income of the parents must be less than $50,000.
Automatic Zero EFC (Dependent Student)
Certain students are assessed no Expected Family Contribution (EFC). That is, they are assessed a zero EFC without having their income and asset information run through a need analysis formula.
In 1998-99, a dependent student automatically qualifies for a zero EFC if both of the following are true:
1. The student's parents filed, or were eligible to file, a 1997 IRS Form 1040A, 1040EZ, or 1040TEL, and they were not required to file a Form 1040, or the parents were not required to file any income tax return, and
2. The sum of both parents', if applicable, 1997 adjusted gross incomes is less than or equal to the maximum amount that may be earned to claim the Earned Income Credit
If the parents are not tax filers, the sum of their earned incomes is less than or equal to the maximum amount that may be earned to claim the Earned Income Credit.
For the 1997 tax year, the maximum amount that may be earned to claim the Earned Income Credit is $12,000.
Automatic Zero EFC (Independent Student)
In 1998-99, an independent student who has dependents other than a spouse automatically qualifies for a zero EFC if both of the following are true:
1. The student (and spouse) filed, or were eligible to file, a 1997 IRS Form 1040A, 1040EZ, or 1040TEL, and were not required to file a Form 1040, or the student (and spouse) were not required to file any income tax return, and
2. The student's (and spouse's) 1997 adjusted gross income is less than or equal to the maximum amount that may be earned to claim the Earned Income Credit
If the student (and spouse) are not tax filers, the sum of their earned incomes is less than or equal to the maximum amount that may be earned to claim the Earned Income Credit.
For the 1997 tax year, the maximum amount that may be earned to claim the Earned Income Credit is $12,000.
Types of Need-Based Aid
If you demonstrate need for financial assistance, there are two basic types of need-based financial aid: gift aid and self-help aid.
Gift aid, as the name implies, does not have to be repaid and does not require a service commitment on the part of the recipient. It consists of grants and scholarships from federal, state, institutional, and private sources. Federal Pell Grants, Federal Supplemental Educational Opportunity Grants, and other federal, state, institutional, and private scholarship and grant programs fall into this category.
Self-help aid, on the other hand, does require either repayment or a service commitment on the part of the recipient. Federal Perkins Loans, Federal Stafford Loans, Federal PLUS (Parent) Loans, Direct Loans, and Direct PLUS Loans, as well as state, institutional and private loan sources are examples of self-help aid. Money earned through the Federal Work-Study Program, state work-study programs, and institutional employment based on need are also categorized as self-help assistance.
The Role of the Financial Aid Office
Eligibility for need-based aid is determined by the institution's financial aid office. The financial aid administrator will "package" aid for each eligible applicant; that is, they will combine the various types of available aid to best meet the student's need.
The institution's decision usually will be communicated to the applicant via an award notification which identifies the cost of attendance at the school, the Expected Family Contribution (EFC), the actual amount of need, the types and amounts of aid available to the applicant, how the aid will be disbursed, and any other conditions of the award.
The institution may require the student to sign the award notification to indicate acceptance, and to return it to the institution by a specified date to prevent cancellation of the offer. Many colleges and universities that have an enrollment response deadline will provide the first-time student with an award notification either concurrent with or shortly after acceptance, so that the aid information can be evaluated before the student decides whether to enroll at that school.
Federal Pell Grant Program
Federal Pell Grant summary The Federal Pell Grant Program is for undergraduate students who have not yet completed a baccalaureate or first professional degree. Students may receive Federal Pell Grants for the period of time necessary to complete a first undergraduate baccalaureate degree, provided the student is making satisfactory progress towards the completion of that degree.
The beauty of the Federal Pell Grant is its portability. If a student applies, demonstrates financial need, and meets all of the eligibility criteria, he or she will receive a Federal Pell Grant at any eligible school attended. Receipt of a Federal Pell Grant does not depend upon the availability of funds at a particular school.
Eligibility for a Federal Pell Grant is determined according to Federal Methodology which computes an Expected Family Contribution (EFC). The aid administrator at the school the student attends must calculate the actual amount of the student's award based upon the student's Expected Family Contribution (EFC), cost of attendance, and enrollment status. Less-than-half-time students may also be eligible for Federal Pell Grants.
