Financial Aid

We get this questions a lot and the short answer to it is Yes and No. There are no direct grants that will help you pay off your student loans but there is a relief program or also what is called as a forgiveness program where if you qualify you can have a significant amount of your student loans waived. While not technically a grant, these are known as ‘Public Student Loan Forgiveness(PSLF) Programs’. These student loan forgiveness programs are available to graduating students to assist them in reducing the burden of their outstanding loans. The graduating student can be majoring in any field and they can still be provided this financial assistance provided they qualify for it.

Do I Qualify For Student Loan Forgiveness?

The catch though is that the forgiveness program is not available for everyone. The PSLF was initiated to encourage individuals to work, on a full-time basis, in public service jobs. To qualify for this program, you should have made 120 payments on your Federal Student loan whilst being fully employed in public service, law enforcement agencies, teaching, doctors and nurses and other government based jobs. Just another factor to keep in mind when you decide on the direction of your career. There are some professions and jobs that bring with it a lot of incidental advantages. The field you choose to work in needs to be well thought out, after all it is something you will most likely be doing for a very long time, not to mention carrying the burden of a student loan for a number of post graduate years.

The PSLF program enables graduate students to eliminate a majority of their student loans and sometimes even pay the loan completely. This program is backed by the government and is available towards Direct Federal student loans. The following Direct Loans are covered under the Loan Forgiveness program

• Direct Stafford Loans (Subsidized and Unsubsidized)
• Federal Direct PLUS Loans
• Federal Consolidation Loans (Direct)

The above loans have to be non-defaulting loans. Besides Federal Direct Loans, the PSLF program allows other Federal student loans that have been consolidated under a Direct Consolidation loan. Therefore, all payments made under the consolidated loan will be counted for the120 payments made on a monthly basis.

These 120 payments should be made under these Direct Loan repayment plans:

• Income Contingent Repayment Plan
• Income Based Repayment Plan
• Standard Repayment Plan, having a repayment period of 10 years
• Other Direct Loan Program repayment plan, having a repayment period of 10 years

References

• http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp

Savings Plan and Financial Aid

The primary concern for anyone that is planning for college is how to incorporate all assets, including cash and invested savings into their overall financial portfolio as it will be seen by financial aid agencies. We have all heard of those student who have families that make too much for financial aid, but not enough to actually pay for college. Fortunately, the 529 plan can be set up in such a way as to have a minimal impact on your overall financial aid picture. This is not to say that the rules will never change, but as of the writing of this article, this is how it will affect you. Remember that each state, and even each school, is different in how they calculate your financial aid needs. You need to consult with your specific institutions financial aid office to determine their precise methods of calculation.

The first thing you need to know is that the prepaid tuition 529 plan is treated differently than the 529 savings plan on the federal level. Unfortunately, on the state level there are about as many rules as there are states. The important thing to note about a financial aid application is if the application requests information about all available assets that are specifically set aside for your education or just those of your parents and possibly grandparents. This is important because a qualified donor for your 529 plan does not have to be a relative. Therefore if the financial aid application does not explicitly request information about available or set aside assets for your education, that is held by others, then the 529 plan held by others may not be included in your calculation.

For most college financial aid calculations, the prepaid tuition option is looked at as fixed dollar contribution and not as a percentage of assets. This is in juxtaposition to the 529 savings plan which is normally looked at as a parental asset and therefore is not calculated as a fixed dollar deduction, but as a percentage of overall assets. This is fortunate because prior to the 529 savings plan, all college savings plans were looked at as fixed dollar contributions.

In other words if your college expenses were calculated as being $15,000 for a specific year and you had $8,000 in your non 529 college savings plan prior to the calculation, then the $8,000 fixed dollar amount would be deducted from your need based analysis. This would mean that they would see your actual need as $7,000. But with the 529 plan, the $8,000 is considered a parental asset and is therefore used to reduce the expense as a percentage of the account balance. The percentage used for each state is different, but as an example, if it were 10% then the $15,000 overall need would be reduced by $800 leaving $14,200 in need. As you can see the 529 plan provision is much more advantageous to your overall financial need analysis than previous college savings plans and even more advantageous than the 529 pre paid tuition plan.

