A Workbook on Financial Aid, Loans, and Scholarships
for College-Bound Students and Their Families
Making College
The cost of college may seem scary to you and your family at first, but despite the seemingly
high price, college can be affordable, no matter how much you earn. TERI believes that a
college education is the best investment you’ll ever make.
This guide explains the many different kinds of scholarships, grants, and loans available from a variety of sources to help you pay for your education. Scholarships and grants can help reduce the cost of college. Federal work-study may be available to assist you in paying for your living expenses. Loans may allow you to spread out the cost of college over a longer period of time. Making College Affordable will help you find the ways to pay for college that work best for you and your family.
Making College Affordable
features:
• An overview of the types of federal financial aid and how to apply
• Resources to help you budget your money wisely in order to afford college • A glossary with definitions of financial aid terms
• Websites and college planning centers where you can receive additional help or information relating to financial aid
We at TERI hope you find this booklet helpful and informative. If you need further assistance, visit us at one of the many TERI College Planning Centers located in Boston, Brockton, or Chelsea; find us at www.tericollegeplanning.org; or call us toll-free in Massachusetts at 1-877-ED-AID-4-U (1-877-332-4348).
Best wishes for your continued success!
Making College
Affordable
TERI promotes access to education for students of all ages and
backgrounds. TERI is a national leader in helping low-income individuals
and those who are the first generation in their families to attend college,
realize their college dreams through direct service programs and
policy initiatives. TERI is also one of the most experienced and largest
nonprofit guarantors of private loans for education, which enables TERI
to support its college access initiatives locally, regionally, and nationally.
Introduction
3
Table of Contents
A College Education—the Best
Investment You’ll Ever Make ...
5Financial Aid and Federal Student Aid Overview
...6What Is Financial Aid? ...6
Federal Student Aid Overview...7
• Grants ...7
• Federal Work-Study ...7
• Federal Student Loans ...7
Eligibility for Federal Student Aid ...9
Tax Benefits for Higher Education ...10
Citizenship Requirements ...11
Applying for Scholarships
...12What Are Scholarships? ...12
• Your Scholarship Resources ...13
• How Do I Find Scholarships? ...14
• How Do I Apply for Scholarships? ...15
How to Apply for Financial Aid
...16Submit the FAFSA...16
What Happens After I Submit the FAFSA? ...18
Other Financial Aid Applications ...19
• Additional Forms ...19
• Filling out the CSS Profile® ...19
Comparing Award Packages ...19
Debt Management and Loan Repayment
...20Good Debt vs. Bad Debt ...20
Credit Reports and Credit Bureaus—Navigating the System ...21
Repayment Options for Student Loans ...22
Default Prevention ...23
The Importance of Budgeting ...23
Glossary
...24Resources
...26Budget Worksheet ...26
Your Student Resources ...28
Financial Aid Award Comparison Chart ...29
Questions to Ask the Financial Aid Office ...30
Internet Resources ...32
Private Loan Alternatives ...33
TERI College Planning Centers and
Introduction
5
A College Education—the Best
Investment You’ll Ever Make
Investing in college pays off! You will have the opportunity to earn back the
money you pay toward your education many times over throughout your
lifetime—both in dollars and cents and through your life experiences.
A college education will give you:
•
A better understanding of the world around you.
A college degree can supply you with the skills you need to be a successful worker. When you continue your education, you will learn how to make better decisions for yourself, your family, and your future. •More earning power.
In general, people with college degrees earn more money thanpeople without college degrees (although there are some exceptions). With a college degree, you may be able to better support yourself and your family, and make more informed decisions about how to wisely spend the money you earn. The graph below shows the typical yearly earnings of people who have graduated from college.
The More You Learn, the More You Earn!
Average Yearly Salary of People with College Degrees
What Is Financial Aid?
Financial aid is any type of assistance that you
receive to help pay for college. The two main
kinds of financial aid are need-based aid and
merit-based aid. Need-based aid is money
that you receive based on the determination
that you may have difficulty paying for college.
Merit-based aid is money that you receive
based on the determination that you have
worked hard or excelled in some way.
Types of financial aid that often are
need-based include:
• Federal, state, or school grants—awards that you do not have to repay
• Federal work-study—money you can earn by working part-time
• Federal loans—money that you must pay back, usually after you graduate or leave school
A type of financial aid that is often merit-based:
• Scholarship aid—money that you do not have to repay that has been awarded to you for a special reason. This aid is usually awarded through your college or university, a business, a community organization, or an individual.
Students receive financial aid from many different sources. Some private organizations award scholarships to students through competition. In some circumstances, students receive awards in exchange for community service from organizations like AmeriCorps, or in exchange for military service in the armed forces.
Many colleges and universities offer both need-based and merit-based grants and scholarships to their accepted students. Students also may receive need-based grants or loans from their state governments. The largest amount of financial assistance comes from the federal government in the form of federal student aid.
Financial Aid and Federal
Student Aid Overview
Average Tuition and Fees for 2006–07 Academic Year
2-year public colleges $2,2724-year public colleges $5,836
4-year private colleges $22,218 Source: The College Board, 2007
Financial Aid and Federal Student Aid Overview
7
Federal Student Aid Overview
The government offers federal student
aid to help U.S. residents and eligible
non-residents pay for college. When you apply
for federal student aid, you may receive
some combination of these three types of
assistance to pay for your college education:
grants, loans, and federal work-study.
Grants
A grant is the best kind of federal aid to receive, because, like a scholarship, you do not have to pay this money back. The types of federal grants you may be eligible to receive include the Federal Pell Grant, the Federal Supplementary Educational Opportunity Grant (FSEOG), the Federal Academic Competitiveness Grant (ACG), and the National Science and Mathematics Access to Retain Talent (SMART) Grant.
