Looking Tuition Bills in the Eye

Looking Tuition Bills in the Eye

Know your options for meeting the staggering cost of college today

The average cost for a year at a private four-year college rises to several dozens thousands of dollars a a school year. Without some financial assistance from the government, educational institutions, or other private sources, more than half of college students would come up short at tuition time. Jack Joyce, Associate Director for Information and Training Services at the College Board, sponsors of the SATs and an organization dedicated to broadening access to higher education, has this advice for students and families an appying for financial aid.

Who is eligible for financial aid?

Well over half the students that are in college, and in some institutons, probably three-quarters of the students enrolled. But there is no one income number or other characteristics that determines a student's eligibility for aid.

How is financial aid eligibility determined?

At least two application forms and two formulas are used to determine a student's eligibility for financial aid. The most commonly used process starts with an application form that's called the Free Application for Federal Student Aid, or FAFSA. It collects a fairly limited amount of information on a family's income and assets. That information is used to the “federal methodology”, which is a formula approved by Congress to determine a student's eligibility for federal financial aid programs.

Many colleges that have their own non-federal financial aid collect some additional information on what is called the Financial Aid Form, or FAF. That form requests more details about a family's assets situation, including such things as hoe equity, and a little more information on other expenses the family has, such as medical and dental expenses. It is used to support a more traditional and sensitive need-analysis. This formula, know informally as the Institutional Methodology, was developed with the intent of providing a reasonable guideline as to a family's ability to contribute toward college costs.

Does it matter if the student is applying to a private or a state school?

In general, students applying to a state institution or public university where federal financial aid is all that ins available would probably have to complete only the FAF. Students should understand that forms and procedures do change from year to year. The FAFSA and FAF are being revised for 1995-96 financial aid determinations; 1996-97 requirements will be different. It's important for a student to ascertain what application forms are required for financial aid and what kind of deadlines the colleges, universities, and scholarship programs have.

Do both the federal and institutional methodologies look at stocks and other investments to see if a student qualifies?

There is no consideration of assets in the federal formula for a family whose taxable income is less than a determined sum and who files one of the simplified versions of the federal tax return, the 1040A or 1040EZ. For others, both methodologies collect and consider information on assets, including the value of stocks and bonds and anything else that would generate interest or dividend income.

How does family size affect a family's eligibility for financial aid?

The member of siblings and the size of the household is an important characteristic. The other important factor is the number of family members enrolled in college at the same time. A family might not be eligible for much financial aid this year, but next year, when the family's twin are enrolled, the family would suddenly be eligible for considerably more aid.

Looking tuition bills in the eye. Picture by Elena.

What are the major loan options and what are their differences?

The Stafford loan is the most widely available option. Right now it comes in two flavors. The first is available to families as part of the Federal Family Education Loan Programs (FFELP). The eligibility is determined by the school, which helps the family apply for the loan through a private lender, but the government pays the interest on the load while the student is enrolled in school. For the past couple of years there's been a parallel program called the Federal Direct Student Loan Program. That program eliminates the private lender as the middle man and has the school mot only determine eligibility for the loan but actually deliver the load proceeds to the student. But from the student's perspective the differences are transparent. In both cases the terms are the same, the repayment obligation is the same, and the amount they can borrow is the same.

There is also the Perkins Loan Program, which is available to the neediest of students. The amount of money a college has for this program varies from school to school and depends on how many students an institution has applying for financial aid. Because it is intended for students with the highest need, it is a little more competitive than the Stafford program.

Are there any other loans?

Thanks to a major change in the FFELP and Direct Loan programs, a student who is not eligible for a loan based on need would still be eligible for an unsubsidized Stafford Stafford loan, in which the student would be responsible for the interest that accrues while she or he was in school. The student can either arrange to pay the interest while enrolled or have the interest capitalized while he or she attends school and then repay both principal and interest later. Compared to a commercial loan, it would still be an attractive option.

In addition, there is the Federal PLUS loan, which is available to parents as opposed to the students themselves. Right now a parent would be able to borrow as much as the full cost of education for a son or daughter, minus any financial aid, including subsidized or unsubsidized Stafford loans, regardless of income level. Repayment would generally begin within 60 days of the receipt of the loan. The interest rate is similar to the Stafford loan, but it's determined a little differently each year. Some families advocate home equity loans or home equity lines of credit as a more attractive option. There are others that have investments they may draw upon. But PLUS is a source for a number of parents.