UGMA and UTMA Overview

The Uniform Transfer to Minor’s Act (UTMA) and Uniform Gift to Minor’s Act (UGMA) were acts of congress that were designed to give individuals a way to set aside assets for minor’s until they reach the age of adulthood. The differences between the two are minimal and have to do with the way in which each state adopted the congressional act. For most purposes the names, UGMA/UTMA can be used interchangeably. There are some contracts that refer specifically to UGMA accounts. But if these contracts are used in UTMA states, the law permits UGMA to be defined as UTMA. In other words, if you are in a state that adopted UTMA, then even if your contract states UGMA, it is an UTMA contract. The point is one for lawyers really, the fact is that for most uses, each act, UGMA or UTMA, operate in the same manner and have the same guidelines and rules.

Though the acts cover all types of assets the primary way that most people encounter UGMA/UTMA is when they are dealing with bank accounts. These bank accounts became popular because it was a way to transfer assets to the minor and allow the gains on the accounts to be taxed at the minor’s tax bracket. These accounts also became popular as a way for individuals to set aside money, for the future benefit of the minor, that was legally protected from being used in any other manner. This way the donor could be assured that the money would not be used by the custodian of the funds for any other purpose.

Advantages and Disadvantages of UGMA and UTMA

When an asset is transfered to an UGMA/UTMA the donor must appoint a custodian for the account as well as name the minor for whose benefit the asset is being held. At this time the donor is also oftentimes asked to name the successor custodian in case the original named custodian is unable to perform their duties. This naming of the successor custodian gives an assurance to the donor that the even if the first named custodian is not able to perform their duty, the next custodian is still someone that they can trust.

The advantage to this overall arrangement is that the donor does not need to hire an attorney or go through any legal procedure other than transferring the proper ownership of the asset to the UGMA/UTMA account. This makes it simple to transfer assets to a minor, in a custodial account, and allows the donor an assurance that the transfer is legal and standardized. Once the asset is transferred it is then taxed to the minor. This is an advantage because normally,the minor is in a lower tax bracket than the donor.

There are several disadvantages to this overall arrangement and has caused some donors to move to other types of custodial accounts when transferring assets to minor’s. The first disadvantage is that the donor loses full control of the asset. This loss of full control can lead some donor’s to be hesitant to transfer assets to the minor. This is a problem when the accounts are set up for purposes such as a college education for the minor. The loss of total control of the asset is also a concern for the donor because they may want the funds used for a specific purpose, and if it is not used for that purpose, they want the funds returned. For example, if the donor wanted the minor to use the funds for college or a first home, they cannot pull the money back if the minor wishes to use it for a different purpose. Whereas in other types of trusts, money can be set aside for specific purposes and withdrawn if it is not used for that purpose.

UGMA & UTMA – Eligibility Rules, Contribution Rules, Withdrawal Rules and Leftover Funds

Anyone that wishes to transfer an asset to a minor using UGMA/UTMA tilling can do so without restriction. But there are consequences to the transfer if it surpasses certain limits. If the asset is larger than the allowable gift tax, then the donor’s contribution will be taxed. If the contribution surpasses other limits, there will be a consequence. You need to consult your tax advisor for federal as well as for the state the donor lives in and the state where the minor lives.

Withdrawals can be made for any purpose that is for the benefit of the minor. These withdrawals need to be documented by the custodian. The custodian must always be able to justify any withdrawal that they have made from a UGMA/UTMA account that they control. It is advisable that they keep very good records, this is not difficult, but is a necessary step that the custodian must take.

Unused and Leftover funds in a UGMA /UTMA account are supposed to be distributed to the person for whom the account was first set up to benefit. When the donor first opens the account they specify the age at which they wish the minor to receive full benefit of the asset. This is normally 18, 21, or 25. When the minor reaches that age, any leftover funds are distributed to their name.

