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Financial Aid

Financial aid is the monetary assistance available to help students pay for the costs of attending an educational institution. Such aid is provided by federal, state, institutional or private sources and may consist of grants, loans, work or scholarships. Qualified students may be offered combinations of the various types of aid or aid from a single source. Each year, billions of dollars are given or lent to students, and about half of all students receive some sort of financial aid.

Most financial aid is awarded based on an individual's financial need, education costs and the availability of funds. This aid is provided to students because neither they nor their families have all of the resources needed to pay for an education. This kind of aid is referred to as need-based aid.

Merit-based aid is awarded to students who may or may not have financial need. Students are given assistance because they have a special skill or ability, display a particular talent, have a certain grade point average, or are enrolled in a specific program.

Financial aid is available in three forms:

Applying for Financial Aid

To apply for financial aid, it is essential that you properly complete the necessary forms so that your individual financial need can be evaluated. It is important to read all application materials and instructions very carefully. The application process can be a bit confusing, so remember to take it one step at a time. If you run into any problems or have specific questions, contact the financial aid office at the college you will be attending. The financial aid administrator will be happy to provide you with guidance and assistance.

Many career colleges use just one financial aid application – the Free Application for Federal Student Aid (FAFSA). This free form, published by the federal government, is available at your college's financial aid office, local high school guidance office and state education department offices. Students can apply for federal student aid via the Internet by using FAFSA on the Web (http://www.fafsa.ed.gov). The process is self-paced and interactive with step-by-step guidance. Depending on the availability of information about your income and financial situation, the process can take as little as 20 minutes to complete. The FAFSA that students use to apply for aid for each school year becomes available in the December prior to the year in which aid is awarded. However, do not fill the form out until after January 1 (Note: You should complete the FAFSA as soon as possible after January 1. Although you may apply for aid at any time during the year, many state agencies have early cut-off dates for state aid funding.)

To complete this application you will need to gather specific family information and financial records, such as tax forms, if they are available. If they are not, you can use estimates and make corrections later. Be sure to answer all questions. Omitted information may delay processing of your application. Be sure that you and your parents (if applicable) have signed the form and that you keep a copy of the form for your records. If applying online, you and one parent (if you are dependent) will need to get a Personal Identification Number (PIN) to sign the application. You can get the PIN at www.fafsa.ed.gov. Most students now use the Web-based application to apply for financial aid.

The FAFSA processing center will calculate your Expected Family Contribution (EFC) and will send the information to the colleges you request. About two to four weeks after you submit your completed FAFSA, you will receive a Student Aid Report (SAR) that shows the information you reported on the FAFSA and your calculated EFC. The colleges you listed on the FAFSA will receive the same information. If you need to make any corrections, you may do so at this time. If you applied online or supplied an e-mail address, you will be notified electronically. It is very important to ensure the e-mail address you supply is accurate and that you notify the FAFSA processor if it changes.

Types and Sources of Financial Aid

There are several types of financial aid offered to help pay for educational expenses: grants, loans, student employment (work-study) and scholarships. Grants and scholarships are "gifts" and do not have to be repaid. Loans are borrowed money that the borrower must pay back over a period of time, usually after the student the loan is funding leaves school. Student employment is normally part-time work arranged for a student during the school year. Wages received by the student are used for specific college expenses.

One main source of aid for students attending a career college is the federal government, which offers both grant and loan financial aid programs. Another source of aid is state assistance. Many states across the country provide some aid for students attending colleges in their home states. Most state aid programs are grants, although there are a few states that offer special loan and work-study programs. Other sources of aid that award money to students are private foundations, such as corporations, civic associations, unions, fraternal organizations and religious groups. Most of these awards are not based solely on need, although the amount of the award may vary depending on financial need.

In addition, many companies offer tuition reimbursement to their employees and/or their employees' dependents. The Human Resources department at either your or your parent's place of employment can tell you whether or not the company offers this benefit and who may be eligible. Lastly, there are some colleges that offer awards from their own funds or from money received from various organizations. This type of aid is often referred to as institutional aid.

GRANTS

Federal Pell Grant

Funded by the federal government, this need-based grant is available for undergraduate students who demonstrate financial need. Award amounts vary according to an eligibility index. The maximum authorized Pell Grant for a full-time student in the 2005-2006 award year is $4,050. This amount may change annually. The financial aid administrator at your institution will be able to tell you what the authorized maximum Pell Grant award is for each academic year; if you may be eligible for a Pell Grant; and if so, how much you may be qualified to receive.

Federal Supplemental Educational Opportunity Grant (FSEOG)

Funded by the federal government, this need-based grant is available for undergraduate students who have exceptional financial need. FSEOG awards are determined by the institution and may range from $100 to $4,000 based on student eligibility, the number of students qualifying for FSEOG awards, and the availability of funds.

