Feeding the Dream: How Financial Aid Is Awarded

Earning enough money to own your dream home is something many people look forward to. Buying a home of your own is probably the biggest investment you will ever make. However, the next biggest financial project the average American family undertakes might surprise you. It has nothing to do with home improvement or retirement planning. Instead, it involves paying for your child’s college expenses.

Making money: the business of education

A four-year college term costs thousands of dollars. For advanced degrees, the cost is even higher. In 2013, the National Center for Education Statistics presented a report entitled “The Condition of Education 2013.” Prepared in conjunction with the US Department of Education, the report stated that:

• The percentage of first-time full-time college students receiving financial aid increased from 75 percent in 2006-07 to 85 percent in 2010-11
• In 2011-12, the price tag for the average public college was $ 20,997

In 2010-11, families with income levels up to $ 30,000 received financial assistance worth $ 9,530 and paid a net price of $ 8,050. In comparison, families with income levels of $ 48,001 to $ 75,000 received financial aid worth $ 5,410 and paid a net price of $ 13,640 and the average number of scholarships awarded to full-time college students for the first time was:

• At public universities: $ 13,475
• At private non-profit colleges: $ 23,745
• At private for-profit colleges: $ 10,783

The price tag denotes the published attendance price prescribed by the university. Financial aid represents the money that reduces the final price that students must pay. The net price represents the family’s actual payment for college expenses. This could come from:

• Your income
• Your savings, or
• A loan

Full Circle: Financial Aid Process Overview

At first glance, the tag price of any university may seem expensive, if not exorbitant. However, financial aid erases a substantial amount of that price. Thus, it enables university students to obtain their degrees. It comes from various sources, such as:

• The federal government (approximately 73 percent)
• Colleges and universities (about 18 percent)
• State governments (about 5 percent)
• Various private organizations, for example, companies, religious organizations (about 4 percent) and
• Banks and financial institutions

Financial aid included:

1. Subsidies from the federal and state governments: award scholarships based on the student’s financial circumstances. The student does not need to return them.
2. Scholarships from governments, universities and private organizations: they award grants based on the student’s abilities and skills in academics, sports, volunteer work, etc.
3. Loans From the federal government (low interest) or private lenders (high interest): students must repay them along with the interest component.

To receive financial aid, students must apply through the Free Application for Federal Student Aid (FAFSA). They must submit the FAFSA by January 1 of the year they plan to attend college.

Students can also apply for financial aid from the colleges they apply to or from other financial institutions. Some institutions require applicants to submit forms such as the CSS / Financial Aid PROFILE. The competent authorities grant financial assistance based on the details presented in the application form.

What’s underneath: the formula behind financial aid

Most of the formulas for evaluating and awarding need-based assistance operate on the following principle and enter your family’s income and assets into a calculator. The calculator segregates a part of your family:

• Income (to cover living expenses) and,
• Assets (to cover any emergent expenses, usually around $ 50,000)
• It evaluates the income and remaining assets of the family and the student at various percentage rates.
• Returns a grand total known as the Expected Family Contribution (EFC)

The EFC represents the amount your family must pay for your college education during the current year, and if the EFC is less than the cost of college, the difference represents the amount of your financial aid eligibility. For example, yes:

• College expenses amount to $ 100,000 and
• Your EFC is $ 65,000
• Your eligibility for financial aid is $ 35,000 ($ 100,000 – $ 65,000)

However, remember that not all colleges may be able to provide you with assistance consistent with your rights.

The same, only different: characteristics of the aid calculation methods

Colleges use three different aid calculators. Most use the FAFSA method. Others may use the PROFILE or Consensus of the University Scholarship Service. Help calculators have built-in assessments that act like taxes. They allow you to take a deduction for federal and income taxes. However, if you get a bonus, the IRS, the state, and the college treasurer will claim a share.

Feeding Your Dreams: How To Maximize Financial Aid For Your College Years

Given the rise in prices at universities, you need to plan from an early age. Some tips to help you maximize financial aid include:

1. Complete and submit the FAFSA forever.
2. Reduce the amount of assets in the student’s name to reduce their EFC. Student assets earn a 20 percent assessment tax, while parent assets earn a 5.65 percent assessment.
3. Avoid excessive details about assets and income when completing the FAFSA. You have the legal right to omit certain sources of income and assets (for example, your primary residence, your vehicle, and furniture).

Because certain situations could further lower your EFC, you should notify financial aid staff immediately when you encounter situations such as:

• Loss of a job
• Divorce
• A medical crisis with considerable expenses
• Becoming a dislocated worker

A dislocated worker is a person who receives unemployment benefits due to their layoff or unemployment after having previously been self-employed. Displaced workers also:

• Can’t go back to a previous job
• May be a displaced homemaker with no source of income

You should also notify your financial aid staff if:

• Pay off debts instead of storing cash in your savings accounts
• Compensation of capital gains from the sale of shares by selling some shares at a loss
• Reduce taxable income by maximizing contributions to tax-exempt retirement accounts

Financial aid can help ease the burden of financing a college education. So the earlier you start your preparations, the easier it will be to manage finances. After all, every college and program has a price. However, educated citizens are necessary for a nation to prosper. That is why educated citizens are invaluable assets to all nations.