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This post is a compilation of answers to frequently asked questions about
student financial aid and college scholarships.

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*** Student Financial Aid FAQ ***
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Copyright (c) 1995-2001 by FinAid Page, LLC. All rights reserved.
Written by Mark Kantrowitz, publisher of the FinAid and eduPASS web sites.

This FAQ may be freely redistributed in its entirety without modification provided that this copyright notice is not removed.

This article is provided AS IS without any warranty on its accuracy.

*** Topics

[0] The Best Financial Aid Web Sites
[1] Overview of Financial Aid
[2] Determining Financial Need
[3] Consequences of the Need Analysis Formula
[4] Don't Assume You Don't Qualify
[5] Applying for Financial Aid
[6] Beware of Scholarship Scams
[7] The Unclaimed Aid Myth
[8] General Advice
[9] Financial Planning Tips
[10] My School Didn't Award Me Enough Aid!
[11] Common Questions and Answers
[12] Answering Your Questions

*** [0] The Best Financial Aid Web Sites

The three most useful free web sites devoted to financial aid and
college planning are:

+ FinAid (www.finaid.org)
+ FastWeb (www.fastweb.com)
+ US Department of Education (www.ed.gov)

FinAid provides an extensive directory of other quality web sites, as
well as a large collection of financial aid calculators (including a
financial aid estimator, loan repayment calculator, and savings plan
designer), the free Ask the Aid Advisor service, and in-depth
information and advice about all aspects of student financial aid.

FastWeb provides the largest, most up-to-date, and most popular free
scholarship search. Why pay a scholarship search service to use their
database, when you can search the best database for free?

The US Department of Education provides detailed information about
federal student aid programs.

*** [1] Overview of Financial Aid

The major sources of money for college are the federal government, the
state government, the private sector, and colleges and universities.

Most financial aid programs are "need-based". This means that the
amount of aid you receive depends on your financial situation. Most
government sources of aid are need-based. Other sources of financial
aid are "merit-based", which usually depend on academic, artistic, or
athletic talent, and may use your grades, test scores, hobbies, and
special talents as awarding criteria.

There are two basic types of financial aid: GIFT AID and SELF-HELP
AID. Gift aid is money that does not need to be paid back, and
includes GRANTS based on financial need, SCHOLARSHIPS based on
academic, artistic, or athletic merit, and FELLOWSHIPS for graduate
students based on academic merit. Self-help aid includes LOANS and
STUDENT EMPLOYMENT.

Although scholarships are awarded primarily based on merit, the amount
of the award may depend on financial need. Scholarships provide funds
toward tuition, fees, and other required educational expenses. Most
scholarships do not provide funds for living expenses.

Most fellowships provide a stipend for living expenses in addition to
funds for tuition, fees, and other required educational expenses.
Residential fellowships provide support for a student to use an
institution's facilities, such as special library or museum
collections. Dissertation fellowships support students while writing
the thesis.

Some forms of gift aid, such as ROTC scholarships and certain medical
fellowships, require a few years of service in exchange for the
financial aid. If one fails to complete the service requirement, then
one must pay back the award. But most forms of gift aid do not need to
be repaid and do not include a service requirement.

Loans are normally repaid with interest, and may be either a student
loan or a parent loan. Some loans do not need to be repaid until the
student has graduated or otherwise left school. Some loans include
forgiveness provisions for students entering particular professions or
serving in national need areas. Loans represent more than half of all
financial aid. Most students graduate with $10,000 to $20,000 in debt.

Student employment includes federal and state work-study programs,
assistantships, and regular part-type employment during the academic
year and summer vacation. Numerous studies have found that students
who work 10 hours a week do better in school, presumably because the
work obligation forces the student to learn time-management skills.

Work-study programs provide employment during the academic year that
should be "career oriented", although some students receive
gopher-type jobs. The work is typically limited to 10 hours a week,
with part of the salary subsidized by the government. Most students
who receive work-study jobs are undergraduate students, but graduate
students sometimes meet the eligibility requirements.

Teaching Assistantships and Research Assistantships normally provide
graduate students with a full or partial tuition waiver and a small
stipend and require them to perform teaching and/or research duties.

Most sources of financial aid require that you be enrolled at least
half-time, though some awards are restricted to full-time students.
There may be other restrictions as well. For example, most federal aid
programs are restricted to US citizens, permanent residents, or
eligible non-citizens. If you are a US citizen, male, and have reached
age 18, you must be registered with Selective Service to receive
federal aid.

