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Paying for School Costs in the U.S.
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What is Financial Aid?
Working in conjunction with the United States Department of Education, colleges and universities offer financial assistance to enrolled degree candidates in many forms:
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Grants
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Grants are typically awarded by the federal government, state education agencies, and educational institutions. Grants can be used to pay tuition and fees, room and board, books and supplies, and other educational expenses. Unlike loans, grants do not have to be repaid as long as you meet all of the grant requirements.
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Scholarships
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Scholarships are generally administered by schools or private organizations. Scholarships are contingent upon qualifying criteria such as academic achievement, athletic prowess, or successful participation in a community program. Some scholarships are also based on financial need. Like grants, scholarships do not have to be repaid as long as you continue to meet the scholarship requirements; some awards also carry additional obligations. For instance, scholarship winners may be required to volunteer time for a community organization, pledge to work in a specific geographic area, or maintain a specific enrollment status or GPA.
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Federal Perkins Loans
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Federal Perkins Loans are funded by the federal government and awarded to qualifying students by the institution. Loans are repaid over the course of ten years at a low, fixed interest rate. Perkins Loans are generally awarded to students with high financial need.
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Subsidized Stafford Loans
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For a subsidized Stafford Loan, the federal government pays the interest while you are enrolled at least half time. The amount of subsidized Stafford Loan for which you are eligible depends on your financial need.
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Unsubsidized Stafford Loans
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If you still have expenses after applying for a subsidized Stafford Loan or if you do not demonstrate financial need, you may be eligible for an unsubsidized Stafford Loan. With an unsubsidized loan, you can defer payments while you are enrolled in school, but interest does accrue during this time. If you borrow an unsubsidized Stafford Loan, you can choose to make interest payments while you are in school.
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Parent PLUS Loans
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Parent PLUS Loans are available for parents of qualifying students. Parents can borrow any amount of money to cover the difference between other financial aid and the total cost of attending college.
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Graduate & Professional Student PLUS Loans
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Graduate and professional PLUS loans are available to graduate or professional students to meet expenses not covered by other financial aid or if the student does not qualify for need-based aid.
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Work-Study Awards
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The Work-Study program is funded by the federal government and administered by the educational institution. Students who are awarded work-study are encouraged to work in community service jobs or in jobs related to their majors.
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529 Plans or Coverdell Accounts
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529 Plans or Coverdell Accounts allow students to invest money for college in sheltered stock market or money market funds. Congress has waived all taxes on interest generated by Coverdell accounts, making them an attractive, if indirect, source of financial aid.
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Who is eligible for financial aid in the United States?
Citizens or permanent residents of the United States who enroll at least part time in an accredited degree program can qualify for some form of financial aid. In addition to providing financial aid, the federal government also encourages long-term savings through tuition tax benefits, as well as tax-free savings accounts for education.
Students from low-income families qualify for the most government financial aid assistance. In addition to federal grants, low-income students generally qualify for federal loans. Many colleges and universities also assist low-income students by providing institutional aid.
Students from middle class families can also qualify for federal loans. The federal government either lends money directly to students or facilitates a loan guarantee with a private lender. A PLUS loan program is also available for parents of dependent students and graduate and professional students.
Steps to Apply
Filing the Free Application for Federal Student Aid (FAFSA) is your key to applying for assistance for college costs. Experts recommend taking advantage of the new, web-based FAFSA system, which generates a completed Student Aid Report (SAR) in about four or five business days. If you do not have reliable Internet access, you can still file your FAFSA using a paper form, but it could take weeks for your application to be processed.
Financial Aid Tip
"Many students from middle class families can easily qualify for standard federal loans."
To complete the FAFSA, gather the following documents:
- Your Social Security card.
- W-2 forms from work conducted during the previous calendar year.
- Current pay stubs from employers for whom you presently work.
- Any other receipts or records of income earned this year or last year.
- Your previous year's income tax return. If you are married, include your spouse's return.
- Your parents' previous year's income tax returns, if you are a dependent.
- Your bank statements from this year and last year.
- Records of any current investments or business holdings.
Make photocopies of all your documentation and store them in a secure file along with a printout or a photocopy of your completed FAFSA. You may need to reference this information quickly if you are required to verify it.
Admissions counselors recommend that you file your FAFSA as early as possible, so the financial aid office can use your SAR to generate a competitive financial aid package. Admissions counselors increasingly compete for your business using private scholarships and grants. Without the SAR, they cannot make accurate bids. Private scholarships may require their own submission forms, or they could also use the FAFSA. Check with your prospective school's financial aid counselor for details on opportunities to apply for local or regional scholarships.
Parent PLUS Loans require that an application be completed by your parents. Admissions counselors recommend that you wait to apply for PLUS Loans until after you receive an offer of admission and a financial aid package from your chosen school. This way, your parents can apply only for the difference between your financial aid package and your expected cost of attendance. Financial aid counselors can help your parents with the application process.
Anyone can open a Coverdell savings account at any time. Depending on how far in the future you expect to send yourself or a child through college, you may select investment options with varying degrees of risk. If college is far off, stock market mutual funds may provide the most long-term growth. If you're preparing college application forms, stash your college savings in less risky money market funds. Remember that any interest you earn on your college savings account is tax-free, but you need to provide documentation of your enrollment to your bank or your brokerage firm to enjoy that benefit.
How to Determine If You Are A Dependent
Even if you live on your own and pay all of your own bills with no help from your family, you could still be considered a dependent for the purposes of receiving financial aid. If you cannot answer "yes" to at least one of the following questions, you are considered to be a dependent student for financial aid purposes:
- Will you be at least 24 years old by December 31st of the award year covered by the FAFSA?
- During the current school year, will you be working on a master's or doctorate program?
- As of today, are you married?
- Do you have children who receive more than half their support from you?
- Do you have other dependents (other than children or spouse) who live with you and who receive more than half their support from you?
- Are you an orphan or ward/dependent of the court?
- Are you a veteran of the U.S. armed forces?
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