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A Message from Kimberly Clouse, Financial Expert:
I have worked in the financial services industry for
nearly a decade in many capacities, most recently as
a financial advisor for individuals. Over the course
of my career, I have had the privilege of working with
a diverse range of people, from the single mother just
starting her own business to the dot.com billionaire.
Based upon my experiences, I have learned that the same
basic principles and lessons apply to a successful and
healthy financial life, whether you're starting out
or cashing out. These guiding principles include simplicity,
a long-term perspective, and above all, knowing that
you have control of your financial destiny, and all
the information you need is well within your reach.
ABCs of Financial Aid
'Tis the season! Students are heading back to school, and
parents are heading to the bank! The bad news is that college
costs keep skyrocketing--according to the College
Board, on-campus residents can expect one-year costs of
$18,888 at 4-year private colleges and $9,151 at 4-year public
colleges. The good news is that more than $60 billion in financial
aid goes to students every year in the form of grants and
scholarships, loans, and work-study jobs.
Understanding the differences among types of aid is important
when creating your game plan. Scholarships and grants are
outright gifts that students typically do not have to repay.
Loans, on the other hand, are borrowed money, and the amount
that must be repaid includes the amount borrowed plus any
accrued interest. Finally, student employment is work arranged
by the school during the academic year; sometimes work-study
jobs qualify for academic credit as well.
The students and parents who best understand the financial
aid process and are persistent typically receive the most
aid dollars. Keep the following tips in mind to improve your
chances of getting the most financial aid:
- Family Contribution and Need
The amount of financial aid you receive is based on the
relationship between the "cost of attendance" and the "family
contribution." The cost of attendance represents the sum
of college costs (tuition, fees, books, and supplies) plus
living costs, namely room and board, transportation, and
an allowance for personal expenses.
Family contribution is the amount of money the college expects
from the family for the student's education in a particular
year. To determine family contribution, colleges consider
your family's expenses as well as its income. Even though
your family has a high income, you may qualify for financial
aid if your older brother is in college and your parents
are paying for your grandmother's elder care needs.
If the cost of attendance is greater than the family contribution,
you have demonstrated "need" and are eligible for financial
aid. The amount and type of aid you are awarded by any one
college will most likely differ from what is offered by
other colleges because costs of attendance differ, creating
various amounts of need. So don't necessarily rule out that
expensive Ivy League institution since the more expensive
the school, the greater your level of need.
Even if you do not appear on paper to have financial need,
you may still receive aid. Many colleges offer merit aid--in
the form of grants and scholarships--that do not take financial
circumstances into consideration. Used by colleges to attract
top students, these merit awards are typically based on
a student's academic performance or specific talent or ability.
- Eligibility and Timing
Eligibility for financial aid for a student's freshman year
in college, for example, is largely determined by the parents'
and student's taxable and untaxed income during the calendar
year beginning January 1 of the student's junior year in
high school through December 31st of his or her senior year1.
Check with your family's accountant or tax advisor about
making changes--if appropriate and possible--to lower your
family contribution and increase your "need" in a given
year.
- Target the Big Three
The federal government, state governments, and colleges
award the bulk of financial aid funds.
- According to Peterson's, an education resource on
the Web, the largest single source of aid is the federal
government, which awards over $30 billion to more than
7 million students each year.
- The next largest sources of financial aid are the
colleges and universities themselves, which award an
estimated $8 billion to students each year.
- State governments are also major sources of financial
aid, and all 50 states offer grant aid. While most is
need-based, some is merit-based. Most state programs
award aid only to state residents who attend a college
in their home state.
While other sources of financial aid, such as private agencies,
foundations, corporations, clubs, fraternal and service
organizations, civic associations, unions, and religious
groups certainly exist, spend your time where you will get
the biggest economic bang for time spent--the federal government,
state governments, and colleges.
If you need extra guidance navigating the financial aid
maze, seek professional help from a private aid consultant.
An effective aid consultant should be able to advise you
on ways to increase your aid eligibility and ultimately
receive more aid. A good consultant should "pay" for his
or her fees many times over with increased financial aid
awards. Just be sure that the person you hire is experienced
in financial aid as well as income taxes and personal finance.
For more information, consult the Student Loan Marketing
Association (Sallie
Mae) and the nonprofit College
Board.
1If you are graduating from high
school in May 2002, your financial aid eligibility for your
freshman year will be based on calendar 2001 income, with
calendar 2001 covering the second half of junior year (beginning
January 1st, 2001) and the first semester of senior year (ending
December 31st, 2001).
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