Overall the UTMA/UGMA accounts are simple ways to transfer assets for the sole benefit of a minor. The process is simple and straightforward and there are no complicated decisions to be made or complicated paperwork to handle. Of course everyone wants an exception to the standardized UGMA/UTMA rules and this has led to a large number of similar asset transfer vehicles, each of which cater to the particular concerns of the donor. These hybrid UGMA/UTMA custodial accounts can be obtained from any broker or tax advisor. In the end it all depends on the donor’s specific intent in giving the funds as well as how much control they wish to give to the minor and when they wish that control to be transferred. But if you prefer simplicity, and if you wish to give to a minor, the UGMA/UTMA accounts are the easiest method to use.

Overview Of College Savings Bonds

Let’s start off by understanding what savings bonds are in the first place. Simply put, Savings bonds are nothing by debt instruments that are issued by the U.S. Government, actually the Treasury department to be more precise, to pay for the ever increasing borrowing needs of the U.S.

So what does savings bond have to do with paying for college or school? The debt explosion that continues to transpire in the United States and abroad have many young people wondering about their education and in particular their college prospects or post-secondary degrees. With the cost of a college education increasing each day, it is important to plan and start saving to pay for college very early. There exist a number of options for families looking to establish a college fund and save for their children’s education. Concerned families hew close to the most established accounts – namely, those associated with 529 prepaid and savings plans – in order to stave off the worst of the recession’s continuing effects and prepare for their children’s futures.

Many families invest in savings bonds – particularly Series I and EE savings bonds that are worth their value in tax-deferred growth and exclusion for 30 or more years as one of the many financial instruments available to deposit large sums of money that pays you back in interest over time. These savings bonds offer students and their concerned families the ability to deposit sums of money without interference from state or federal taxes. As the savings accrue, the student potentially saves hundreds of thousands of dollars for her or his college education at a later time.

Education Savings Bonds Features

Those who invest in these savings bonds can contribute as much as $15,000 by buying Series EE savings bonds, or $30,000 in the case of Series I bonds. Important income limitations prevent investors from injecting too much cash into these bonds. Moreover, married couples who file jointly may suffer the loss of their tax benefits if the adjusted gross income finds itself in the $81,100-$111,100 range. Single taxpayers will lose nearly $54,100-$69,100 in tax benefits.

How does Savings Bonds Impact Financial Aid?

Purchasing the bonds requires that the beneficiary or recipient be at least 24 years old. This serves the U.S. Department of Education and the United States in general by ensuring that the beneficiary possesses a sound mind and the maturity to accept the responsibility for bonds. By contrast, if the bond owner is a parent, then the bond is considered under all applicable laws and the consequences acceding therefrom a parental asset, making said parent and bond owner liable, not the student. If the bond’s proceeds are used for the parent’s education, then the bond is considered a student asset.
The U.S. Department of Education distinguishes between student and parent assets in this fashion, a system designed by the Internal Revenue Service and U.S. Congress in order to better serve families, their students, and the education system in general.

Bonds as Secure Investments

One of the few drawbacks to a savings bond is the fact that beneficiaries and bondholders cannot access the same level of flexibility that you have in 529 plans. On the other hand, this lack of flexibility and all the laws governing savings bonds help make them better, sounder investment options. With the interest rates on Series I bonds indexed to the current inflation rates, 529 plans remain largely exempt from the chronic instability that would otherwise threaten their financial integrity. This counts as an in-built protective measure that exists thanks to the steady, but never fluctuating rate of inflation in the United States.

References

• http://www.sec.gov/answers/savingsbond.htm

What is FSEOG?

Federal Supplemental Education Opportunity Grant or FSEOG in short is a need based federal grant formulated to assist low income undergraduate students to help finance the costs of their post secondary education. Since FSEOG is a grant the beneficiary does not have to repay back the amount that is awarded as part of the grant.

FSEOG is a campus based program. What this means is that the grant is administered by the participating school’s financial aid office. The school’s financial aid office will work with you to determine your funding requirements and disbursement of funds. Since the FSEOG is a need based grant from the government, students with extreme financial difficulties and consequently have some of the lowest expected family contribution (EFC) amount based on their FAFSA application are classified as students with exceptional need. These students are given priority over others for the purpose of this grant. In addition, those students that have been awarded the Pell Grant are also considered for the FSEOG on a priority basis.