The amount of the Federal Pell Grant depends in part on the amount that Congress appropriates for the program. For example, the authorized maximum for the award year 1997-98 (July 1, 1997 through June 30, 1998) was $4,500; however, the actual maximum appropriations was $2,700.
Eligibility or ineligibility for a Federal Pell Grant may directly affect a student's eligibility for other aid, but, it is not uncommon for a student to be ineligible for Pell Grant yet still be eligible for other types of federal aid. The total amount of aid a student receives, including a Federal Pell Grant, cannot exceed the student's cost of attendance. The Federal Pell Grant is generally considered the "foundation" of the aid package. As with all other federal aid programs, students must reapply for a Federal Pell Grant every school (or academic) year.
Campus-Based Federal Aid Programs
In addition to the Federal Pell Grant Program, there are three "campus-based" federal programs: Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan. Funds for these programs are allocated to participating institutions.
Federal Supplemental Educational Opportunity Grant (FSEOG)
FSEOG summary The Federal Supplemental Educational Opportunity Grant (FSEOG) Program provides grant funds for undergraduate students who have not completed their first baccalaureate or professional degree.
FSEOG must be awarded first to students who show exceptional financial need as defined in law (i.e., students with the lowest Expected Family Contribution (EFC)s at that school), and priority must be given to Federal Pell Grant recipients. A student's eligibility for FSEOG may vary from school to school. The minimum annual FSEOG award is $100, and the maximum annual award is $4,000. Students in approved study abroad programs can receive a maximum FSEOG award of $4,400.
Federal Work-Study (FWS)
Federal Work-Study summary The Federal Work-Study (FWS) Program provides jobs for undergraduates as well as for graduate and professional students who are in need of such earnings to meet a portion of their educational expenses. Jobs may be located on-campus or off-campus. The employer may be the institution itself; a state, local public, or federal agency (except Department of Education); a private non-profit organization; or a private for-profit organization.
Schools that receive FWS funds are required to use at least 5% of their allocations to compensate students employed in community service activities. Such activities might include: child care, tutoring, and community improvement activities. Federal Work-Study employees must be paid at least the federal minimum wage rate.
Federal Perkins Loan Program
Perkins Loan Program summary The Federal Perkins Loan Program is the oldest loan program sponsored by the Department of Education, tracing its origins back to 1958 and the National Defense Education Act.
The Federal Perkins Loan Program is a source of low-interest loans for both undergraduates as well as graduate and professional students, with awards going first to students who show exceptional need.
Although the law requires that priority for Perkins Loan funds be given to student who demonstrate exceptional need, it does not define exceptional need. You should be aware that the definition of exceptional need will likely vary from school to school; consequently, a student's eligibility for Federal Perkins Loan will also vary from school to school. Before an undergraduate student can receive a Perkins Loan, the school must determine his or her eligibility or ineligibility for a Federal Pell Grant.
Currently, an eligible student may borrow up to:
* $3,000 annually as an undergraduate;
* $5,000 annually as a graduate or professional student;
* $15,000 aggregate as an undergraduate student;
* $30,000 aggregate as a graduate or professional student, including any amount borrowed as an undergraduate.
Institutions may also have special agreements with the Department of Education through the Expanded Lending Option whereby borrowers attending their institution have access to slightly higher annual and aggregate Federal Perkins Loan limits. Higher annual and aggregate loan limits may also be allowed for study abroad.
The current interest rate is 5%; however, interest does not begin to accrue until 9 months after the student ceases to be enrolled on at least a half-time basis. Repayment begins nine months after graduation or termination of enrollment on at least a half-time basis. Students may be allowed up to ten years to repay the amount they have borrowed from the Federal Perkins Loan Program.
There are provisions for deferment of repayment for a variety of situations. For loans made on or after 7/1/93, deferments are available to borrowers who are:
* Enrolled and in attendance at least half-time as a regular student;
* Enrolled and in attendance as a regular student in a course of study that is part of an ED-approved graduate fellowship program;
* Engaged in graduate or post-graduate fellowship-supported study outside the U.S., such as a Fulbright Grant;
* In ED-approved rehabilitation training for disabled individuals;
* Seeking but unable to find full-time employment (maximum of 3 years cumulative);
* Experiencing economic hardship (maximum of 3 years); and
* Engaged in service eligible for cancellation of that loan.
