Financial Aid 101

Students, we at SKoolAide totally understand the pressures that college costs place upon families and even the decision to pursue higher education.  Over the next few weeks, we’re going to be posting segments from a question/answer session with Mark Kantrowitz, (an expert on paying for college and the founder of FinAid.org,) which were originally published in the Education section of The New York Times.  The questions are taken from real students and parents and will speak to situations and challenges faced my many of us as we seek the best help and guidance to overcome the Financial Aid debt dragon.

Mark K.  Students majoring in STEM fields (science, technology, engineering and mathematics) are more likely to win scholarships than students in the liberal arts. The main exception to the rule is computer science.

The odds of winning a scholarship, however, are pretty slim. The majority of students, regardless of their race, will not win private scholarships. Even in STEM fields the odds of winning a scholarship are about 1 in 6.

Both white and minority students find it difficult to win private scholarships because there are relatively few scholarships. Race has little to do with it, though white students enjoy a statistical advantage over minority students. As documented in a recent student aid policy analysis paper, “The Distribution of Grants and Scholarships by Race,” white students are 40 percent more likely to win private scholarships than minority students.

It is worthwhile to continue searching for scholarships. Scholarships are part of the plan for paying for college, but not the entire plan. Every dollar you win in scholarships is about a dollar less you’ll have to borrow. To increase your chances of winning scholarships, apply to every scholarship for which you are eligible. Depth of involvement matters more than breadth, since every scholarship provider is looking for the students who best match their selection criteria.

When using an online scholarship matching service, answer all of the optional questions in addition to the required questions for about twice as many matches on average. The optional questions are there to trigger the inclusion of specific awards. Students should update their scholarship matching profiles at least once a year, adding new hobbies, activities and other details. One of the features of Fastweb is that the site automatically sends an email message to the students when a new scholarship that matches their scholarship matching profile is added to the scholarship database.

Q.  Are there student loan opportunities for students from high income families? While we can afford the tuition (we will have two sons entering college in the next two years) we want our sons to share in some accountability for paying their tuition. — Jane S
A.  The unsubsidized Stafford loan and the Parent PLUS loan, both federal education loans, are available without regard to financial need. Even wealthy families may qualify for these loans. The Stafford loan is a student loan while the Parent PLUS loan is, as the name suggests, a loan borrowed by parents of undergraduate students. The unsubsidized Stafford loan has a fixed 6.8 percent interest rate and the Parent PLUS loan has a fixed 7.9 percent interest rate.

Annual limits for dependent students on the unsubsidized Stafford loan range from $5,500 to $7,500, depending on the year in school. Students whose parents are ineligible for the Parent PLUS loan because of an adverse credit history may borrow $9,500 to $12,500 per year from the Stafford loan program. The annual limit on the Parent PLUS loan is the cost of attendance (tuition, fees, room and board, books and supplies, etc.) minus other financial aid received.

The federal government requires families to file the Free Application for Federal Student Aid (Fafsa) at www.fafsa.ed.gov before they can obtain the Stafford or PLUS loans. This ensures that the families get any need-based aid for which they are eligible before they borrow. Families often underestimate their eligibility for need-based aid and overestimate their eligibility for merit-based aid. For example, the number of children in college at the same time can have a big impact on aid eligibility.

To obtain the Stafford and Parent PLUS loans, contact the college’s financial aid office. Since July 1, 2010, all new federal education loans, including the parent loans, have been made through the Direct Loan program.

About two dozen banks and other financial institutions offer non-federal private student loans. The interest rates on these loans are usually variable, although some lenders have started offering fixed-rate options that are 4% to 6% higher. Except for a handful of state loan programs, only borrowers with excellent credit will qualify for fixed interest rates or the equivalent that are competitive with the Parent PLUS loan.

Eligibility for private student loans is based on the borrower’s credit score. Most students will need a creditworthy cosigner, such as a parent, to qualify for these loans. Beware: A cosigner is a co-borrower, equally obligated to repay the loan. The loan amount and borrower performance in repaying the loan will be reported on the credit history of both the borrower and cosigner. Parents may be better off borrowing through the Parent PLUS loan program and entering into a side agreement with the student to have the student repay the Parent PLUS loan.

A list of private student loans may be found here.

Note from SKoolAide: Guys, hopefully you’ve found these real world examples to be helpful.  We plan on bringing a lot more to you in the days to come.  Let us know your thoughts.  And feel free to ask your own questions.  We’ll do our best to get an answer to you as quickly as possible.

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