Federal Work-Study
Under the Federal Work-Study program, you can earn money toward your living expenses by working while you attend school. Most work-study jobs are on-campus or at local community organizations, and are usually not more than 10 to 15 hours a week. It is important to remember that you must earn work-study money during the course of your college attendance. You will receive these funds as you earn them. They will not be applied automatically to the cost of your college tuition at the beginning of each semester.
Federal Student Loans
Student loans are another type of federal assistance for which you may be eligible. These loans include the Federal Perkins, Federal Stafford loans, and Parent Loans for Undergraduate Students (PLUS) loans. They may be subsidized or unsubsidized. On subsidized loans, the federal government pays the interest that accrues while you attend school, so the amount you owe when you graduate or leave school is the same as the amount that you borrowed. For unsubsidized loans, you are responsible for paying the interest that accrues while you attend school. You may choose to defer these interest payments while you are in school, which means the amount you owe when you graduate or leave school will be greater than the amount you originally borrowed. No matter what type of loan you have, or whether or not you graduate from college, keep in mind that you will have to pay back the money that you borrow. If you need to borrow money to finance your education, explore Federal loan options first.
Federal Stafford Loan and Direct Loan Borrowing Limits
Maximum Amounts Undergraduate Students May Borrow in Both Federal Subsidized and Unsubsidized Loans
Dependent
Student Independent Student
1st year $3,500 $7,500 (maximum of $3,500 subsidized) 2nd year $4,500 $8,500 (maximum of $4,500 subsidized) 3rd – 5th years $5,500 $10,500 (maximum of $5,500 subsidized) Cumulative Limit $23,000 $46,000
Types of Federal Financial Aid Available to Students
Financial Aid And Federal Student Aid Overview
Type of Aid
Description
1Pell Grant This is money that the federal government gives to undergraduate students who may have difficulty paying for college. The amount you may be eligible to receive depends on your need. Awards for 2007–2008 may range from $400 to $4,050. This money does not have to be repaid.
Academic
Competitiveness Grant (ACG) Program
The ACG is intended for students who demonstrate financial need and are strong academic students. Students can receive $750 for the first academic year of study and $1,300 for the second academic year. To be eligible, a student must be enrolled full time at a competitive secondary school program. First-year students must not have been previously enrolled in an undergraduate program; second-year students must have at least a cumulative 3.0 grade point average on a 4.0 scale. The student must be a U.S. citizen and Federal Pell Grant recipient.
National SMART Grant Program
The National SMART Grant Program is intended for students who demonstrate financial need and are strong academic students with a particular interest in math and science. Students can receive $4,000 for each of the third and fourth academic years of study. To be eligible, a student must be enrolled full time at a competitive secondary school program. Students must have at least a cumulative 3.0 grade point average on a 4.0 scale and must major in physical, life, or computer science; engineering; mathematics; technology; or a foreign language critical to national security. The student must be a U.S. citizen and Federal Pell Grant recipient.
Federal Supplemental Educational Opportunity Grant (FSEOG)
This is money that the federal government gives to undergraduate students who demonstrate high financial need. The amount you receive depends on your need, the amount of other aid you receive, and the amount the college has available to distribute. Awards for 2007–2008 may range from $100 to $4,000. This money does not have to be repaid.
Federal Work-Study Program
This is money that you can earn while you attend school by working on your college campus or at a non-profit organization nearby. This money will not go directly toward your college tuition, but your earnings can help pay for your living expenses or books. This money does not have to be repaid.
Perkins Loan This is a low-interest (5% in 2007–2008) loan from your school. If you qualify for this loan, you will have to begin repaying this money once you are no longer a student.
Subsidized Direct2 or
FFELP Stafford Loan3
This is a low-interest loan (6.8% in 2007–2008) that can help you pay for your tuition or expenses while you attend school. You must be at least a half-time student to qualify. This loan is cheaper than an unsubsidized loan, because the federal government pays your interest for you while you are in school. You will have to begin repaying this money once you are no longer a student.
Unsubsidized Direct or FFELP Stafford Loan
This is a low-interest loan (6.8% in 2007–2008) that can help you pay for your tuition or expenses while you attend school. You must be at least a half-time student. This loan will accrue interest while you are in school, so the amount you owe when you leave school will be more than the amount you borrowed. You will have to begin repaying this money once you are no longer a student.
Direct or FFELP PLUS Loan
This low-interest loan (8.5% FFELP or 7.9% Direct in 2007–2008) is available to parents who have children who are at least half-time students to help pay for their child’s college tuition or expenses. The maximum amount of this loan is the child’s cost of attendance minus any other financial aid the student receives. The parents are responsible for repayment of this loan.
1
Check with your school’s financial aid office for applicable requirements or restrictions.
2 Direct Loans:Eligible students are able to borrow directly from the U.S. Department of Education at participating schools through the William D. Ford
Direct Loan Program.
Financial Aid and Federal Student Aid Overview
9
Eligibility for Federal Student Aid
In order to be eligible to receive federal student aid, you must either be a U.S. citizen with a Social Security Number or an eligible non-citizen. If you are a male age 18–25, you must have registered for the selective service (if you are not already registered, you can do so on the financial aid application). You must be enrolled, or planning to enroll, in a degree program of organized instruction that leads to an academic, professional, or vocational degree or certificate.
Dependent vs. Independent Students
Significant benefits may exist to filing as an independent student, such as a more significant award package and an easier filing process. However, most students under the age of 24 are considered dependent by the federal government and must have their parents complete the FAFSA. Below is a list of questions. If the answer is “yes” to any of these questions, you can file as independent. • Were you born before January 1, 1984?
• At the beginning of the 2007–08 school year, will you be working towards a master’s or doctorate degree? • As of today, are you married?
• Do you have children who receive more than half their support from you?
• Do you have dependents other than your children/ spouse who live with you and who receive more than half of their support from you?
• Are a) both your parents deceased or b) are you (or were you until age 18) a ward/dependent of the court?