Across the United States there are approximately 4000 post secondary participating institutions. These institutions apply to the U.S. Department of Education (ED) by submitting a Fiscal Operations Report and Application to Participate (FISAP). Since the FSEOG is a Formula Grant, the U.S Department of Education allocates the funds based on a statutory formula. The allocation is dependent on the institution’s previous funding level and the overall need of the eligible students attending the institution in the previous year. The USDE funds 75% of the grant money to the institutions. The remaining 25% of the grant money is the responsibility of the institution.

How much grant money is awarded to a student as part of FSEOG?

A student can receive anywhere between $100 – $4000 as funding from the FSEOG grant. The final amount awarded to the student really depends on the demonstrated financial need of the student, the funding awarded to the participating school, the financial aid policy of the participating school and the time at which you apply. Do keep in mind that the FSEOG is not intended to pay for your entire year’s tuition fee, instead supplement other grants and awards. The earlier you apply for an FSEOG the more chances you have to be awarded with a larger sum of money.

Being a campus based grant, certain amount of funds is awarded to each participating school every year. Therefore once the funds for the grant have been utilized no further awards can be granted from that program for that year. It is for this reason that is is advised that applications for the FSEOG grant are made as early as possible. Every school will have its own deadlines for disbursement of campus based funds that they manage and typically the deadlines are much earlier than the U.S Department of Education mandated deadline for filing a FAFSA for consideration for federal aid.

To give an estimate, during the fiscal year 2010 a sum of $757,464,800 was awarded by the FSEOG program. The average sum awarded amounted to a student came to about $736. In our next article we will talk about the eligibility criteria for FSEOG, how to apply for FSEOG and how funds are disbursed to the applicant if awarded the Federal Supplemental Education Opportunity Grant.

Post secondary education in the United States does not come cheap. Tuition costs have been increasing rather drastically each year and infact many feel that it is getting out of control. That said, an education and all the associated costs must be considered as an investment, an investment that will pay back ten fold in the future.

It is important to start planning early. A college or career school education takes money and it is wise to involve your family and understand your financial position quite early in the day. Do not wait till your senior year before you start thinking about college tuition. Between your family and your school’s guidance counselor, you should be able to structure a plan for yourself in terms of your education plans and your financial status and options.

So where do you begin. Well, first off, it is important to be clear in your career goals and aspirations. Next, work towards narrowing down your college wish list. Once you are clear about the college(s) you are planning to apply, you can then begin to work out the costs. Education costs vary from college to college and your choice of school is a big factor in the final cost of your education.

List All Your Education Expenses

The sooner you get to making a list of all the possible college related expenses, the better it will be to plan to meet those costs. After all there is no point in trying to source funds when you don’t know how much you realistically will need.

A big chunk of your finances will be spent on your college tuition fees, room and boarding. Apart from these you will also need to factor for

Miscellaneous College Fees

You should be able to get a list of all miscellaneous fees directly from the college. These miscellaneous fees could include parking fees, activity fees etc

Books and Supplies

If you are not careful, books and school supplies costs could form a big chunk of your financials. Students though are getting smarter and are turning to used books and even renting books from popular book rental websites to allay these costs. School supplies again depend on the type of course you are planning on doing but things like a laptop/computer, notebooks, stationary, bags are something you need to account and plan for

Miscellaneous Costs

Here you would include things like room furnishings, lighting, a work or computer desk and printer, kitchen equipment like a refrigerator, microwave, pots and pans. Also do not forget things like phone bills, clothing and entertainment.

Now that you have a grip on your expected costs and your current finances, it is time to start exploring your funding options.

Need based financial aid are for students that can demonstrate financial need for their education funding. With tuition costs spiraling out of control, the number of students applying for financial aid are increasing each year. More and more students are turning to the federal government for financial aid in the form of grants and student loans to bridge the financial gap. The good news is that financial aid packages have been keeping pace with the rise in tuition costs. Close to a 100 billion is awarded each year in the form of grants, loans and work-study programs by the U.S department of Education.

