Financing Education Beyond High School

1. Financing Education Beyond High School 2005-06

2. Financing Your Education • What if financial Aid? • Where does it come from? • What aid is available? • Who is eligible? • How do I apply?

3. Agenda • Definition of financial aid • Definition of financial need & how it is determined • Description of major federal financial aid programs • How to apply for financial aid, including paper FAFSA & how to avoid errors • Description of other government resources • Where to look for information about private sources of aid, including how to avoid being scammed

4. What is Financial Aid? • Scholarships • Grants • Loans • Employment opportunities

5. Types of Need-Based Aid • Gift aid: Grants & scholarships (need-based or merit-based) • Self-help aid: Loans & employment (need- or non-need-based)

6. Goals of Financial Aid • Primary goal is to assist students in paying for college & is achieved by: • -Evaluating family’s ability to pay for educational costs • -Distributing limited resources in an equitable manner • -Providing balance of gift aid & self-help aid

7. Definition of Need Cost of attendance (COA) – Expected family contribution (EFC) = Financial need

8. Cost of Attendance • Tuition & fees • Room & board • Books, supplies, transportation, & miscellaneous personal expenses, including documented costs for personal computer • Loan fees • Study abroad costs • Dependent care expenses • Disability-related expenses • Cooperative education program costs

9. Need Varies Based on Cost

10. Principles of Need Analysis • To extent they are able, parents have primary responsibility to pay for dependent child’s education • Students also have responsibility to contribute to educational costs • Families should be evaluated in their present financial condition • Family’s estimated ability to pay for educational costs must be evaluated in equitable & consistent manner, recognizing that special circumstances may affect family’s ability to pay

11. Federal Methodology Federal Methodology is the formula created by Congress to determine the expected family contribution (EFC).

12. Independent Student Definition • At least 24 years old by December 31 of award year covered by FAFSA; • Graduate or professional student; • Married; • Has legal dependents other than a spouse; • Orphan or ward/dependent of the court; • Veteran of U.S. Armed Forces; or • Determined to be “independent” by financial aid administrator

13. EFC for Dependent Student 1. Determine available parent income: Total income (taxable & untaxed) – Excludable income (e.g., child support paid) – Taxes paid (i.e., federal, state, local, Social Security) – Income protection allowance for basic living expenses (e.g., food, shelter, etc.) – Employment allowance (if eligible) = Available income (may be negative)

14. EFC for Dependent Student 2. Determine available parental assets: Cash, savings, & checking accounts + Adjusted farm/business net worth (value minus debt, adjusted to protect earning capacity) + Investment/real estate net worth (excluding home) – Education savings & asset protection allowance (determined by age of older parent) x Asset conversion rate (12%) = Parental contribution from assets

15. EFC for Dependent Student 3. Determine portion of available parental income & assets for education: Available income + Contribution from assets = Adjusted available income (AAI) x Assessment rate = Total parent contribution ÷ Number attending college (excluding parents) = Parental contribution for student

16. EFC for Dependent Student 4. Determine student contribution: Total income (i.e., taxable & untaxed) – Excludable income – Taxes paid (i.e., federal, state, local, & Social Security) – Income protection allowance – Parent’s adjusted available income if < $0 = Student’s available income

17. EFC for Dependent Student 4. Determine student contribution: Student’s available income x 50% assessment rate = Income contribution from student + 35% of the student’s net asset worth = Student contribution

18. EFC for Dependent Student Parental contribution from income & assets (as adjusted, if more than 1 household member in college) + Student contribution from available income & assets = EFC

19. EFC for Independent Student • No parental contribution Independent with dependents • -Student contribution similar to calculation for parent of dependent student • -Variable percentage of available income • -12% of net assets after protection allowance • Independent with no dependents • -50% of available income • -35% of net assets after protection allowance

20. Federal Pell Grant • Awarded to eligible undergraduates pursuing first bachelor’s or professional degree & certain students enrolled in post-baccalaureate teacher certification or licensing programs • Portable • Actual award amount based on COA, EFC, & enrollment status • Maximum award for 2004-05 = $4,050

21. Federal Supplemental Educational Opportunity Grant (FSEOG) • Eligible students • -Undergraduates pursuing first baccalaureate or professional degree • -Awarded first to students with exceptional financial need (i.e., students with lowest EFCs at that school) • -Priority to Federal Pell Grant recipients • Annual award amounts • -$100 minimum • -$4,000 maximum

22. Federal Work-Study (FWS) • Undergraduate and graduate students are eligible • Employment may be on or off campus • Eligible employers • -School • -Federal, state, or local public agency • -Private nonprofit organization • -Private for-profit organization • Schools must use portion of FWS funds for community service employment activities

23. Federal Perkins Loan • Eligible students • -Undergraduate and graduate students • -Priority to students who show “exceptional need,” as defined by school • Loan amount varies • Maximum annual loan • -$4,000—undergraduate students • -$6,000—graduate & professional students

24. Federal Perkins Loan • Interest rate: 5% • 9-month grace period • Repayment period may be up to10 years • Deferment & cancellation provisions available

25. Stafford Loans • Available under: • Federal Family Education Loan (FFEL) Program with funds provided by lenders (e.g., banks or credit unions) • Federal Direct Student Loan (Direct Loan) Program with funds provided directly by federal government via participating schools • School determines loan eligibility & delivers loan proceeds to students