• Are you currently serving on active duty in the Armed Forces for purposes other than training? • Are you a veteran of the armed services?
Additional special circumstances may also allow you to file as an independent. Check with your financial aid officer for answers to your questions.
Financial Aid And Federal Student Aid Overview
Tax Benefits for Higher Education
While the cost of college can be expensive, there are specific tax benefits for higher
education that may make the cost of attendance less prohibitive.
Educational Tax Credits
The federal government offers tax credits for those who are enrolled in postsecondary education programs. Tax credits are subtracted directly from the tax amount a family owes, as opposed to tax deductions, which are subtracted from a families’ taxable income.
The HOPE Scholarship Tax Credit
The HOPE Scholarship is a tax credit, not a scholarship. A family may claim a tax credit up to $1,500 for each eligible dependent—100% on the first $1,000 of tuition and required fees, and 50% on the second $1,000, for a total credit of $1,500. The Hope Scholarship is only available for the two tax years, i.e., freshman and sophomore years.
Lifetime Learning Tax Credit
As part of the Lifetime Learning Tax Credit, a family may claim a tax credit of up to $2,000 per year (20% of the first $10,000 of qualified tuition) for the taxpayer, taxpayer’s spouse, or any eligible dependents for an unlimited number of years. This cannot be used in the same year as a HOPE Scholarship Tax Credit.
Tuition and Fees Tax Deduction
The Tuition and Fees Tax Deduction can reduce taxable income by as much as $4,000 in 2006. This deduction is taken as an adjustment to income and may benefit taxpayers who do not qualify for either the Hope or Lifetime Learning tax credits.
Student Loan Interest Tax Deduction
Students and/or their families may be eligible to take a tax deduction of up to $2,500 for the interest paid on educational loans. This deduction is available for all educational loans including student, parent, federal, and non-federal loans.
The eligibility for tax credits and amount received for these tax credits is determined based upon the annual income of the filer(s), the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from the cost of tuition.
Note: This overview of tax credits and deductions is provided as a guide only and should not be used as tax advice. For more detailed information on higher education tax benefits, visit www.irs.gov and search for Publication 970, “Tax Benefits for Education.”
Am I an “eligible non-citizen”?
You must be one of the following:
• A U.S. National (includes natives of American Samoa and Swain’s Island)
• A U.S. Permanent Resident who has an I-151, I-551, or I-551C (Permanent Resident Card or “Green Card”)
If none of those categories applies, you must have an Arrival-Departure Record (I-94) from U.S. citizenship and Immigration Services (USCIS) showing one of the following designations:
• “Refugee” • “Asylum Granted”
• “Cuban-Haitian Entrant, Status Pending”
• “Conditional Entrant” (valid only if issued before April 1, 1980)
• “Parolee” (You must be paroled into the U.S. for at least one year, and you must be able to provide evidence from the USCIS that you are in the U.S. for a purpose other than a temporary one and that you intend to become a U.S. citizen or permanent resident.)
If you have only a Notice of Approval to Apply for Permanent Residence (I-171 or I-464), you are not eligible for federal aid. If you are in the U.S. on certain visas, including an F1 or F2 student visa, or a J1 or J2 exchange visitor visa, you are not eligible. People with G series visas are not eligible.
Source: Funding Education Beyond High School, U.S. Dept. of Education (2006–2007).
What Are Scholarships?
A scholarship is an award from a private source that does not need to be paid back.
Many private scholarships are merit-based, that is, awarded to students for outstanding
achievements or talents. Some scholarships are limited to students with financial need.
Private scholarships are sponsored by individuals, businesses, organizations, and groups with
special interests, and may be awarded for:
Applying for Scholarships
• A specific field of study or occupation • Race, ethnic group, or religious affiliation • Special skills or talents
• Community service or leadership • Outstanding achievements
• Students who have overcome significant challenges
Organizations that may award
scholarships include:
• Businesses or corporations • Community service organizations • Industry associations
Scholarships—the Best Kind of Support to Pay for College
Applying for Scholarships
13
Your Scholarship Resources
The Web is the fastest and easiest way to locate private
scholarships. There are over 50 online scholarship databases.
Three to start with are:
•
www.localstudentfunding.org
-
A database
designed by TERI specifically for Massachusetts residents and
students planning to attend Massachusetts schools.
• www.collegeboard.com
• www.finaid.org
See page 32 to find
additional Internet
resources on colleges,
careers, scholarships,
and various sources of
financial aid.
Applying for Scholarships
How Do I Find Scholarships?
High School Counselors and College Advisors
Counselors often have information about scholarships. Ask about scholarships that other students have received and whether or not you may be eligible for them. Inquire if there are scholarships for which they may recommend you.
Libraries
Public libraries and college libraries have books listing scholarships. Many libraries also maintain files of newspaper clippings and brochures on local scholarships not listed in books or on the Web.
Your Family
Family members may be affiliated with groups that offer scholarships. Employers, community groups, unions, local businesses, civic groups, alumni organizations, veterans’ groups, and religious organizations are examples.
Chamber of Commerce
Your local Chamber may have a list of businesses and civic organizations that award scholarships to area residents.
Community and Faith-based Organizations
YM/YWCAs, Boys and Girls Clubs, churches, temples, and mosques have private scholarship information. Consult your high school counselor to find out more.
Applying for Scholarships
15
How Do I Apply for Scholarships?
Start early!
Begin researching private scholarships
at least one year
before you plan to go to college. Allow time to:
1.
Do research
Request application forms.
;
Make sure that you meet eligibility requirements.
;
2.
Complete the application process
Scholarships have their own applications that you will need to complete.
;
Submit all required materials such as essays and school transcripts.
;
Give your references (teachers, youth leaders, and others you know well)
;
enough time to submit their recommendations.
Complete the FAFSA, the application used to determine eligibility for
;
federal and state financial aid programs, if the scholarship application requires it. See page 16 for an overview of the FAFSA.