The primary responsibility for paying for your education is yours but when scholarships which are mostly merit based are not an option, it is time to look at federal aid. If federal aid does not suffice only then turn to private student loans as we always recommend. According to National Center of Educational Statistics, close to two third of the students that apply for need based financial aid receive aid in some form or the other. That statistic alone should give potential applicants cause to be optimistic.

There are two aid applications that are used to evaluate need based financial aid in the United States. The first one is the FAFSA or also known as the Free Application for Federal Student Aid. The second application for financial aid that is also widely used is the College Board’s financial aid application service called the PROFILE application.

The FAFSA is the application that is to be used for all federal aid such as federal student loans like the Stafford Loan or the PLUS Loan. The FAFSA is the first step in the financial aid process to receive federal funding for your education and is required by all educational institutions. The PROFILE application on the other hand is the aid application that is used more for institutional and private funds. The PROFILE application is also commonly used by many colleges and universities and quite often you will find that a particular college that you are applying to will ask you to submit both forms of aid application.

The purpose of both forms of application is to determine how much money you can contribute towards your education. This contribution is commonly called the “Expected Family Contribution” or “EFC” for short. This amount along with the total cost of education are key amounts that determine your need based financial aid package.

It is important to be aware of application deadlines for both FAFSA and PROFILE. The FAFSA application can be submitted anytime after Jan 1st for the year while the earliest date for submitting the PROFILE application is Oct 1st but keep in mind that this must be no later than 2 weeks from the earliest priority date specified by the college or program.

We will soon be publishing extensive guides on how to fill out and complete both the FAFSA and PROFILE applications.

The first question that pops up into the mind of a prospective student is if he or she is eligible for financial aid such as federal student loans or grants. Just so we are clear, we are specifically talking about government financial aid such as Stafford loans, Perkins loans or grants such as Pell grants etc.

The conditions or requirements to be eligible for financial aid are pretty straight forward.

1. Be a U.S. citizen or an eligible non U.S citizen such as a permanent resident.
2. Demonstrate a financial need. Fairly obvious requirement. You have to show a need for financial aid to be able to receive a student loan or grant.
3. Be currently enrolled or have secured admission to an eligible education institution in an approved associate, bachelor or graduate degree program.
4. At the very minimum you must have a high school diploma or it’s equivalent such as a GED certification or you could simply pass a test that is approved by the Department of Education.
5. Once you are in school you must maintain a satisfactory level of academic progress as determined by your school.
6. You must continue to maintain your status as a full time student.
7. Federal financial aid is to be strictly used for educational purposes only. A condition for receiving financial aid from the government is to certify that you will use the money from the student loan or grant strictly for educational purposes only.
8. You must have a valid Social Security number. The only relaxation to this rule is if you are from the Federated States of Micronesia or the Republic of Palau or the Republic of the Marshall Islands.
9. Absolutely no prior defaults on any federal student loans. You cannot be applying for a grant or a student loan when you already owe money and are in default on a previous loan.
10. You must not be convicted under the state or federal law for selling or possessing illegal drugs.
11. Finally if required to then comply with the Selective Service registration.

That’s pretty much it. If you satisfy the above requirements then yes, you are eligible to receive federal aid towards your education from the government. The next step in the whole financial aid process is to understand all the different options available to you to help finance your education.

We always recommend that you start with scholarships and grants. Scholarships and grants do not have to be paid back and this makes it very attractive to students. It is important to explore all scholarships and grants early to give yourself the best possible chance to secure aid. Only when you have exhausted all options do you then work your way down to federal student loans such as Stafford loans and PLUS loans. You also have the choice of applying for a Perkins Loan but make sure you check first if you are eligible for a Perkins loan. Finally your last option should be to shop around for a private student loan.

The State of Alabama offers several financial aid programs for students. Below are a list of aid programs sponsored by the Alabama State.

Alabama GI Dependents Educational Benefit Program

Assistance from this program will be towards Tuition, fees and book assistance.

Eligibility

Students eligible for this program are children or spouses of Alabama resident veterans and who plan to attend public post secondary educational institutions in the state of Alabama. The Alabama GI Dependents Educational Benefit Program is for students who will enroll as an undergraduate student.