Finally, some Perkins Loan borrowers are eligible to have all or part of their loans canceled, including those who enter specific fields of teaching, teach in designated schools, work in Head Start Programs, provide certain health care services, provide early intervention services, work in a child or family service agency, serve in the military in areas designated as hostile or in imminent danger, volunteer under the Peace Corps or the Domestic Volunteer Service Act of 1973, or serve as law enforcement or corrections officers. A percentage of an eligible borrower's Federal Perkins Loan will be canceled for each completed year of service in one of these categories, including the interest that accrued during that year.
Federal Family Education Loan (FFEL) Program
The Federal Family Education Loan (FFEL) Program consists of the Federal Stafford Loan (subsidized and unsubsidized) and the Federal PLUS Loan. The source of funds for these programs is private capital from banks, savings and loan associations, credit unions, and other similar types of lending institutions.
Federal Stafford Loan Program
Stafford Loan Program summary The largest source of low interest loans administered by the Department of Education is the Federal Stafford Loan Program. Eligibility for Federal Stafford Loans is extended to all undergraduate, graduate and professional students.
In addition to filing a FAFSA, a separate Federal Stafford Loan application, called the Application and Promissory Note for Federal Stafford Loans, is also required to borrow under this program. Undergraduate Federal Stafford Loan applicants also must have a determination of eligibility or ineligibility for a Federal Pell Grant before the Federal Stafford Loan can be certified.
The lender must send the borrower's loan proceeds directly to the school. The school is responsible for delivering the funds to the student. If a loan is for a first-time, first-year undergraduate borrower, the school may not give the funds to the student until he or she has been enrolled for at least thirty days of the program of study.
In addition, all first-time Federal Stafford borrowers must attend a loan counseling session before receiving the first disbursement of their loan proceeds.
The maximum annual amounts that may be borrowed are:
* $2,625 for the first year of undergraduate study;
* $3,500 for the second year of undergraduate study;
* $5,500 per year for each remaining years of undergraduate study;
* $8,500 per year for graduate and professional students.
The undergraduate annual loan limits are reduced, or prorated, for students enrolled in undergraduate programs of study that are less than an academic year in length. They must also be reduced for students enrolled in programs of study that are greater than or equal to one academic year, but whose remaining period of enrollment is less than an academic year.
Also available are unsubsidized Federal Stafford Loans. These loans are intended to provide assistance to families who may not have "need" according to the above formula, but would benefit from having access to a low-interest federal student loan program.
Unlike the other federal student aid programs, unsubsidized Federal Stafford Loan borrowers are not required to demonstrate "need" in order to be eligible. In other words, The Expected Family Contribution (EFC) is not included in the need formula for an unsubsidized Stafford Loan. As a result, the unsubsidized loan can be used to replace EFC.
Unlike the subsidized Stafford Loan, the government does not pay the interest that accrues for unsubsidized Stafford Loan borrowers, even while they are enrolled at least half-time in an eligible program of study. Instead the interest must be paid by the borrower. This can be done in one of two ways. While they are enrolled, borrowers can pay the interest that accrues as it accrues. Alternatively, rather than pay the interest during periods of enrollment, borrowers can have that interest capitalized, which means adding it to the principal amount borrowed. All capitalized interest must be repaid. Repayment begins when the borrower leaves school. The important thing to note here is that capitalized interest becomes principal in this process. Thus, students who use this second option end up paying interest on accrued (and then capitalized) interest.
The amounts of any Federal Pell Grant for which the student is eligible must be included as estimated financial assistance when determining the allowable amount of the unsubsidized Stafford Loan. In addition, to ensure that students borrow the least costly, and thus most desirable loans first, their eligibility for a subsidized Stafford Loan must always be determined before they are allowed to borrow from the unsubsidized Stafford Loan program. If eligibility for the unsubsidized Stafford Loan remains, the student may borrow from that program as well.
