Federal Student Aid Programs
About 60 percent of undergraduates enrolled full-time in college receive federal, state, or school grant aid. If you pay interest on a non-federal loan that you are liable for, you are able to deduct the interest on your taxes. Scholarship money used for tuition and course-related expenses are tax-free; however, funds used to pay room and board are taxable.
For all federal aid programs, your student must file the Free Application for Federal Student Aid (FAFSA), each year. The FAFSA filing establishes the expected family contribution (EFC) for your child, a figure used commonly in federal financial aid calculations. You can file the FAFSA either online or by submitting a paper form obtained from your local high school or college.
When the college to which your student applies receives her FAFSA filing, she will be mailed a “financial aid package” listing the available aid programs for which she is eligible, including federal loan programs, school scholarships, and state grant programs. The financial aid package will include instructions for how to apply to each available loan or grant available.
If you have any questions about your eligibility or how to go about securing the loans and grants offered, contact the financial aid office at the college.
A variety of federal student aid programs exist, as described in the following sections.
Your student's college may offer Supplemental Education Opportunity Grants and Perkins Loans on a first-come, first-served basis. To make sure you don't miss out on these programs, find out the earliest possible day to submit your student's FAFSA documents to the college(s) of her choice, and submit all requested information via the Internet as close as possible to that date.
Since they are outright subsidies that do not have to be repaid, Pell Grants are the most popular form of student aid — traditionally claimed by approximately 5 million students each year. Pell Grant awards are based on the cost of attending the specific school and the student's EFC. For the 2006–2007 school year, the EFC cutoff is $3,851. (When the EFC is greater than this figure, the student is ineligible.) Grants can go as high as $4,050 each year to qualifying students. The U.S. Department of Education posts an annual grant eligibility form on the department's website.
Supplemental Education Opportunity Grants
Families with low EFCs are eligible to claim a Supplemental Education Opportunity Grant (“SEOG”) as additional support for college expenses. SEOG awards can also reach $4,000 per year and do not have to be repaid. Schools typically grant these awards on a first-come, first-served basis, so submitting applications as soon as possible is crucial to obtaining support. According to guidance from the U.S. Department of Education, Pell Grant– eligible students with the lowest EFC are the first to receive these grants. The next group to receive funds is non-Pell students who have the lowest EFCs.
If a student has demonstrable financial need (as documented on her FAFSA) and is enrolled at least half-time, she may qualify for a low-interest Stafford Loan. Undergraduate students who are someone's dependent for financial aid purposes are able to borrow progressively larger amounts — in 2006, loan amounts were $2,625 in the student's first year, $3,500 in the second year, and $5,500 for each of the third and fourth years.
Undergraduate students who aren't someone's dependent can borrow up to $6,625 in their first year, $7,500 in their second, and $10,500 in their third and fourth years; however, the federally subsidized portions of these loans are offered only up to the maximums for dependent students. Post-graduate and professional students (such as those at medical or law school) can receive $18,500 in loans for each year of study, but no more than $8,500 can be subsidized.
There are two varieties of Stafford Loans. Banks, credit unions, or other traditional lenders provide Federal Family Education Loans (“FFEL”), and the U.S. Department of Education offers Direct Stafford Loans. FFEL loans must be repaid by between 10 and 25 years after graduation; Direct Stafford Loan recipients must repay between 10 to 30 years after graduation.
Parent Loans for Undergraduate Students (“PLUS”) are available to families (including the parent of the dependent child) that pass a credit check. Your school may offer two kinds of PLUS package: Direct PLUS loans are offered by the U.S. Department of Education, and FFEL PLUS loans are offered by non-government lenders. FFEL PLUS loans are offered to parents of dependent undergraduate students enrolled at least half time, up to a maximum of the total cost of attendance, less other financial aid received. Interest rates are low and change every year. You'll have between 10 and 25 years to repay loans outstanding on a FFEL PLUS loan.
Direct PLUS loans are offered with the same requirements as FFEL PLUS loans; however, FFEL PLUS loans allow repayment based on the amount of income you earn. Families can select an “income-sensitive” repayment plan with higher payments when family income is higher and lower payments when income is less.
Undergraduate and graduate-level students with “exceptional” financial need, as defined by the college, can obtain federal Perkins Loans, whose interest rates hold steady at 5 percent. Eligible undergraduate students can borrow up to $4,000 per year through the program, or up to $20,000 total.
Graduate students can borrow up to $6,000 per year, up to a maximum of $40,000, including undergraduate loans outstanding under the program. Graduates have a nine-month grace period and then ten years to pay off the loan. Your school will likely disburse Perkins Loans on a first-come, first-served basis, so it's imperative that students apply as soon as possible.
The federal work-study program offers part-time employment to students with financial need to offset their college expenses. Usually students work directly for their college, fulfilling a variety of roles, but they may also work for an unrelated public agency or private nonprofit. In limited cases, they are able to work with private, for-profit employers when the job is relevant to the student's course of study.