Note that Sallie Mae offers a K-12 loan as well.

*** [2] Determining Financial Need

Your school's financial aid administrator calculate your financial
need using information supplied by you. If you are classified as a
dependent student, as are most undergraduate students, your parents
will also be required to supply some information.

Much of this information is contained on the Free Application for
Federal Student Aid (FAFSA). The FAFSA must be submitted for you to be
considered for virtually all need-based aid, including most federal
and state sources of financial aid. Some schools may require the
Financial Aid PROFILE (formerly known as the FAF or "Financial Aid
Form"), or a supplemental application form for additional information.

Most schools suggest you submit the FAFSA as soon as possible after
January 1 of your senior year in high school (the year you'll be
starting college) and no later than May 1. The FAFSA should normally
be submitted by March 1 for you to be eligible for most state aid.
(Do not submit the FAFSA before January 1, or it will be automatically
rejected.)

The FAFSA requires financial information for the previous tax year.
For example, for the 2000-2001 academic year, you must provide 1999
financial information. Even though you may not be able to complete
your federal income tax return until March or April, you should not
wait to file your FAFSA until your tax returns are filed with the IRS.
Instead, use estimated income information and submit the FAFSA as soon
as possible after January 1. This practice is completely acceptable
and recommended, especially if you anticipate your family circumstances
changing during the subsequent year.

The following documents from both student and parents, as appropriate,
will assist you in filling out the FAFSA:

+ US Income Tax Returns (IRS Form 1040, 1040A, or 1040EZ) for the
fiscal year that just ended and W-2 and 1099 forms.

+ Records of untaxed income, such as Social Security benefits,
AFDC or ADC, child support, welfare, pensions, military subsistence
allowances, and veterans benefits.

+ Current bank statements and mortgage information.

+ Medical and dental expenses for the past year which weren't
covered by health insurance.

+ Business and/or farm records.

+ Records of investments such as stocks, bonds, and mutual funds,
as well as bank Certificates of Deposit (CDs) and recent
statements from any money market accounts.

+ Social Security numbers.

Four to six weeks after you file the FAFSA, you will receive a Student
Aid Report (SAR). The SAR summarizes the information you provided on
the FAFSA and indicates the Expected Family Contribution (EFC).

The determination of financial need depends on two numbers:

+ The Cost of Attendance (COA) for your school. This may also be
known as the school's "budget".

+ The Expected Family Contribution (EFC). This is the amount of
money your family is expected to contribute to your education.

Your financial need is the difference between the COA and EFC:

Financial Need = COA - EFC

The amount of financial aid for which the student is eligible will be
based on this number. Your school will try to meet this demonstrated
need through a financial aid "package", which combines aid from federal
and state sources with loans, institutional grants, and student
employment.

Unfortunately, your school may not be able to provide you with
financial aid to meet your entire demonstrated financial need. Many
colleges and universities must create a "Unmet Need" or "Need Gap"
between the cost of attendance and the amount you can afford to pay
because of limited funds. Schools have limited funds available for
financial aid, and they must determine how to best allocate the funds
to their neediest students. Very few schools can afford to meet the
demonstrated need of all their students, so most assume that all
students and/or parents must pay a certain minimum amount, regardless
of their need. Others give financial aid only to the neediest
students. You're expected to obtain the funds for the unmet need or
gap through summer or term-time employment earnings and educational
loans, including the Federal Parent Loan for Undergraduate Students
(PLUS).

Moreover, your financial aid package may be reduced by any "outside
resources" you receive. A resource is something that is available
because the student is in school, and is normally counted after need is
determined. For example, if your parents have contributed money to a
prepaid tuition plan, the money received from that plan toward the
student's education will be subtracted from the determination of
financial need. Other resources include VA educational benefits and
outside scholarships. Thus the determination of the school's financial
aid package is actually based on

Remaining Financial Need = Financial Need - Resources

So even though resources do not affect the size of the Pell Grant the
student will receive, they do affect the amount of Stafford or
campus-based aid available. They are often counted 100% toward meeting
need, and the university will reduce the size of the financial aid
package to compensate. Resources represent a direct reduction of cost
(e.g., a prepaid tuition plan cuts the amount of tuition the student
will pay) and therefore less need.

[A few schools will "reward" students for bringing in outside
scholarships by using a portion of the outside funds to reduce the self
help level, or by using them to reduce the loan portion of the financial
aid package and not the institutional grants.]