In addition to the Federal Stafford Loan limits listed above, independent students (or dependent students whose parents are unable to borrow a Federal PLUS Loan) may borrow additional amounts under the unsubsidized Federal Stafford Loan Program, as follows:
* $4,000 per year for the first and second years of undergraduate study;
* $5,000 per year for the remaining years of undergraduate study;
* $10,000 per year for graduate and professional students.
All students are limited in the total amount they can borrow from the Federal Stafford Loan Program during their undergraduate and graduate academic careers. These limits are referred to as aggregate loan maximums and will vary depending on the student's dependency status and degree being sought.
The aggregate amount a dependent undergraduate student may borrow from the subsidized and unsubsidized Stafford Loan Program combined is $23,000. Independent undergraduate students or dependent students whose parents are unable to borrow a Federal PLUS Loan, may borrow $23,000 from the subsidized Stafford Program and $46,000 from the unsubsidized Stafford Loan Program less any amounts borrowed from the subsidized Stafford Loan Program.
Graduate students may borrow a total aggregate maximum of $65,500 from the subsidized Stafford Loan Program and $138,500 from the unsubsidized Stafford Loan Program less any amount borrowed from the subsidized Stafford Loan Program. These aggregates include any subsidized and unsubsidized Stafford Loan amounts borrowed for undergraduate study.
For new loans made after July 1, 1994, the maximum interest rate is fixed at 8.25%. The interest rate is determined each year, on June 1st. For the period July 1, 1997, through June 30, 1998, the rate is 7.66% during in-school, grace, and deferment periods, and 8.25% during repayment.
Lenders are authorized to charge borrowers an up-front origination fee of up to 3% of the principal amount of the loan. In addition, borrowers also pay an insurance premium which by law cannot exceed 1% of the principal amount of the loan. These fees are deducted proportionally from each disbursement of the student's loan.
Repayment with interest begins six months after graduation or termination of enrollment on at least a half-time basis. Students may be allowed up to ten years to repay based upon the amount they have borrowed. As with the Federal Perkins Loan Program, there are provisions for deferment of repayment under specified conditions.
Federal PLUS Loan Program
Federal PLUS Loan summary The Federal PLUS Loan Program is a source of long-term loans for the parents of dependent undergraduate students. There is no established annual maximum a parent may borrow on behalf of each dependent child, however, the loan amount cannot be greater than the difference between the student's cost of attendance and his or her other estimated financial aid. Also, there are no aggregate limits in the PLUS Loan program as there are with the Federal Stafford Loan program.
Federal PLUS Loan checks are made co-payable to the parent and the school, and must be disbursed directly to the school.
Beginning July 1, 1998, the interest rate on Federal PLUS is variable and may not exceed 9%. The interest rate is set annually on June 1st. For the period beginning July 1, 1997, through June 30, 1998, the interest rate is 8.98%.
Lenders are authorized to charge Federal PLUS Loan borrowers a loan origination fee of up to 3% to offset the federal government's cost of the program. In addition to the 3% origination fee, borrowers also pay an insurance premium which by law cannot exceed 1% of the principal amount of the loan. These fees are deducted proportionally from each disbursement of the PLUS Loan.
The federal government does not currently require parents to complete a FAFSA prior to borrowing a Federal PLUS Loan; however, schools have the discretion to require Federal PLUS Loan applicants to submit a FAFSA before certifying a Federal PLUS Loan application. Interested applicants should check with the school to determine its policy.
For FAFSA filers, the school must determine the student's eligibility for a Federal Pell Grant and must include any Federal Pell Grant eligibility in the student's estimated financial assistance on the PLUS Loan application. In addition, the school may also determine the student's eligibility for subsidized and unsubsidized Federal Stafford Loan before certifying the Federal PLUS Loan application. However, a parent does have the option of borrowing the amount of the student's Federal Stafford eligibility in a Federal PLUS Loan, if he or she chooses.