Some private scholarships also require that students complete a CSS
;
Profile®. (See the CSS Profileregistration booklet at www.collegeboard.
com for information on which scholarship programs require the form.)
3.
Meet all Deadlines!
Most scholarship programs strictly adhere to deadlines.
;
Make sure that you meet all of the eligibility requirements.
;
1.
Request a PIN (Personal Identification Number)for you and your parents. You can request a PIN at
www.pin.ed.gov. Be aware that it can take up to one week to receive your PIN.
2.
Figure out exactly whose tax forms you will need to complete the FAFSA. (Note: If you have not yet filed your taxes, you may complete the FAFSA using estimated tax information.)• If you worked last year, you will need your own W-2(s) and your income tax form, which is called either a 1040, 1040A, or 1040EZ form. (The type of form usually is indicated at the top left and bottom right corner of the page.)
• If you live with both natural parents, and they are currently married, you will need both your parents’ W-2 forms and income tax form(s). • If you live with one natural parent who is not
currently married, you will need the W-2(s) and tax forms of the parent that you live with for most of the year (over six months). If your parents are divorced, and you lived with each of them for an equal amount of time in the past year, then you will need the W-2(s) and tax forms of the parent who provides more money to support you. • If you live with one natural parent and one
step-parent, then you will need the W-2(s) and tax form(s) from both your natural parent and your step-parent.
• If you live with your legal guardian, then you may need his or her W-2(s) and tax forms. (Legal guardians are NOT considered parents in
How to Apply for Financial Aid
Submit the FAFSA
(Free Application for Federal Student Aid)
All colleges and universities require students to complete the FAFSA form in order to be eligible for financial
aid. You can complete this form on the Internet at
www.fafsa.ed.gov
, or you can have a paper FAFSA form
mailed to you by calling the Federal Student Aid Information Center at 1-800-4-FED-AID.
We strongly urge
you to fill out the FAFSA online. If you do not have a computer, we suggest you speak to your guidance
counselor, or visit a local college planning center or library.
See the inside back cover for a list of TERI
College Planning Centers in Massachusetts that provide free services.
In order to complete the FAFSA form online, you
will need to follow these steps:
3.
Complete the FAFSA at: www.fafsa.ed.gov.4.
List all the schools to which you are applying on theFAFSA (up to six), so that all your FAFSA information is automatically sent to each of your schools. Find a list of all of the schools in the U.S. and their codes at www.fafsa. ed.gov/FOTWWebApp/FSLookupServlet.
How to Apply for Financial Aid
17
Checklist
You’ll need the following items to complete your FAFSA form
Social Security Number
;
Driver’s license
;
2007 W-2 forms and other records of money earned
;
Your (and your spouse’s, if married) 2006 Federal Income Tax Return. This can
;
be an IRS Form 1040/1040A/1040EZ
OR
foreign tax form
OR
a tax return from
Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands,
the Federated States of Micronesia, or Palau.
Parents’ 2007 Federal Income Tax Return (if you are a dependent student)
;
2007 untaxed income records: Social Security benefits, Temporary Assistance to
;
Needy Families, Welfare, and/or Veteran Benefits Records.
Current bank statements
;
Current business and investment and mortgage information; business and farm
;
records; and stock, bond, and other investment records.
Alien registration or permanent residence card (if you are not a U.S. citizen)
;
Keep these records! You may need them again.
For more information, go to
www.fafsa.ed.gov.
How to Apply for Financial Aid
What Happens After I Submit the FAFSA?
1.
Once you have submitted your FAFSA, the federal government uses the information to determine how much you and your family can afford to pay for college each year. This amount is called your Expected Family Contribution (EFC).2.
Your EFC will be sent to you either by mail or email on a form called your Student Aid Report, or SAR. The colleges you designated on your FAFSA also will receive your EFC, on a form called The Institutional Student Information Report (ISIR).3
. Based on your EFC and the cost of attendance (COA) for the universities and colleges to which you are applying, the school will determine your financial need. The school does this by subtracting your expected contribution from the cost of attendance. For example, if the cost of attendance for a particular school is $20,000, and your expected family contribution is $5,000, your remaining financial need is $15,000.4.
Based on your financial aid need, each college will provide you with a financial aid award package with a variety of options to help you meet your financial need. The package may include a combination of Federal Perkins Loans, Federal Stafford or Direct Loans, Pell or FSEOG grants, or Work-Study. Some colleges and universities also may award their own institutional grants or aid.Note: Although you may qualify for financial aid, your aid award may not cover your entire financial need. In these cases, you—the student—are responsible for the remaining cost of attendance.
IMPORTANT NOTE!
The FAFSA becomes available in January each year. Apply as soon after January 1 as possible. Most schools have application deadlines for the FAFSA, but you do not need to wait for an admissions acceptance or complete your tax returns to fill out the FAFSA.
Annual Amount
Borrowed Total (4 Years)Amount Borrowed Monthly PaymentAfter School Total Amount Paid Total Interest Paid
$2,000 $8,000 $92.06 $11,047.71 $3,047.71
$4,500 $18,000 $207.14 $24,857.35 $6,857.35
$6,000 $24,000 $276.19 $33,143.14 $9,143.14
$10,000 $40,000 $460.32 $55,238.56 $15,238.56
Annual Amount
Borrowed Total (4 Years)Amount Borrowed Monthly PaymentAfter School Total Amount Paid Total Interest Paid
$2,000 $8,000 $99.19 $11,902.63 $3,902.63
$4,500 $18,000 $223.17 $26,780.91 $8,780.91
$6,000 $24,000 $297.57 $35,707.88 $11,707.88
$10,000 $40,000 $495.94 $59,513.13 $19,513.13
Sample Repayment Charts
The charts below demonstrate how the amount you borrow to pay for college translates into monthly payments after you graduate or leave school. It also shows how interest rates affect how much you will ultimately pay on a loan. This is important information to consider when you decide how much you can afford to borrow.