The school's "budget" or COA will include tuition, fees, room and
board, books and supplies, travel, and personal and incidental
expenses. In many cases there is a standard fixed budget amount for
some of these categories. For example, the budget amount for travel
may vary depending on the student's home state. Likewise room and
board expenses may be reduced and travel expenses increased for
commuter students.

Budget allowances are used only for determining the estimated expenses
that a student will experience during the enrollment period. Actual
costs will vary depending on the your particular lifestyle. If special
circumstances should warrant a higher budget amount, consult your
financial aid administrator, who is permitted to increase your budget,
if appropriate, with documentation. For example, students with child
care expenses or expenses related to a disability may be able to get
their budget increased to compensate. If your books and supplies cost
more than the amount in your budget, save your receipts and show them to
a financial aid administrator.

The federal formula approved by Congress to calculate the EFC
is called the Federal Methodology (FM). The federal methodology is
used to determine eligibility for federal funds. If a college or
university relies on a different formula for awarding its own funds,
that formula is called the Institutional Methodology (IM). Different
colleges and universities may use different institutional methodologies.

The EFC is the sum of the student contribution and the parent contribution:

EFC = Student Contribution + Parent Contribution

An independent student is not expected to have a parent contribution.
To be classified as independent for Federal aid purposes, a student must
either be 24 years of age or meet one of the following exceptions
1. be married
2. have a dependent
3. be a graduate or professional student
4. be a ward of the court or an orphan
5. be a veteran

Some schools (mostly private) expect both natural parents to contribute
to their children's educational expenses, regardless of a divorce or any
court orders to the contrary. In cases of divorce where the custodial
parent remarries, the financial information for both the custodial
parent and the step-parent must be included on the FAFSA as well as any
child support and/or alimony received from the non-custodial parent.

If a student is classified as independent because of marriage, the
spouse's financial information must be included on the form.

The student contribution assesses 35% of the student's assets and 50%
of the student's earnings after subtracting a small threshold from the
student's earnings.

The parent contribution depends on the number of parents with earned
income, their income and assets, the age of the older parent, the family
size, and the number of family members enrolled in postsecondary
education. Income is not just the adjusted gross income from the tax
return, but also includes nontaxable income such as social security
benefits and child support. The Higher Education Amendments of 1992
eliminated home equity from the EFC, but many private colleges and
universities still use a parent's home equity as a way of rationing
their school's own grant and scholarship funds. Money set aside for
retirement in a pension plan such as a 401K, IRA, Keogh, or 403b is
usually not counted as an asset. However, the funds contributed to a
tax-deferred retirement program during the previous year must be
included on the FAFSA as "other untaxed income". In addition, an asset
protection allowance shelters a portion of the assets from the
calculation of the parent contribution. The asset protection allowance
increases with the age of the parents to allow for emergencies and
retirement needs. The asset protection allowance for most parents of
college age children will be approximately $40,000. The parent
contribution assesses a maximum of 5.64% of parent assets and 20% to
50% of parent income, after subtracting various allowances.

The full need analysis formula is rather complex. If you want an
estimate of your EFC, use the free financial aid estimation calculator
on the FinAid site. It will let you play "what-if" games.

*** [3] Consequences of the Need Analysis Formula

The FinAid site also includes a list of tips on how to arrange your
finances so as to maximize your eligibility for need-based financial
aid. Here's just a taste of FinAid's analysis.

1. The parent contribution is divided by the number of children
in college. Changes in the number of family members in college can
significantly affect the amount of aid received. For example, even
families that are well-off may become eligible for financial aid when
two or more family members are enrolled in college at the same time. So
parents should not assume that they are ineligible for aid just because
they make too much money or own a house.

2. The assets and income of parents are "taxed" by the federal
methodology need analysis formula at a much lower rate than those of the
student. This means that it may not be to the advantage of the parents
to shift income and assets to their children, despite the tax savings.
Generally, no more than 5.64% of a parent's assets (excluding their home
equity and retirement programs) are expected to be used for the child's
educational costs. For most parents, the first $40,000 or more
of their assets (depending on their age and family size) will be
ignored completely in the federal methodology need analysis formula.
On the other hand, student assets are "taxed" at 35%, a much higher
rate. This suggests that college funds should be saved in the
parents' names and not the child's (the difference in aid
eligibility wipes out any tax savings from Uniform Gift to Minors
Act asset transfers), and spend down the student's assets before
using any of the parents' assets to pay for the student's education.