The repayment period for Federal PLUS Loan borrowers begins on the day the loan is fully disbursed. Unless the parent borrower qualifies for a deferment, the first payment of interest and principal is due 60 days after the loan is fully disbursed. There are deferment provisions related to the parent borrower's circumstances. Deferment of Federal PLUS Loans is for principal only; the borrower must pay all of the interest that accrues on the loan after it is disbursed. However, a lender may agree to capitalize interest (add it to loan principal) when the repayment of principal resumes. Conditions for deferment include when the parent borrower is unemployed or is experiencing economic hardship. Enrollment by the parent in a postsecondary school may, under certain conditions, also qualify the parent for a deferment of repayment.
William D. Ford Federal Direct Loan Program (FDLP)
On July 1, 1994, the federal government began operation of a new loan program called the William D. Ford Federal Direct Loan Program, which includes the Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans.
The terms and conditions of loans made under the Direct Loan Program are identical to those made under FFEL, except that borrowers under the Direct Loan Program are afforded somewhat different repayment options. In fact, from the student's perspective, the Direct Loan Program is the same as FFEL, except that the federal government provides the loan capital, and the school performs many of the tasks previously performed by the private lender.
Like the Federal Stafford Loan Program, to receive a Direct Subsidized or Direct Unsubsidized Loan students must complete and submit a Free Application for Federal Student Aid (FAFSA); first time loan recipients are also required to attend a loan counseling session prior to receiving payment. Unlike the Federal Stafford Loan Program, there is no additional separate application. Instead, the student is required to complete and sign a promissory note before he or she may receive the proceeds from a Direct Loan.
Direct Loan funds are provided by the federal government to schools. Schools then disburse the Direct Loan proceeds to students either in the form of a check or by crediting the student's account, if the school uses student accounts, and issuing a check for any credit balance.
Under the State Student Incentive Grant (SSIG) Program, federal funds are allocated to states to encourage the establishment and expansion of state scholarship and grant assistance to postsecondary students. The federal allotment must be matched by funds appropriated by the state.
In Louisiana, the SSIG Program is administered by the Louisiana Office of Student Financial Assistance. Each year, approximately 3,000 Louisiana students receive SSIG funds totaling more than $2,000,000, with the average award being $700. Individual grants range from $200 to $2,000; the amount is determined by the school's financial aid officer and is governed by the number of applicants and the availability of funds.
To be eligible, you must:
* Be a U.S. Citizen or eligible noncititzen
* Be a Louisiana resident (as defined by LOFSA)
* Have graduated from high school with at least a 2.00 cumulative GPA, a minimum average score of 45 on the GED, at least a 20 on the ACT or a cumulative postsecondary GPA of at least 2.00
* Be enrolled as a full-time undergraduate student
* Apply for a Pell Grant by completing the FASFA or Renewal FAFSA
* Have substantial financial need
* Not be in default on an educational loan nor owe a repayment on an educational scholarship/grant.
Health and Human Services Programs
In addition to the student aid programs administered by the Department of Education, Congress has authorized student aid programs for the health and nursing professions. These programs are administered by the Department of Health and Human Services (HHS), under Titles VII and VIII of the Public Health Service Act, and most are similar to the federal campus-based programs described earlier in that funds are awarded directly to schools. Schools are then responsible for managing program funds and awarding them to eligible students according to requirements specified in the law, regulations, and policy directives from the Department of Health and Human Services. These programs include:
* Nursing Student Loan Program (NSL) available to nursing students attending approved nursing schools offering a diploma, associate degree, baccalaureate or equivalent degree, or graduate degree in nursing.
* Health Professions Student Loan Program (HPSL) which provides assistance to students enrolled in specified health profession fields.
* Primary Care Loan Program (PCL) which provides assistance to allopathic and osteopathic medical students (that is, students pursuing an M.D. or D.O.) who intend to engage in primary care residency and/or practice upon graduating from their professional school program.
* Scholarships for Disadvantaged Students Program (SDS) which provides scholarships to individuals from disadvantaged backgrounds who are enrolled as full-time students committed to pursuing a career in the health professions.
* Loans for Disadvantaged Students Program (LDS) which provides low interest loans to disadvantaged health professions students.
* Exceptional Financial Need Scholarships (EFN) which are awarded to students who have exceptional financial need and who are enrolled in public or private non-profit schools of dentistry, allopathic and osteopathic medicine, in exchange for a commitment to practice in primary care after graduating.