26. Stafford Loans • Subsidized: Must demonstrate “need” • Unsubsidized: Need is not considered • Base annual loan limits (combined subsidized & unsubsidized): • $2,625 for 1st year undergraduates • $3,500 for 2nd year undergraduates • $5,500 for each remaining undergraduate year • $8,500 for each year of graduate/professional study

27. Stafford Loans • Additional unsubsidized loan eligibility for independent undergraduate, graduate, & dependent students whose parents are unable to borrow PLUS: • $4,000 per year for first & second years of undergraduate study • $5,000 per year for remaining years of undergraduate study • $10,000 per year for graduate & professional students

28. Stafford Loans: Costs of Borrowing • Variable interest rate, capped at 8.25% • Interest rate for 7/1/2004 – 6/30/2005 is: • 2.77% in school, grace, & deferment periods • 3.37% during repayment • Loan fees based on principal amount of each loan: • FFEL: Up to 3% origination fee and 1% insurance premium • Direct Loan: Up to 4% loan fee

29. Stafford Loans: Repayment • 6-month grace period • Maximum repayment period between 10 & 30 years depending on repayment plan chosen • Deferment & cancellation provisions available

30. PLUS • Parent loan program for parents of dependent undergraduate students • Annual loan limit: COA minus other aid • Variable interest rate, not to exceed 9% • Interest rate for 7/1/2004 – 6/30/2005 is 4.17% • Loan fees based on principal amount of each loan: • FFEL: Up to 3% origination fee & 1% insurance premium • Direct Loan: 4% loan fee

31. PLUS • Repayment begins 60 days after loan is fully disbursed • Only principal may be deferred under certain conditions; interest may be capitalized

32. General Student Eligibility Criteria • Must be enrolled or accepted for enrollment in eligible program of study • Must be pursuing degree, certificate, or other recognized credential • Must be U.S. citizen or eligible noncitizen • Must be registered with Selective Service (if male & required) • May not have eligibility suspended or terminated due to drug-related conviction

33. General Student Eligibility Criteria • Must have valid Social Security Number • May not be in default on federal student loan • Must not owe overpayment of federal grant or loan • Must be making satisfactory academic progress (as defined by school)

34. Role of Financial Aid Office • Determines aid eligibility using federal formula • Packages aid depending on availability of funds • Sends award notification including: • Student’s COA • Student’s EFC • Amount of student’s financial need • Award amount for each program for which student is eligible • Disbursement methods & time frames • Terms & conditions of each award

35. Application Process • Submit Free Application for Federal Student Aid (FAFSA) prior to school’s deadline • Most aid on “first-come, first-served” basis • To ensure maximum consideration for federal, state, & institutional aid, check information from each school to determine: • Required application materials • Application deadlines

36. FAFSA • Collects family’s personal & financial information used to calculate student’s EFC • May file FAFSA in one of two ways: • Electronically via FAFSA on the Web • Paper FAFSA

37. FAFSA on the Web • Web site: www.fafsa.ed.gov • 2005-06 FAFSA available on or after January 1, 2005 • Pre-Application Worksheet & built-in edits to help prevent costly errors

38. PIN Registration • Web site: www.pin.ed.gov • Not required, but speeds processing • May be used throughout aid process • Can get PIN before January 1, 2005

39. Paper FAFSA 2005-06 FAFSA is 8-page booklet containing: • General & specific instructions • 103 questions in 7 steps • Worksheets A, B, & C • Pre-addressed envelope to mail completed form & return-receipt postcard

40. FAFSA: Step One General student information: • Name & address • SSN & date of birth • Telephone number • Driver’s license & state • E-mail address

41. FAFSA: Step One General student information (Questions 14 – 24): • Citizenship • Marital status • State & date of legal residence • Selective Service • Degree type • Grade level

42. FAFSA: Step One General student information (Questions 25 – 31): • High school diploma • First bachelor’s degree • Self-help preferences • Parent(s) educational background • Drug conviction

43. FAFSA: Step Two • Student’s (& spouse’s, if married) income & asset information • Questions 32 – 34: • Student (& spouse, if married) 2004 IRS income tax return status & type

44. FAFSA: Step Two Questions 35 – 42: • Student (& spouse, if married) 2004 income & wages • Worksheets A & B – 2004 untaxed income • Worksheet C – 2004 income excluded from EFC calculation

45. FAFSA: Step Two Questions 43 – 47: • Total cash, savings, & checking • Net worth of investments • Net worth of businesses & investment farms • Monthly amount & number of months student is receiving veteran’s educational benefits

46. FAFSA: Step Three Student’s dependency status questions: • If all “no” responses, student is dependent • If “yes” to any question, student is independent

47. FAFSA: Step Four • Financial & household data for parents of dependent students • Questions 55 – 64: • Marital status • SSNs, last names, first initials, & dates of birth

48. FAFSA: Step Four Questions 65 – 69 for parents’: • Household size • Number in college • State & date of legal residency

49. FAFSA: Step Four Questions 70 – 77 for parents’ 2004: • Federal tax return filing status • Taxable income & wages

50. FAFSA: Step Four Questions 78 – 80 for parents’ 2004: • Untaxed income (Worksheets A & B) • Income excluded from EFC calculation (Worksheet C)