How to Apply

Application forms for the Alabama GI Dependents benefit program may be obtained from the Alabama State Department of Veterans Affairs, P.O. Box 1509, Montgomery, AL 36102-1509, or from any county veterans service officer. Phone 334/242-5077

Alabama National Guard Educational Assistance Program

This program is not a need based program. Funds awarded by the program are to be used for tuition, educational fees and book/supplies.  The program awards are limited to $500 per term and not more than $1,000 per year.

Eligibility

Students must be active members and must be in good standing with a unit of the Alabama National Guard that is recognized federally.

How To Apply

Application forms are available at the Alabama National Guard units. Since funding is limited, students are encouraged to apply as early as possible. The application form must be duly signed by a Alabama Military Department representative and the college or university financial aid officer where the student plans to attend.

Alabama Student Assistance Program

The Alabama Student Assistance Program is a need based, state/federal grant that ranges from $300 to $2,500 for each academic year. This assistance program is only limited to students applying for undergraduate work.

Eligibility

All undergraduate students attending eligible Alabama institutions and who are Alabama residents.

How To Apply

The free application form for the Alabama Students Assistance program is available at your High School guidance office or at the financial aid office of the educational institution that the candidate plans to attend.

Alabama Student Grant Program

The Alabama Student Grant program is not a need based grant. The maximum grant available is $1200 per year only if sufficient funds are available.

Eligibility

Eligible applicants are undergraduate students, both half time and full-time who are residents of the State of Alabama and attending Birmingham Southern College, Concordia College, Samford University, Judson College, Huntingdon College, Oakwood College, Selma University, Faulkner University, University of Mobile and South University – Montgomery Campus, Southern Vocational College, SouthEastern Bible College, Stillman College, Miles College and Spring Hill College.

How To Apply

Application forms are available at the educational institution you plan to attend.

Senior Adult Scholarship Program

The Senior Adult Scholarship Program is a free tuition program for senior citizens.

Eligibility

Senior citizens, aged 60 and above that meet academic admission requirements and attend public two year post secondary institutions in the State of Alabama

How To Apply

Contact any two year public post secondary institution financial office in Alabama.

Two Year College Academic Scholarship Program

This scholarship is a merit based scholarship and is awarded to cover the cost of tuition and books at any public post secondary two year education institution in Alabama. This merit based scholarship is decided by the institutional scholarship committee.

Eligibility

Any student that is accepted at a public post secondary two year course at an educational institution in Alabama.

How To Apply

Contact any two year public post secondary institution financial aid office in Alabama.

One big concern of many students planning on attending college is if their student loans, scholarships or federal loans such as Stafford loan or Pell Grant or PLUS loans or Perkins loans will be enough to live on during college or if they will need to look at other sources of income while studying.

As far as federal aid is concerned, it really depends on the EFC that you enter in your FAFSA application. If your EFC (Expected Family Contribution) is really low then your student loan should be enough. If not, then you have to wait and see. Plan your student expenses wisely. Your room and boarding will be your biggest expense. If you can manage to do this wisely then your student loan or aid should be enough. Your other expenses such as commute and education related expenses will generally be taken care of by your student loan since they are all educational related expenses.

That said, some students do plan on working part time to cover any shortfall. Your city of education will determine a lot of your living expenses. Studying in a more economically suited state might work for some. Always remember that apart from your scholarships or grants of federal aid, there will be programs at your university that are specifically created to help out students facing a shortfall of income. Do explore these options once you enroll.

Below are some of the questions we get around this subject

• “Can I live on my student loan while I’m studying in college?“
• “Will my student loan be enough to see me through college financially“
• “Should I take an additional loan apart from my Pell Grant to cover my education costs“
• “Will my Stafford Loan cover all my expenses when I’m studying in school?“
• “I’m a really good student and plan on going to college but my family cannot afford it. My goal is to do my Masters degree at the very minimum and so I’m looking at many years of college. Will my student loan or financial aid be enough to get me through to my degree? Will I have enough to hold me and sustain me or not?”