* Financial Assistance for Disadvantaged Health Professions Students (FADHPS) which provide scholarships to students from disadvantaged backgrounds with exceptional need who are enrolled in schools of medicine and dentistry, and commit to practicing primary care medicine or dentistry after graduating.
* National Health Service Corps Scholarships (NHSC) which are designed to encourage health professions students to perform as primary care practitioners in the underserved areas.
* Health Education Assistance Loan Program (HEAL). Prior to October 1, 1995, the HEAL Program offered federally insured loans to full-time graduate and professional students attending eligible schools of allopathic medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, pharmacy, chiropractic, and public health, and to those enrolled in graduate programs of health administration or clinical psychology. Full-time undergraduate students pursuing bachelor of science degrees in pharmacy also were eligible. As of October 1, 1995, HEAL is no longer available to new borrowers.
To assist health professions students who cannot borrow under the HEAL program, the Department of Education extended unsubsidized Federal Stafford and Direct Unsubsidized annual loan limits for certain health professions borrowers. Students should check with the schools to which they are applying to see if they are able to take advantage of these increased loan limits.
In addition to federal student aid programs sponsored by the Office of Student Financial Assistance and the Department of Health and Human Services, additional sources of federal assistance exist. Many of these programs are of an entitlement nature and are administered by a particular agency, or a state on behalf of a federal agency. Also, many of the programs are subject to the annual congressional appropriations process.
The Robert C. Byrd Honors Scholarship Program
This is a merit-based rather than need-based program, the purpose of which is to recognize outstanding academic achievement. Selected students, known as "Byrd Scholars," must also show promise of continued excellence. Prior to 1996-97, each selected applicant could receive up to $1,500 for study at an eligible school of higher education. Beginning with the 1996-97 award year, both first year and continuing scholars receive a prorated scholarship amount. For 1997-98, this amount may not exceed $1,100 for full-time study. Scholarships can be renewed for up to three additional years of study. Ten recipients are selected from each congressional district. Your high school counseling office has application information on both the Douglas and Byrd scholarship programs.
The following federal programs are not funded for funded for 1998-99 so we will only mention them briefly.
Paul Douglas Teacher Scholarship Program
The Paul Douglas Teacher Scholarship is not a need-based program, although if the recipient is receiving other federal aid, that aid must be considered in determining the scholarship amount. The program is designed to provide scholarship assistance to outstanding high school graduates who demonstrate an interest in pursuing a teaching career at the elementary or secondary level. The maximum scholarship amount is $5,000 per year, not to exceed the cost of attendance. There is a four year limit on scholarship assistance, and in most cases each year of scholarship assistance obligates the recipient for two years of teaching.
National Science Scholars Program (NSSP)
This program is authorized under Title VI of the Excellence in Mathematics, Science, and Engineering Education Act of 1990, and is awarded to students for undergraduate study of mathematics, engineering, or the life, physical, or computer sciences.
The purpose of the program is to recognize and promote student excellence and achievement in the sciences by providing scholarships to meritorious graduating high school students that both encourage and enable them to continue their studies at the college level. Students who obtain the equivalent of a certificate of graduation during the school year in which the award is made may also be eligible.
Presidential Access Scholarship Program
This is a relative new-comer to the federal student aid programs. Program funds are available to undergraduate students who are eligible for Federal Pell Grant and who demonstrate academic achievement. The annual scholarship award is the greater of 25% of the student's Federal Pell Grant award for that year, or $400. The student may reapply for this scholarship annually up to a four year limit (five years, if the student is enrolled in a program that takes five years to complete).
National Early Intervention Scholarship and Partnership (NEISP)
The NEISP Program was created in 1992 to provide grants to states to: encourage states to provide a guaranteed amount of financial assistance to permit eligible low-income students who obtain high school diplomas or the equivalent to attend an institution of higher education; and provide financial incentives to enable states, in cooperation with local public and private organizations, to provide a variety of outreach services, including: counseling, mentoring, academic support, and early awareness services.
National and Community Service
The National and Community Service Trust Act of 1993 established the Corporation for National Service, which offers educational opportunities through the AmeriCorps programs. AmeriCorps members meet community needs with services that range from housing renovation to child immunization to neighborhood policing.
