14 Apr Deciphering College Financial Aid Award Letters
A Guest Post by Peter Mu – Registered Representative and Financial Advisor
Congratulations! Your child just got into his dream school! What a great feeling that is. Years of hard work have finally paid off for him. While families cheer for this moment of joy, many are also confronting the reality of how to fund college expenditures for the upcoming years. Your teen may have already received his Financial Aid Award Letters, or is expecting them any day. Making sense of the various offers can be very difficult. Below is a quick summary of how to decipher the items you might see and some resources available to help you decide the best way to finance your childs college education. The awards generally are categorized into those that you have to pay back and those you dont. Anything labeled as a loan will have to be paid back with interest at some point. If its labeled as a grant, an award or a scholarship, you probably wont have to pay it back.
The Federal Pell Grant1 is an award funded by the US Department of Education to assist low-income families to pay for undergraduate studies. For the 2015-2016 school year the maximum award amount is $5775.
The Federal SEOG6, or Federal Supplemental Educational Opportunity Grant Program, is another need-based grant prioritized for those with exceptional needs. This is often awarded to the most needy families with the lowest EFC (Estimated Family Contribution) and those who are also Federal Pell Grant recipients. 75% of the source of this funding is provided by the US Department of Education and 25% comes from the colleges themselves.
The Federal College Work Study2(FWS) funds part-time employment for students. These opportunities such as tutoring or library assistant are often conveniently located on or near campus. The Department of Education and the employer share the cost. If the student studies full-time and works less than half-time, earning from the Federal Work Study is exempt from FICA taxes but is subject to federal and state income tax and is therefore reported on next years FAFSA.
Merit-based Aid is awarded by colleges or outside organizations for outstanding academic performance or test scores. There isn’t a unified name for them but usually the sponsoring organization’s name is reflected in the award. For example, this might say Chancellors Award or University of Washington Scholarship.
The Federal Direct Subsidized Stafford Loan and Unsubsidized Stafford Loan3 are probably the most commonly seen type of student loans. The subsidized version is a need-based loan. The federal government pays for the loan interests while the student is in school. This can lead to a great deal of savings over time. Repayment of the loan doesnt have to start until six months after graduation.
The Federal Direct Parent Plus Loan4 is a loan taken out by the parents to help fund a students education. Like any personal loan, this will depend on the credit history, income and parents assets. The loan rate is fixed for the term.
The Federal Perkins Loan5 is a low-interest federal student loan for students with exceptional financial needs. The loan interest rate is fixed at 5%. The school itself is the lender for this program so not all schools participate.
You should compare the offers you receive by reviewing what percentage of the award you won’t have to pay back and evaluating the interest rates on the loans. Remember, there are also private student loans available at local financial institutions and the loan rates can be very competitive as well.
Contrary to common myths negotiation is often possible. The scholarship decision process is a human one. If you are disappointed that your sons dream school didn’t award you as much as other schools may have, you can always write to them and ask for a reconsideration.
Having a child leaving the nest for college marks a significant life event. For many parents this opens the next chapter of life. Saving and investment objectives change and new cash flow demands emerge. Your financial strategies should be realigned now to reflect this change. Take the opportunity to start a conversation with a financial professional today.
This article was written by Peter Mu
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS) 20 Bicentennial Circle, Suite 100, Sacramento, CA 95826 Securities products & services and advisory services offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Guardian, its subsidiaries, agents, and employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation. CA insurance license 0E19513
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- Ref 1, https://studentaid.ed.gov/types/grants-scholarships/pell
- Ref 2, http://www2.ed.gov/programs/fws/index.html
- Ref 3, https://studentaid.ed.gov/types/loans/subsidized-unsubsidized#when-repay
- Ref 4, https://studentaid.ed.gov/types/loans/plus
- Ref 5, https://studentaid.ed.gov/types/loans/perkins
- Ref 6, http://www2.ed.gov/programs/fseog/index.html