6.80% Interest—2007-2008 Federal Stafford Rate
How to Apply for Financial Aid
19
Other Financial Aid Applications
Additional Forms
While all schools require that you complete the FAFSA, some schools also may require you to fill out additional paperwork besides the FAFSA to apply for federal aid. A number of private colleges, universities, and scholarship programs, in fact, will require a form called the CSS Profile. They also may require that you complete their own institutional financial aid application, a customized form that asks questions specific to the school’s financial aid process. Make sure that you contact your college’s financial aid office to find out their application requirements. You may not be eligible to receive financial aid from your school if you do not complete the paperwork in full.
Filling out the CSS
(College Scholarship Service) Profile
The CSS Profile is similar to the FAFSA but asks even more in-depth questions about your family’s financial
situation. You can find it online only at http:// profileonline.collegeboard.com. If your college, university, or scholarship program requires that you fill out a CSS Profile, you will need copies of your family’s W-2s and tax forms for the past two years and all financial statements, including mortgage statements; stock, bond, and mutual fund information; checking and savings account information; and any other statements reflecting additional income or unusual family expenses.
The CSS Profile has a $5 registration fee, with an $18 fee for each college that you select to receive the information. There are fee waivers that may cover the cost of registration and reporting fees for six schools. If you are eligible for a fee waiver, you will be notified at the completion of the application. If the Profile does not grant you fee waivers, you will be required to pay the full cost.
Financial Aid Formula (Sample)
Total Cost of Attendance $20,000 Expected Family Contribution $5,000
Financial Need $15,000
Financial Award Package (Sample)
Federal Pell Grant $2,000
State Scholarship Grant $1,000 Institutional Grant $5,000 Federal Perkins Loan $1,500 Federal Direct Loan $3,500
Federal Work-Study $2,000
Total Award $15,000
IMPORTANT NOTE!
The FAFSA becomes available in January each year. Apply as soon after January 1 as possible. Most schools have application deadlines for the FAFSA, but you do not need to wait for an admissions acceptance or complete your tax returns to fill out the FAFSA.
Comparing Award Packages
If you are accepted into more than one school, you will receive an award letter from each one. It is important to compare award letters before you decide which school to attend. Based on the amount of financial aid you receive from each school, you can determine which will be the most affordable. You can use the Financial Aid Award Comparison Chart in the back of this booklet to compare your financial aid packages from different schools.If you receive financial aid in the form of loans, you will need to decide how much debt you are willing to take on in order to attend a certain school—and how much debt you will be capable of repaying successfully. For more information on dealing with student loan debt, read the next section entitled
Debt Management
and Loan Repayment
As we have discussed, it is important to borrow only the minimum amount of loans necessary
to finance your education. However, when used wisely, student loans can be a good
investment in your future, and many people graduate with at least some student debt.
With the benefits of borrowing for college comes responsibility. Remember that loans are a
promise—you promise to pay later for goods, services, or money that you receive now. The
original amount you borrow is called the
principal,
and what you are charged to use the
borrowed money is called
interest
.
Good Debt vs. Bad Debt
Whenever you incur debt, it potentially can be dangerous. However, some kinds of debt are more dangerous and expensive than others. Student loans, auto loans, and mortgages are common types of loans that may help consumers to increase their wealth and earning potential. Other types of loans, such as credit cards, can be very risky.
Credit cards work by lending you money to buy things you want. The credit card company pays the merchant and then often charges you a high interest rate. The credit card company will send you a monthly bill that will show what you charged, the new account balance with the interest factored in, and a minimum monthly payment that is due. If you pay off the balance in full each month, credit cards can be helpful tools. However, if you don’t pay back the full balance promptly, using credit cards can be very expensive.
Credit cards have many disadvantages. Here are a few reasons to be wary of them:
• They can create excessive debt that you can’t afford
• It can take many, many years to pay off a balance
• The amount you pay off may be up to four times greater than the original amount you spend
• They often have very high interest rates
Credit cards are one of the most
expensive ways to borrow! Buying goods
using credit cards is really just taking out a
high-priced loan. Think twice before you
apply for or using a credit card.
Debt Management and Loan Repayment
21
Credit Reports and Credit Bureaus—Navigating the System
Equifax
www.equifax.com Consumer Relations PO Box 105873 Atlanta, GA 30348 800-685-1111TransUnion
www.transunion.com Consumer Services PO Box 390 Springfield, PA 19064-0390 800-813-5604Experian
www.experian.com Consumer Relations PO Box 2104 Allen, TX 75013-3742 888-397-3742All types of debt can be risky. Yet, if repaid properly, debt can be a
valuable tool to help you build a good credit record. In turn, having
good credit will allow you to borrow money from banks to buy a car,
house, and many other things.
Financial institutions pay credit bureaus to compile information about
consumers. This information is put into a credit report, similar to a school
report card, which scores your credit rating. There are three main credit
bureaus that record information about your credit history:
You are entitled to receive one free copy of your credit report every year from each of these three bureaus. To request a copy, contact the bureau using the information above, or visit www.annualcreditreport.com, where you can download copies online.
Debt Management and Loan Repayment
Repayment Options for Student Loans
Repayment is the process of paying back the amount of money you borrowed plus
the amount of interest that has accumulated. Federal student loans offer a variety of
repayment options:
• Standard Repayment—Ten years (or 120 months) maximum, with approximately the same payment amount due each month throughout the entire period. Keep in mind that making the standard payment amount or more every month is the most financially sound way of paying back your student loan. You will never be penalized for paying “extra” toward your bill.
• Graduated Repayment—You begin by making interest-only payments for up to four years. After four years, your payments become higher than the standard monthly payments would have been to ensure that the loan is still paid in full within the ten-year period.
