Understanding Financial Aid for College

Graduate_Financial Aid

Colleges and universities are frequently faced with the daunting task of assessing and implementing tuition increases based on the skyrocketing costs associated with operating an institution of higher education. Each year, most colleges and universities have no choice but to increase tuition from several hundred dollars up to $1,000 or more. For students, the difficult, and in some cases, nearly impossible task of paying for tuition, books, fees, and living expenses, cannot be tackled without help.

Fortunately, the federal government has a number of programs in place to help students finance some or all of their education. These programs, typically a combination of grants, which do not have to be repaid, and loans, which do have to be repaid, have been successful at helping more than 55 percent of all students meet their tuition costs. One such program is the Federal Pell Program.

Federal Pell Program

The Federal Pell Grant Program is the largest grant program offered by the federal government. In 1973, the program had 176,000 recipients. Today, more than 5.3 million students receive Pell Grants.

The Pell Grant Program is administered by the U.S. Department of Education and the U.S. Congress sets the maximum award amount. Over the past 15 years or so, the amount of Pell Grant award funds utilized has nearly tripled. In 1995, the amount of funds utilized totaled $5.5 billion and in 2008, this number reached $14.2 billion.

In the earlier years of the program, the Pell Grant award was a maximum of $1,515 per student per academic year. For the 2009-2010 award year, the maximum award amount was $5,350 and for the 2010-2011 award year, the maximum award amount is $5,550 per student. 

The award amount is based on a student’s need analysis and status (full or part-time). This means that awards are dependent upon:

-The Student’s expected family contribution or EFC
-The cost of tuition
-Whether the student will be attending school for an entire academic year or less
-Whether the student will be attending school full-time or part-time

Each year, this need-based award helps millions of low-income individuals pay tuition costs. It is important to keep in mind that “low-income” means an individual whose family’s taxable income for the preceding year did not exceed 150 percent of the poverty level amount. Poverty level amounts effective through 2010 are as follows:

Size of Family Unit

48 Contiguous States,
D.C., and Outlying Jurisdictions



































If your income meets the requirements, Federal Pell money is guaranteed.

Merit Scholarships

A large number of states and schools offer merit scholarships. State and school-sponsored merit scholarships are programs that require students to maintain at least a B average. There are also a number of merit scholarship opportunities offered through community groups, corporations, and foundations. Fastweb.com to search through a wide variety of scholarship opportunities.

Financial Aid Options

Federal Student Loans

Federal loans are available through the Federal Direct Loan Program and the Federal Family Education Loan Program (FFELP). Under the Federal Direct Loan Program, the institution acts as the lender and the federal government supplies the funds. The types of loans available through the Federal Direct Loan Program and the FFELP include:

-Low-interest Subsidized Stafford Loans
-Low-interest Unsubsidized Stafford Loans
-Parent Loans for Undergraduate Students (PLUS)

Subsidized Stafford Loans are based on financial and Unsubsidized Stafford Loans are not based on financial need. The government pays the interest on subsidized loans until the student graduates and the student pays the interest on unsubsidized Loans from the date of origination. Amounts may vary for both types of loans. For dependent students, the amount that can be borrowed during each school year ranges from $2,625-$5,500. For independent students, the amount ranges from $6,625-$10,500. Repayment begins after the student graduates, however, if the student is unable to begin repaying the loan, deferment and forbearance options are readily available. A number of cancellation and deferment options exist for teachers and other eligible positions as well.

Under the Parent Loans for Undergraduate Students (PLUS) program, parents will have to complete a loan application. In general, parents must pass a credit check in order to be approved for a PLUS Loan. If the parents credit is not acceptable, a co-signer may be required. The co-signer must have excellent credit. If parents cannot produce a co-signer with pristine credit, some lenders may waive the credit check.

Parent Loans

Parents must prove that extenuating circumstances exist in order to waive the credit check. Parents can borrow up to the total amount of the student’s education costs, minus any financial aid that the student has received. PLUS loans have annually adjusted variable interest rates and interest begins to accrue on the day the loan is disbursed. Loan repayment begins within 60 days after the loan has been fully disbursed.

The Federal Perkins Loan program is available to students with great financial need as determined by the U.S. Department of Education. Under the Federal Perkins Loan program, the school acts as the lender but it also uses partial funds from the federal government. Federal Perkins Loans are available to graduate and undergraduate students. Students can borrow up to $4,000 annually towards undergraduate tuition costs and up to $6,000 annually for graduate tuition costs.

For more information about federal student loan programs visit the U.S. Department of Education Federal Student Aid website at www.fafsa.ed.gov.

Private Loans

In some cases, students may not qualify for enough federal financial aid to cover all tuition costs. In these cases, the only other option may be to apply for alternative funding such as a private loan. Private loans are offered by private lenders and there are no federal forms to fill out. However, the requirements for obtaining a federal loan are strict.

The parent’s employment, credit history, assets, etc., will be considered when evaluating the loan application. Depending on the parent’s financial information and history, the interest rates may be low or high. Two major benefits of private loans include: no annual limit and parents may defer payment of the loan until the student graduates.

Private loans may be obtained from just about any major financial institution. The best private student loans will have interest rates of London Interbank Offered Rate (LIBOR) + 2.0% or PRIME – 0.50% with no fees. It is important to keep in mind that these rates are available to borrowers with great credit or borrowers with good credit plus a creditworthy cosigner.

How to Apply for Financial Aid

No matter what your income level, all students should apply for financial aid. To apply for financial aid, you must submit a Free Application for Financial Aid (FAFSA), either electronically online or by mail. Applying online is fast and easy. Just visit the official FAFSA website to get started.


Once you have submitted your application, the federal government will determine your Expected Family Contribution (EFC). In simple terms, the EFC is the out-of-pocket money the family (parents and children) must pay for school. If the EFC cannot cover the costs of attending school, financial aid will help bridge the gap.

How the Federal Government Determines Need

The federal government computes the EFC through a formula that takes the students and parent’s available income and assets into consideration. The available income is the total income minus several different allowances. The federal government’s formula for calculating financial aid stipulates that the following percentages of income and assets be used for college expenses in any single year:

-35 percent of a student’s assets
-50 percent of a student’s income
-2.6 to 5.6 percent of a parent’s assets
-22 to 47 percent of a parent’s income

It is important to note that the percentage contributions for parents vary depending on their economic status and age. Lower-income families and older parents are expected to contribute less and higher-income families with younger parents are expected to contribute more. Once the EFC has been determined, your information will be forwarded to the school or schools you have applied to in order to compute the amount of money you will need to cover tuition and other costs. You will receive an award amount that may include a combination of monies from grants and loans. You have the option to accept or reject the loans.


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