LOANS

More than ever before, loans have become an important part of financial assistance. The majority of students find that they must borrow money to finance their education. If you accept a loan, you are incurring a financial obligation. You will have to repay the loan in full along with all of the interest and any additional fees (collection, legal, etc.). Since you will be making loan payments to satisfy the loan obligation, carefully consider the burden your loan amount will impose on you after you leave college. Defaulting on a student loan can jeopardize your financial future. Borrow intelligently.

Federal Perkins Loan

The Federal Perkins Loan is awarded on the basis of the student's demonstrated financial need. The interest rate is 5 percent and the first payment is due nine months after leaving school. The maximum academic year award for a full-time undergraduate student is $4,000 but, like the FSEOG funds, most career colleges have very limited Perkins funding and will award what they can to the neediest students.

Subsidized Federal Stafford Loans

Subsidized Federal Stafford Loans are for students who demonstrate financial need. The interest rate on a Stafford loan is variable but cannot exceed 8.25 percent. Up to a 4 percent origination fee may be deducted, and loan repayment begins six months after leaving school or dropping below half-time status. The government pays the interest while you are in school and during the six-month grace period. Stafford Loans have a basic ten-year repayment period, but also have several other extended repayment plans available for qualified borrowers.

Unsubsidized Federal Stafford Loans

Unsubsidized Federal Stafford Loans are for students who do not demonstrate financial need. Students may borrow within the same loan limits and at the same interest rates as the Subsidized Stafford Loan program. Up to a 4 percent origination fee may be deducted, and interest payments begin immediately. Most lenders allow students to defer payments while in school but interest continues to accrue and is added to the principal balance. Regular payments begin six months after leaving school or dropping below half-time status.

Some students may borrow additional unsubsidized loan amounts if they meet the federal definition of an independent student or have exceptional circumstances as documented by the financial aid office (Note: The loan amounts for which you are eligible may be prorated if your program is less than 30 weeks in length).

Federal Parent Loans for Undergraduate Students (PLUS)

The Federal PLUS program enables parents of dependent students to obtain loans to pay for their children's educational costs. The interest rate for this loan is set once each year with a maximum rate of 9 percent. Parents may borrow up to the cost of attendance minus any other financial aid received by the student.

WORK-STUDY

Federal Work-Study (FWS)

The Federal Work-Study program provides jobs for students with financial aid eligibility. It gives students a chance to earn money to help pay for educational expenses while also providing valuable work experience. Eligible students are also afforded the opportunity to perform community service work. Many career schools offer FWS, but the number of jobs available tends to be limited.

Federal Tax Benefits/Education Savings

In addition to financial aid, students and their families have access to several federal tax benefits that help lower their college expenses.

HOPE SCHOLARSHIP TAX

The HOPE Scholarship program helps make the first two years of college or career school more affordable by providing up to $1,500 as a non-refundable tax credit. Students receive a 100 percent tax credit for the first $1,000 of tuition and required fees and a 50 percent credit on the second $1,000. This credit is available for tuition and required fees less grants, scholarships and other tax-free educational assistance.

This credit is phased out for filers above a certain income threshold. These limits are adjusted each year for inflation. Check with your financial aid office for the current rate. The credit can be claimed in two years for students who are in their first two years of college or career school and who are enrolled on at least a half-time basis in a degree or certificate program for any portion of the year. The taxpayer can claim a credit for his or her own tuition expense or for the expenses of his or her spouse or dependent children. Students must be enrolled at least half-time for at least one academic period and must be pursuing an undergraduate or other recognized educational credential. This credit can be claimed for more than one family member since there is no limit on the amount available to be claimed in any one year.

LIFETIME LEARNING TAX CREDIT

This tax credit is targeted at adults who want to go back to school, change careers, or take a course or two to upgrade their skills and to college juniors, seniors and graduate and professional degree students. A family will receive a 20 percent tax credit for the first $10,000 of tuition and required fees paid each year for a maximum non-refundable tax credit of $2,000. Just like the HOPE Scholarship tax credit, the Lifetime Learning tax credit is available for tuition and required fees less grants, scholarships and other tax-free educational assistance. The maximum credit is determined on a per-taxpayer (family) basis, regardless of the number of postsecondary students in the family, and is phased out at the same income levels as the HOPE Scholarship tax credit. Families will be able to claim the Lifetime Learning tax credit for some members of their family and the HOPE Scholarship tax credit for others who qualify in the same year. An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. Students are not required to pursue a degree or other recognized educational credential and can enroll for as few as one course. The maximum amount that can be claimed in any year is $2,000.