• Income Sensitive Repayment—You pick a monthly payment amount that equals between 4% and 25% of your gross monthly income. You are allowed to use this option for a total of five years, and it may extend your repayment term up to 15 years.
• Consolidation—All of your student loans are paid off, and one new loan made up of the total amount you owe is created. You are usually given a term of between 12 and 30 years, which could lower your monthly payments.
• Extended Repayment—If you have more than $30,000 in outstanding student loans, you may choose to extend your repayment term up to 25 years.
If you can’t afford your
monthly payments, contact
your lender to find out
about other repayment
options instead of
defaulting on your loan.
Debt Management and Loan Repayment
23
Default Prevention
Loans must be repaid whether or not you finish your
degree. For most students, you will begin monthly
payments once you are out of college. The amount
you pay back depends on the amount you borrowed.
If you do not repay the loan, your loan will go into
default.
There are serious consequences if you default on a student loan. Defaulting on a loan will affect your ability to get other credit such as credit cards, car loans, additional education loans, or a mortgage. Defaulting on your student loan also will negatively affect your credit report for up to seven years.
If you are unable to afford your monthly payments, contact your lender to find out about other repayment options, instead of defaulting on your loan. Many lenders are willing to work with you to lower your payments so that you do not default. Another option to consider is consolidation, which also may lower your monthly payments.
If you are having financial difficulty because you or your spouse have recently lost your job, you have a medical condition, or another serious reason, you also can talk to your lender about deferment
or forbearance. Forbearance is when you discontinue your loan payments for a short period of time until you are able to recover financially. Deferment or forbearance should be a last resort, and need to be arranged with your lender ahead of time.
The Importance of Budgeting
So how do you properly manage your debt so that you have a clean credit report?
Budgeting, or carefully planning out how to apply your income toward your expenses,
is one solution. Creating a budget is an important part of successfully managing your
debt. Once you create your budget, you may need to change it as circumstances in
your life change. On page 26 you’ll find an example of a Budget Worksheet that you
can use throughout the different stages of your life.
Academic Competitiveness Grant
(ACG) Program:
A federal need-based grant for students in their first and second years of secondary education with strong academic backgrounds. This does not need to be paid back.Consolidation:
Combining all of your existing student loans into one, larger loan, often with a fixed interest rate, so that only one large payment needs to be made a month, rather than several smaller payments.Cost of Attendance (COA):
The total amount of the various costs of attending college, including tuition, fees, books, supplies, room and board (that is, housing and food), and transportation or travel to and from college.Credit:
A history of all of your credit card payments, loan payments, and other financial information for the last several years, as reported by the three major credit bureaus, Equifax, Experian, and TransUnion.Default:
Failure to pay a loan.Deferment or Forbearance Period:
Period of time when a student is not required to make loan payments on his or her student loans. In order to defer your student loans, you must first arrange it with your lender.Direct Loans:
See Federal Student Loans.Expected Family Contribution (EFC):
The amount a student and/or the student’s family is expected to pay for college, according to the federal government. This is determined by the information the student enters onto his or her FAFSA form.FAFSA (Free Application for Federal
Student Aid):
The primary form used to determine a student’s eligibility for financial aid. Any student who wishes to be considered for financial aid for any college must complete this form.Federal Income Tax Forms:
The forms that you use to file your yearly taxes. Most commonly used are 1040, 1040EZ, and 1040A forms.Federal Pell Grant:
Need-based financial aid that does not have to be repaid, and that is distributed by the federal government.Federal Student Aid:
Assistance from the federal government in paying for college. This includes Pell and FSEOG grants, Stafford Loans, Direct Loans, Perkins Loans, and PLUS Loans. In order to receive federal student aid, you must file a FAFSA form and demonstrate financial need.Federal Student Loans:
Loans that are offered to students and/or their families based on financial need. These loans, which include Perkins Loans, Stafford Loans, Direct Loans, and PLUS Loans, have very low interest rates and must be used to pay for college.Federal Supplemental Educational
Opportunity Grant (FSEOG):
Need-based financial aid that does not have to be repaid and that is distributed by the federal government.Financial Aid:
Financial resources geared toward helping students and/or their families cover the costs of attending college.Financial Aid Package:
The amount of federal, state, and college money (in the form of grants,scholarships, loans, and work-study) that is made available by a college or university to help a student pay for attendance at that school.
Financial Need:
The difference between the cost of attending a particular college and what a student and/or his or her family can afford to pay.Forbearance:
See DefermentGlossary
Grants:
Financial aid money that does not have to be repaid. Generally, grants are awarded based on the student’s financial need.Loans:
Money that is borrowed by the student or family to pay for college costs. This money must be repaid after the student leaves college.Merit-based aid:
Financial aid awarded to students who demonstrate outstanding academic achievement, or special talent in the arts, athletics, or other areas.National SMART Grant Program:
A federal need-based grant for students in their third and fourth years of secondary education with strong academic backgrounds in math and science. This does not need to be paid back.Need-based aid:
Financial aid awarded to students who demonstrate financial need as determined by the college they attend or plan to attend.Perkins Loans:
See Federal Student Loans.Personal Identification Number (PIN):
A unique number that the federal government assigns to a person after he or she applies online (www.pin.ed.gov). This number must be used to electronically sign the FAFSA form.PLUS Loans:
See Federal Student Loans.Scholarships:
Financial aid money that does not have to be repaid. Generally, scholarships are awarded based on the student’s merit.Stafford Loans:
See Federal Student Loans.Student Aid Report (SAR):
A form sent to a student after his or her FAFSA has been processed that the student can use to verify his or her information and make corrections to the FAFSA, if needed.Subsidized:
When a federal loan is subsidized, the government pays the interest on this loan while the student is in school.Unmet Need:
The difference between the student’s financial need and the amount of financial aid he or she receives from the college.Unsubsidized:
An unsubsidized loan will continue to collect interest while a student is in school.W-2 Form:
A record of all of the money you have earned from a particular employer during one year.Work-Study:
Need-based financial aid students earn by working at work-study jobs on campus or in off-campus community organizations. Students can use their paychecks toward living expenses or other costs of college during the school year.Resources
Budget Worksheet
On the following page you’ll find a handy budget worksheet that you can photocopy and use every month.