3. The financial aid award or "package" is based on the assets and
earnings for the year before the student matriculates in college. So
parents should be careful about financial activity the year before
their children enter college. For example, parents who avoid
creating capital gains during the child's senior year in high school
will be at an advantage in the federal methodology need analysis system.
Likewise, they may wish to wait until after the child has entered
college to withdraw money from pension plans to pay for college expenses.

*** [8] Don't Assume You Don't Qualify

Don't assume that you don't qualify for financial aid. Virtually all US
citizens or eligible non-citizens enrolled at least half-time are now
eligible for some form of financial aid, including the Federal
unsubsidized Stafford Loan and the Federal Parent Loan for Undergraduate
Students (PLUS). Even if you don't qualify for a grant, you may still be
eligible for other forms of financial assistance.

Many families don't apply for financial aid because they believe that
they earn too much money or own a home, or because their friends and
relatives have told them that they won't qualify. They then prevent
themselves from getting any aid by failing to apply for it. You don't
need to be poor to get financial aid. For example, some loans and
scholarships are available regardless of need, and the number of family
members in college can significantly affect your eligibility for aid.
Also, as mentioned previously, a parents' home equity or retirement
programs are no longer considered in the federal methodology need
analysis formula. There are several factors in addition to income that
are used to determine your eligibility for financial aid, and there is
no simple cut-off based on income. Talk to the school's financial aid
administrators if you have any questions.

You can't get aid if you don't apply. So you should definitely fill out
the FAFSA and apply for financial aid if you feel you may need
assistance.

Do not think of the federal student assistance programs as
charity. They are designed more as cash flow assistance than a
handout, allowing you to spread the expense of college over many years.

It is important to apply for financial aid before admission, even if
you think you won't qualify during your first year. For example, the
Brown University Guidebook for Undergraduate Financial Aid says

"... it is important that students who plan to apply for admission to
Brown apply for financial aid as well if they have reason to believe
that the costs of attendance exceed what they and their parents can
reasonably be expected to contribute. Only under the most extraordinary
circumstances is it possible to grant scholarship aid to first year
students who failed to apply for aid before admission. Budget
limitations may also preclude the granting of University scholarships
to new upperclass applicants."

Moreover, don't apply only to those schools you think you can afford.
The more expensive schools may provide larger financial aid packages to
compensate for the greater cost of attendance. Do not reject any school
simply because of the high cost of tuition and room and board. Tuition
and living expenses are like list prices; universities offer financial
aid packages as discounts against the list price to bring the cost
closer to what you can afford. Compare schools based on the bottom
line, not the list price. You may find that the difference in the
bottom line is not as significant a factor as you previously assumed.
Do not limit your initial choice of schools by the high price tag.

It is, however, a good idea to apply to several different types and
costs of schools for insurance purposes. Just as you apply to one or
two safety schools that you are sure will admit you, you should also
apply to a few schools you are certain you can afford.

Certainly college costs should be one of the factors you consider when
deciding where to go to school, but it shouldn't be the *only*
consideration.

Many students and parents avoid the financial aid office, thinking of
the financial aid office as "the enemy". Most financial aid office
employees are dedicated (underpaid and overworked) professionals who
want to help you as much as they can. Their job is to distribute
limited funds fairly to all the students. Within their constraints,
however, they will do their best to ensure that you can afford to
graduate from their university. True, their estimate of what you can
afford may not match your own assessment, but they aren't out to get
you. They will try to help you if you ask.

*** [5] Applying for Financial Aid

The Free Application for Federal Student Aid is a prerequisite for
applying for federal and state aid, as well as many college aid
programs. You can obtain a copy of the form from your high school
guidance counselor, your college financial aid administrator, or your
local public library. You can also complete the form online, at
http://www.fafsa.ed.gov/
and get your results back quicker than with the paper form. Questions
about the form should be directed to 1-800-4-FED-AID.

Some colleges will require their own forms, the CSS PROFILE form, or
special supplemental forms.

To apply for private sector scholarships, visit the FastWeb site at
http://www.fastweb.com
FastWeb provides the best free scholarship search. It compares your
profile against a large database of scholarships, providing your with
a list of matching awards. You will then need to write to the
scholarship sponsors to obtain current application materials. In some
cases you will be able to apply directly online through
FastWeb. FastWeb also provides a college search database and other
student resources.

*** [6] Beware of Scholarship Scams

College costs a lot of money, and there are some companies that try
to take advantage of students and parents. The lure of "FREE MONEY"
can fool even skeptical people.

