Financing Education Beyond High School

1. Financing Education Beyond High School 2007-08

2. Financing Your Education • What is 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 and how it is determined • Descriptions of major federal financial aid programs • How to apply for financial aid, including the Free Application for Federal Student Aid (FAFSA), and how to avoid errors • Descriptions 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 Aid • Gift aid: Grants and scholarships (need-based or merit-based) • Self-help aid: Loans and employment (need-based or non-need-based)

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

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

8. Cost of Attendance • Tuition and fees • Room and board • Books, supplies, transportation, and miscellaneous personal expenses, including documented costs for a 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 have a responsibility to contribute to educational costs • Families should be evaluated in their present financial condition • Family’s estimated ability to pay educational costs must be evaluated in equitable and 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 EFC.

12. Independent Student Definition • At least 24 years old by December 31 of award year covered by the FAFSA; • Graduate or professional student; • Married; • Has children or dependents (other than a spouse) for whom the student provides more than half support; • Orphan or ward/dependent of the court; • Veteran of U.S. Armed Forces or currently serving on active duty (for other then training purposes) in the Armed Forces; or • Determined to be “independent” by financial aid administrator based on unusual circumstances

13. EFC for a Dependent Student Step 1: Determine available parental income Total income (taxed and 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 a Dependent Student Step 2: Determine available parental assets Value of cash, savings, and checking accounts + Adjusted business/farm net worth (total value minus debt against business/farm) + Investment/real estate net worth (excluding home) – Education savings and asset protection allowance (determined by age of older parent) x Asset conversion rate (12%) = Parental contribution from assets

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

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

17. EFC for a Dependent Student Step 4: Determine student contribution Student’s available income x 50% assessment rate = Income contribution from student + 20% of the student’s net asset worth = Student contribution

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

19. EFC for an Independent Student • No parental contribution • Independent with dependents: • Student contribution similar to calculation for parent of dependent student • Variable percentage of available income • 7% of net assets after protection allowance • Independent with no dependents: • 50% of available income • 20% of net assets after protection allowance

20. Federal Pell Grants • Awarded to eligible undergraduates pursuing first baccalaureate degree and certain students enrolled in post-baccalaureate teacher certification or licensing programs • Portable • Actual award amount based on COA, EFC, and enrollment status • Maximum award for 2007-08 = $4,310

21. Academic Competitiveness Grant (ACG) • First and second year undergraduate students • Federal Pell Grant recipient • U.S. citizen • Full time • Completed rigorous secondary school program • Award amounts: • $750 first year students • $1300 second year students • Portable

22. National Science and Mathematics Access to Retain Talent (SMART) Grant • Third and fourth year undergraduate students • Federal Pell Grant recipient • U.S. citizen • Full time • Eligible major • 3.0 GPA • Award amount: • $4,000 for third and fourth year of study • Portable

23. Federal Supplemental Educational Opportunity Grants (FSEOG) • Eligible students: • Undergraduates pursuing first baccalaureate or professional degree • Awarded first to students with the lowest EFCs who are Federal Pell Grant recipients • Annual award amounts: • $100 minimum • $4,000 maximum

24. Federal Work-Study (FWS) Earnings • Eligible students: Undergraduate, graduate, and professional students • Employment may be on or off campus • Eligible employers: • Schools • Federal, state, or local public agencies • Certain private nonprofit and for-profit organizations • Schools must use portion of FWS funds for community service employment activities

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

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

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

28. Stafford Loans • Subsidized: Must demonstrate “need” • Unsubsidized: Not based on “need” • Base annual loan limits (combined subsidized and unsubsidized): • $3,500 for 1st year undergraduates • $4,500 for 2nd year undergraduates • $5,500 for each remaining undergraduate year • $8,500 for each year of graduate/professional study

29. Stafford Loans • Additional unsubsidized loan eligibility for independent undergraduate, graduate, and dependent students whose parents are unable to borrow PLUS: • $4,000 per year for 1st and 2nd year undergraduates • $5,000 per year for remaining years of undergraduate study • $12,000 per year for graduate/professional study

30. Stafford Loans • Fixed interest rate of 6.8% • Loan fees based on principal amount of each loan: • FFEL: Up to 1.5% origination fee and 1% default fee • Direct Loan: Up to 2.5% loan fee

31. Stafford Loans • Repayment begins after 6-month grace period • Maximum repayment period between 10 and 30 years depending on repayment plan chosen • Deferment and cancellation provisions available

32. PLUS Loans • Loan program for parents of dependent undergraduate students as well as graduate and professional students • Annual loan limit: COA minus other aid • Fixed interest rate • FFEL: 8.5% • Direct Loan: 7.9%

33. PLUS • Loan fees based on principal amount of each loan: • FFEL: Up to 3% origination fee and 1% insurance premium • Direct Loan: Fixed 4% loan fee • Repayment begins 60 days after loan is fully disbursed for parent borrowers

34. 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 and required) • May not have eligibility suspended or terminated due to being convicted of a drug-related offense

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

36. Role of the Financial Aid Office • Determines aid eligibility using federal formula • Packages aid depending on availability of funds • Sends award notification including: • Award amount for each program for which student is eligible • Disbursement methods and time frames • Terms and conditions of each award

37. Application Process • Submit FAFSA prior to school’s deadline • Most aid awarded on “first-come, first-served” basis • To ensure maximum consideration for federal, state, and institutional aid, check information from each school to determine: • Required application materials • Application deadlines

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

39. FAFSA on the Web • Web site: www.fafsa.ed.gov • 2007-08 FAFSA on the Web available on January 1, 2007 • FAFSA on the Web Worksheet: • Used as “pre-application” worksheet • Questions follow order of FAFSA on the Web

40. FAFSA on the Web • Good reasons to file electronically: • Built-in edits to help prevent costly errors • Skip-logic allows student and/or parent to skip unnecessary questions • More timely submission of original application and any necessary corrections • More detailed instructions and “help” for common questions • Ability to check application status on-line • Simplified renewal application process

41. PIN Registration • Web site: www.pin.ed.gov • Can request PIN before January 1, 2007 • Not required, but speeds processing • May be used by students and parents throughout aid process, including subsequent school years

42. FAFSA on the Web Worksheet 2007-08 FAFSA on the Web Worksheet—8-page booklet containing: • Instructions • 97 questions in 5 sections • Worksheets A, B, and C

43. FOTW Worksheet: Section 1 General student information: • Name • State of legal residence • Social Security Number • Driver’s license number

44. FOTW Worksheet: Section 1 General student information: • Citizenship • Marital status • Date of legal residence • Selective Service status

45. FOTW Worksheet: Section 1 General student information: • Degree type • Grade level • Enrollment status

46. FOTW Worksheet: Section 1 General student information: • Self-help preferences • Receipt of first bachelor’s degree • Parent(s) educational background(s) • Drug conviction status

47. FOTW Worksheet: Section 2 Student’s dependency status • If all “No” responses, student is dependent • If “Yes” to any question, student is independent

48. FOTW Worksheet: Section 3 Data for parents of dependent students: • Parents’ marital status • Date of parents’ marital status

49. FOTW Worksheet: Section 3 Data for parents of dependent students: • Did anyone in the parents’ household receive benefits from any of the federal programs listed?

50. FOTW Worksheet: Section 3 Financial data for parents of dependent students: • Tax filing status and return type • If parents filed or will file a 1040, were they eligible to file a 1040A or 1040EZ?