To use this chart:
Enter your monthly income in the top row
;
Estimate your expenses for each item listed in the gray column at left
;
Enter these estimated expenses into the column marked
;
Month 1Calculate your total expenses at the bottom of the chart
;
Look at your
;
Budget Balance—compare your total monthly income to your total expenses.Do you need to adjust your budget to better meet your expenses?
Use the data from
;
Month 1 to calculate your budget for Month 2Adjust your budget monthly, or as often as you need to reflect your changing expenses
Month 1
Month 2
Total Monthly Income $ $
Expenses
Constant Expenses Rent/mortgage Transportation: Auto payment Auto insurance Auto registration Utilities: Gas/electric/oil Water TelephoneStudent loan payment Renter/home insurance Health insurance Estimated taxes* Variable Expenses Savings Retirement plan Credit card debt Food/groceries Child care Transportation: Auto gas Auto maintenance Public transportation Parking Entertainment Clothing: Clothes purchases Laundry/dry cleaning Holiday/special occasions Travel expenses Pet supplies Personal care/hygiene Luxury Expenses Gym/club membership Cellular/mobile phone Food: Restaurants Snacks/coffee Utilities: Cable Internet access Other
Total Monthly Expenses $ $
Budget Balance
Subtract total expenses from total income
Resources
27
*Estima ted tax es: F or annual inc ome up t o $27,050, estima te 15% of salar y; $27,050 t o $65,550, estima te $27.5%; $65,550 t o $136,750, estima te 30.5%; $136,750 t o $297,350, estima te 35.5%; and $297,350 or higher , estima te 39.1%.School Name
Deadline Date
Check When Sent
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
Your Student Resources
Financial Aid Deadlines:
Each school has different deadlines and requirements. Keep track of them by filling in the form below.
Financial Aid Form Passwords:
Be sure to keep this form in a safe place!
FAFSA
CSS Profile
Student PIN:
User Name:
Parent PIN:
Password:
School Passwords, Scholarship Search Passwords, etc.:
Resources
29
Financial Aid Award Comparison Chart
Fill in this chart to compare your financial aid award packages.
1. Cost of Attendance
2. Expected Family Contribution 3. FINANCIAL NEED
(subtract line 2 from line 1)
4. Grants Awarded 5. Scholarships Awarded 6. Total Grants/Scholarships
(add lines 4 and 5)
7. Federal Stafford or Direct Loans, Subsidized 8. Federal Stafford or Direct Loans, Unsubsidized 9. Federal Perkins Loans
10. Total Federal Loans
(add lines 7 through 9)
11. Federal Work-Study 12. TOTAL AID AWARDED
(add lines 6,10, and 11)
13. UNMET NEED
(subtract line 12 from line 3)
College Name
College Name College Name
Questions to Consider
Use these questions to help you and your family make the best decision for your future.
1. Which college gives you the most grants and scholarships? This money generally does not need to be repaid.
2. Which colleges meet your total financial need (that is, cause your unmet need in line 13 to equal zero)? Which colleges do not?
3. How much of your financial aid package is in loans? This money must be repaid. Think hard about how much debt you can afford to repay.
School Name
Deadline Date
Check When Sent
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
FAFSA
CSS Profile
College Form
Questions to Ask the Financial Aid Office
What is the college’s policy on need-based aid?
;
Does the college meet full need?
;
Does the college meet full need for all four years?
;
Is there an automatic gap between aid and cost of attendance for all students?
;
Do grades play a part in the financial aid decision?
;
How does the college handle applicants with significant need?
;
Assuming cost and family responsibility remain constant, how will grant and loan amounts change
;
during the four years?
What is the total cost of attendance?
;
Which expenses will be reflected in the term bill, and what are the non-billed expenses that the student
;
should anticipate?
What parts of the financial aid package are need-based, and what parts are based on other criteria?
;
Is future grant or scholarship aid contingent upon academic or extracurricular performance?
;
Are the scholarships/grants renewable each year?
;
How do outside scholarships affect the rest of the aid package?
;
Are there merit-based scholarships, and how do students apply?
;
What are the college’s policies on work-study?
;
Can students borrow more than the amount listed in their award letter?
;
What is the college’s policy on divorced or separated parents?
;
Are students required to apply for financial aid even if they receive an academic scholarship?
;
How much will students be expected to borrow each year?
;
What does the college estimate will be the total student/parent debt upon graduation?
Resources
31
Making a Financial Plan to Pay Your College Bill
Your first college bill will arrive next summer, soon after graduating from high school. Below are some tips to help you understand your bill and put together a financial strategy to pay the balance due.
1. Start Early. Begin your financing plan as soon as possible by reviewing the materials sent by your college, exploring the college’s website and talking to your Financial Aid Administrator if you have questions. Once you know your financial aid award, you can determine your financing plan even before you get your first bill.
2. Make a financing plan based on annual costs. Bills are usually sent on a semester basis; however, you should create your financing plan based on annual costs. Try to borrow one loan or set up one payment plan for the entire year. 3. Determine your balance due:
a. Add up direct costs. Direct costs for the full academic year include tuition, fees, room & board (if on-campus), and may include other costs such as health insurance. Direct costs are paid directly to the school and are different than the full cost of attendance, which may include costs such as books, living expenses, and transportation.
b. Subtract the financial aid you may have received from the direct costs. Financial aid includes grants, scholarships, or loans (including the Federal Stafford Loan) less any origination fees on the loans.
c. Do NOT subtract your Federal Work-Study allowance. This is an amount that the student is eligible to earn, and will be paid to the student directly. Students usually use these funds to assist with their living expenses.
d. Calculate your balance due. Once you have subtracted the financial aid and any additional deposits paid from the direct costs, you will know the balance due. This is the amount your family must pay.