STUDENT LOAN INTEREST DEDUCTION

Those who have paid interest on a student loan in 2004 may be eligible to deduct up to $2,500 of the interest paid on qualified student loans. To qualify, the loan must have been taken out solely to pay qualified educational expenses and cannot be from a related person or made under a qualified employer program. This program phases out for single taxpayers with incomes between $50,000 and $65,000, and joint filers with incomes between $100,000 and $130,000.

TUITION AND FEE DEDUCTION

College students may be able to deduct qualified tuition and related expenses paid during the year for themselves, a spouse, or a dependent. The tuition and expenses must be for higher education but cannot include living, personal, family or related expenses. The tuition and fees deduction can reduce the student's income, subject to taxes, by up to $4,000. This tax deduction is currently scheduled to expire after the 2005 tax year. This program is limited to single taxpayers with incomes up to $65,000 and joint filers with incomes up to $130,000 and generally helps those taxpayers who are often not eligible for the HOPE or Lifetime programs.

INDIVIDUAL RETIREMENT ACCOUNTS/COVERDALE EDUCATION SAVINGS ACCOUNTS

Since January 1, 1998, taxpayers have been able to withdraw funds from an IRA without penalty for their own higher education expenses or those of their spouses or children, or even their grandchildren. In addition, for each child under age 18 families may deposit $2,000 per year into an education IRA in the child's name. Earnings in the education IRA will accumulate tax-free, and no taxes are due upon withdrawal if the money is used to pay for postsecondary tuition and required fees (less grants, scholarships and other tax-free educational assistance), books, equipment, and eligible room and board expenses. Once the child reaches age 30, his or her education IRA must be closed or transferred to a younger member of the family.

A taxpayer's ability to contribute to an education IRA is phased out when the taxpayer is a joint filer with an adjusted gross income between $190,000 and $220,000 or a single filer with an adjusted gross income between $95,000 and $110,000.

STATE TUITION PLANS/QUALIFIED TUITION PROGRAMS (QTPS)

Effective January 2002, withdrawals taken for qualified educational expenses from 529 plans are free from federal income tax through 2010 when a family uses a qualified state-sponsored tuition plan to save for college. Families can now use these plans to save not only for tuition but also for certain room and board expenses for students who attend college on at least a half-time basis. Tuition and required fees paid with withdrawals from a qualified state tuition plan are eligible for the HOPE Scholarship tax credit and Lifetime Learning tax credit. These benefits became available on January 1, 1998. These programs and other prepayment programs (529 plans) are currently undergoing significant changes. Many states are taking a careful look at how these programs can be modified to ensure their long-term viability. Check with the state agency that is offering the plan for further information.

GOING TO SCHOOL WHILE YOU WORK

Section 127 of the federal tax code allows workers to exclude up to $5,250 of employer-provided education benefits from their income. For courses beginning after January 1, 2002, the payments may be for either undergraduate or graduate-level courses. The payments do not have to be for work-related courses. Expenses include tuition, fees, books, equipment and supplies. Workers may be able to deduct some of the costs related to education as a business expense. This provision enables many Americans to pursue their goals of lifelong learning.

COMMUNITY SERVICE LOAN FORGIVENESS

This provision excludes from income tax student loan amounts forgiven by nonprofit, tax-exempt charitable or educational institutions for borrowers who take community-service jobs that address unmet community needs. For example, a recent graduate who takes a low-paying job in a rural school will not owe any additional income tax if in recognition of this service his or her college or another charity forgives a loan it made to him or her to help pay for college costs. This provision applies to loans forgiven after August 5, 1997.

The AMERICORPS program also offers a number of attractive options to either help finance a college education or pay back federal student loans for students who dedicate a few years to community service. For additional information, call 800-942-2677 or visit their web site at http://www.americorps.org/. For information on additional student aid programs that will help meet the costs of college and lifelong learning, call 800-4FED-AID.

EARLY IRA DISTRIBUTIONS

Students can take distributions from their IRAs for qualified educational expenses without having to pay the 10 percent additional tax for an early distribution. They may owe income tax on at least part of the amount distributed, but they may not have to pay the 10 percent additional tax. The part not subject to the additional tax is generally the amount of the distribution that is not more than the adjusted qualified expenses for the year. See IRS Publication 970 for more information.

EDUCATIONAL SAVINGS BOND PROGRAM

Students may be able to cash in qualified U.S. savings bonds without having to include in their income some or all of the interest earned on the bonds. A qualified U.S. savings bond is a series EE bond issued after 1989 or a series I bond. The bond must be issued either in the student's name or in the name of both the student and his or her spouse. The owner must be at least 24 years old before the bond's issue date. The issue date is printed on the front of the savings bond. See IRS Publication 970 for more information.