AmeriCorps members receive a modest living allowance and health coverage while participating in the program. After completing one year of full-time service (from 10 to 12 months), AmeriCorps members receive an education voucher worth $4,725. The voucher can be used to cover future costs of college or vocational school and to pay back student loans.
AmeriCorps members are sponsored by national, state, and local nonprofit organizations. In addition to the hundreds of local AmeriCorps programs, AmeriCorps also includes two national programs:
* AmeriCorps - NCCC (National Civilian Community Corps) is a full-time service program for men and women age 18 through 24. AmeriCorps - NCCC members focus their service on improving, maintaining, and restoring the natural environment; and
* AmeriCorps - VISTA (Volunteers in Service to America) is a full-time service program for men and women age 18 and older. AmeriCorps - VISTA members organize "capacity-building" activities for the nonprofits they serve, like recruiting and training community volunteers and setting up neighborhood education programs. Members live in the low-income communities they serve.
Department of Veterans' Affairs
The Department of Veterans' Affairs (formerly known as the Veterans' Administration) administers three basic programs for veterans and service persons seeking assistance for education or training. These are: (1) the G.I. Bill, for individuals entering the military on or after July 1, 1985; (2) Dependents Educational Assistance Program (DEAP) benefits for the children and spouse of a veteran who died or is permanently disabled from a service-related injury; and (3) Veterans' Educational Assistance Program (VEAP) for veterans and service persons who entered active duty for the first time after Dec. 31, 1976, and before July 1, 1985, and who signed up to participate in the program while they were on active duty. Eligible students should contact their school or the local Office of Veterans' Affairs.
Reserve Officer Training Corps (ROTC) ROTC offers military educational scholarships to college student's in exchange for a commitment of military service at the conclusion of that education. ROTC scholarships pay for undergraduate tuition, fees, and books for two, three, or four years, as well as a monthly stipend during the last two years of the student's educational program. Scholarship recipients must commit to serve in the military for a period of 7 to 8 years.
The Army, Navy, Air Force, and Marine Corps offer ROTC programs. The appropriate military service recruiting office has scholarship information and a directory of participating institutions.
Bureau of Indian Affairs (BIA) Grants
This higher education grant program is for enrolled members of a tribe (Indian, Eskimo, or Aleut) who are pursuing an undergraduate or graduate degree at an accredited postsecondary institution. In order to be eligible for a Bureau of Indian Affairs Grant, students must show financial need as determined by the institution they are attending. Additional information may be obtained from any Bureau of Indian Affairs office. Some reservations also have education officers who can provide students with more information and application forms.
Since 1973 access to educational opportunities for disabled individuals has been guaranteed through federal laws governing vocational rehabilitation. Some states offer access to these programs by providing grants or tuition waivers to eligible students. While students with disabilities may participate in any of the federal financial aid programs, additional aid through vocational rehabilitation programs may be used to pay for unique expenses incurred due to their disability.
Vocational rehabilitation programs provide comprehensive services under an individualized written rehabilitation plan. The plan can include evaluation, vocational training, special devices required for employment, job placement, and follow-up services.
Eligible students may receive funds for tuition, fees, books and supplies, as well as maintenance and transportation allowances. Disabled students should visit their state department of vocational rehabilitation for further information.
Before we conclude our discussion of federal need-based aid, we should note that not all postsecondary institutions participate in these programs. If an institution is not approved to participate, or has chosen not to participate, students attending that school may not receive funds under most of the programs just described. In some cases, an institution will participate in some, but not all, of the federal student aid programs. Schools with high default rates may be ineligible to participate in the Federal Pell Grant, FFEL, and Direct Loan programs. Aid administrators also may refuse to certify FFEL or Direct Loan applications, or may reduce the amounts borrowed, if they document in writing the reason for doing so and provide an explanation to the student or parent in writing. You should be sure to find out what aid programs are available at each school you are interested in attending.
The process of requesting and receiving student financial aid is a complex one. A proper beginning is essential to maximize the amount of assistance available to you. We hope this presentation has been helpful to you. If you have unanswered questions we encourage you to contact either your guidance counselor or the financial aid office at the institution(s) you are interested in attending.