4. Determine your financing strategy for paying the bill. Most families use a combination of financial aid, parent or student savings, interest-free monthly payment plans, and loans to pay the bill.
5. Do you have savings? Next, determine if you are going to pay for any of the balance due with savings, investments, or college savings plans, and subtract as much as you can reasonably afford.
6. Enroll in an interest-free monthly payment plan. Consider how much of your current income you can use to pay the bill, and set up an interest-free monthly payment plan with your college. Most colleges offer interest-free monthly payment plants to split the bill into more manageable monthly payments over 10 to 12 months.
7. Minimize borrowing by combining an interest-free monthly payment plan and a loan. Before you borrow a parent or student loan, figure out how much you can afford to pay each month and determine the best combination of payment plan and loan payments to match your cash on hand. An extra $100 per month paid over a 10-month interest-free monthly payment equals $1,000 less you will have to borrow. Using this strategy can help you reduce the long-term debt you may incur.
8. If you borrow a private educational loan, shop around for the best rate. Look at the annual percentage rate (APR), not just the interest rate. The APR reflects the real cost of borrowing, including the interest rate and fees. Save more with special borrower benefits, such as reduced interest rates if you sign up for automatic withdrawal and incentives for on-time payments.
Additional Internet Resources
for Learning About Financial Aid
The following are websites you can visit to gain information on colleges, careers, scholarships,
and various sources of financial aid. These sites are categorized for you by the types of
information provided.
College Planning Information
These sites provide information on career, college,
financial aid, and much more.
TERI
www.tericollegeplanning.orgThe College Board
www.collegeboard.comU.S. Department of Education
www.ed.govAcademic and College Information
These sites primarily provide information about
colleges and academic issues.
College Net
www.collegenet.comCollege View
www.collegeview.comMapping Your Future
www.mapping-your-future.orgStandardized Test Sites
These sites provide information about standardized
tests that may be required for entry into college.
College Board
www.collegeboard.comEducational Testing Services
www.ets.orgPrinceton Review
www.review.comTest Prep
www.testprep.comFinancial Aid Information
These sites provide users with financial aid
information ranging from scholarships, federal and
state aid sources, credit-based student loans, EFC
calculators, and aid applications.
TERI
www.tericollegeplanning.orgAmerican Student Assistance
www.amsa.comFastWeb Financial Aid Search
www.fastweb.comFinancial Aid Homepage
www.finaid.orgMassachusetts Educational Financing
Authority
www.mefa.orgFAFSA on the Web
www.fafsa.ed.govFAFSA 4caster
www.fafsa4caster.ed.govCollege Goal Sunday
www.collegegoalsundayusa.org
Credit Reports
These sites provide information about your credit
reports that may be used to determine your
eligibility for credit-based student loans.
Request Free Annual Credit Reports
www.annualcreditreport.comTransUnion
www.transunion.comExperian (TRW)
www.experian.comPrivate Loan Alternatives
Borrowing Private Loans
Borrowing private loans to pay for school should be your
last option
after
exhausting all the tuition assistance, scholarship and grant money, and federal loan
money that may be available.
Where federal education loans offer low-interest rates, flexible repayment
plans, and options for borrowers who have trouble repaying their loans, such as
deferrment and forbearance, private loans may not offer such benefits.
There are many private education loans available to students today, and you should ask your college’s financial aid office about private loan programs available specifically for its students. Specific lenders may have agreements with your school to offer low-cost loans to students. Otherwise, to get the best possible deal, search for a loan with the lowest interest rate. Advisors at Educational Opportunity Centers also may be able to help you identify the questions to ask when determining the loan that best meets your needs.
Things to Know
Before You Borrow
Before you sign on the dotted line, find out:
• The type of student loan you are taking out. Is it
a federal loan or a private loan?
• The loan’s interest rate. Is the interest rate fixed
(stays the same throughout the whole repayment term) or variable (changes each month or year)? Will you be responsible for paying the interest while you are still in school?
• The total amount you are able to borrow. • What your approximate monthly payments will
be. How long is the average repayment term?
• How much will be deducted from your loan for
fees. What is the actual amount of money that you will receive?
• When your repayment will begin.
Is there a grace period before you have to begin repayment on the loan?
Resources
33
Private loans may be used to
supplement federal student
loans when federal loans are not
sufficient to cover the total cost
of attendance. However, this
should be a last resort to be used
when all other sources of aid
have been exhausted.
Boston, MA
Boston Public Library 700 Boylston Street Boston, MA 02116 617-536-0200with eight satellite locations throughout Greater Boston!
Brockton, MA
34 School Street Brockton, MA 02301 866-891-4716Leominster
North Central Educational Opportunity Center 100 Erdman Way Leominster, MA 01453 (978) 840-0176, ext. 107
Lynn
Educational Opportunity Center Corner of Broad & Market Danvers, MA 01923-0840 (781) 477-2114
New Bedford
Seven Hills Behavior Health New Bedford Educational Opportunity Center 10 Welby Road
New Bedford, MA 02745 (508) 995-3026
Pittsfield
The Learning Connection 10 Lyman Street
Pittsfield, MA 01201 (413) 499-9531
Greater Springfield
Valley Opportunity Center 152 Center Street Chicopee, MA 01013 (413) 612-0206Worcester
EDCENTRAL—Colleges of Worcester Consortium 484 Main Street, Suite 500 Worcester, MA 01608 (508) 754-6829, ext. 3004Statewide Education Hotline:
1-877-ED-AID-4U (1-877-332-4348)
Find us on the Web!
www.tericollegeplanning.org
Massachusetts Educational Opportunity Centers