Every year there are a few scams based on imitations of legitimate
foundations and scholarship search companies. Be cautious if you must
pay money to get money -- it almost certainly is a scam. Foundations
are set up to give money away, not get it. A $10 or $20 application
fee may seem rather innocuous, but if the "foundation" receives a few
thousand applications, they can pay out a $1,000 scholarship or two
and still pocket a hefty profit, if they give out any money at all.
The most common types of scholarship scams are scholarships with an
application fee, scholarship matching services that guarantee results,
and high pressure sales pitches disguised as a free financial aid seminar.

If you have questions about financial aid or are suspicious about a
program, go to your college's financial aid office. (If you are still
in high school, ask the financial aid office at a local college for
advice.) They can provide you with the accurate and current
information, and verify whether a foundation is legitimate.

The FinAid site includes an extensive collection of information about
identifying the many types of scams, how to report them, pending
legislation concerning scholarship scams, and law enforcement efforts
to date. See
http://www.finaid.org/scholarships/scams.phtml
for more information.

*** [7] The Unclaimed Aid Myth

You may hear that millions or billions of dollars of scholarships go
unused each year because students don't know where to apply, but this
simply isn't true.

Most financial aid programs are highly competitive. According to the
National Postsecondary Student Aid Study conducted by the National
Center for Education Statistics at the US Department of Education,
only 1 in 25 students (that's 4%) receive private sector scholarships
and the average amount received is about $1,600.

The most common version of the unclaimed aid myth is that "$6.6
billion went unclaimed last year". This myth is based on a 1976-1977
academic year study by the National Institute of Work and Learning
that estimated that a total of $7 billion was potentially available
from employer tuition assistance programs, but that only about $300
million to $400 million was being used. This money goes unused because
it can't be used, is a 20-year-old estimate that has never been
substantiated, and is not available to the general public. Only
eligible employees whose employers offer tuition assistance and who
are enrolled in an eligible program can take advantage of such
programs. There are no unclaimed scholarships. Popular variations on
this myth include the figures $2.7 billion, $2 billion, $1 billion,
and $135 million.

*** [8] General Advice

For information about college-controlled aid, talk to the financial
aid administrators at the school. You will find out about any special merit
scholarships when you apply for financial aid at the school. A recent
trend is for many second tier schools (and even a few top rank
schools) to offer non-need merit-based aid to attract top students.

When looking for private sources of aid, use the following sources:

1. Public Library. Spend a few hours in the library looking
at scholarship books. It doesn't take much time and the
librarians are knowledgable and can help you. There may
also be a bulletin board with information about local
scholarship programs.

2. Use an online scholarship search. It takes less than 5
minutes to search an online scholarship database like
FastWeb, and you'll find scholarships you might not have
found otherwise.

You should also think of any organizations to which you belong that
might have aid funds available: religious organizations, fraternal
organizations, clubs, athletics, veterans groups, ethnic groups,
rotary clubs, unions, and your and your parents' employers. If you are
presenting a paper at a technical conference, many conferences have
travel funds available to enable students to attend the conference.

When considering whether to use a book, look at its copyright
date. You don't want to waste time with a book that is too old, since
the information does change.Books about federal student aid should be
no more than one year old. Books listing individual scholarships
should be no more than three years old.

Always write to the scholarship sponsor for up-to-date information,
enclosing a self-addressed stamped envelope for the application
materials.

Every high school student should consider checking the "yes" box on the
ETS Student Search Service form or the ACT Student Profile Form,
releasing your information to scholarship programs. Some scholarship
programs, such as the National Merit Scholarship Corporation (NMSC),
rely on this information for determining eligibility, and if
you don't check the box you won't be considered for the award.

Graduate students who applied for the National Science Foundation (NSF)
or Hertz Foundation graduate fellowships as undergraduate seniors
should know that they can apply a second time as first year graduate
students. If you didn't win a NSF as a senior, ask for a copy of your
evaluation forms. Often the evaluations will be rather explicit in
identifying the weaknesses in your application, and you can address
those areas the second time you apply.

Complete the FAFSA online at http://www.fafsa.ed.gov, instead of using
the paper form. You will get the results quicker, and they will be
more accurate. Don't forget, however, to print the signature sheet,
sign and mail it, or they will not process your FAFSA.

Be very careful not to miss any deadlines.

Ask the school's bursar office about the availability of installment
payment plans. Many universities will let you spread the cost of
tuition out over the full year, instead of requiring you to pay a lump
sum up front.

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