Financial Aid FAQs and Answers
Just about everyone qualifies for some type of financial aid. In fact, over 8 million students receive financial aid every year. Even if you’re not a straight-A student or a star athlete, you may be eligible for more aid than you think. To see if you meet basic eligibility requirements, take our Financial Aid Eligibility Quiz. Then, complete the Free Application for Federal Student Aid to see how much aid you can get.
It’s never too soon to start. There are steps you can take beginning in high school to help you prepare both financially and academically. Otherwise, you should start the year before you go to college by completing the Free Application for Federal Student Aid (FAFSA) as soon as possible after January 1.
The Free Application for Federal Student Aid (FAFSA) is used to determine how much aid you can receive and how much your family is expected to contribute toward your college costs. You must complete a FAFSA (or renewal FAFSA) each you wish to be considered for financial aid.
You can find the FAFSA form online at www.fafsa.ed.gov, or you can get a paper copy from your school’s financial aid office or your high school guidance counselor.
For help with completing your FAFSA, see our online Financial Aid Advisor, “Tips on Completing the FAFSA.”
The single most effective way to increase your chances of qualifying for more money is to apply as soon as possible after January 1 of the year you wish to receive financial aid. The aid pool at most institutions is limited, and is typically awarded on a first-come, first-served basis. For more information, see our financial aid tips for getting the most money for college.
Methods of distributing financial aid vary from campus to campus. Most financial aid will not be given directly to you. The majority of aid gets credited directly to your student account at the start of an academic term.
If you are less than 24 years of age on December 31 of the school year, an undergraduate student, single, not in the military, have no dependents, and are not an orphan or ward of the court, then you are a Dependent student as far as the Department of Education is concerned.
Federal Stafford loans do not require any credit checks. However, if your son or daughter has defaulted on a student loan or is not making satisfactory academic achievement, they may not be eligible to obtain a new federal loan. The PLUS loan (Parent Loan for Undergraduate Students) requires a credit check and may be denied if the parent has adverse credit history. All private student loans require credit checks.
- Federal Stafford loans: The borrower is not required to make any payments until six months after leaving school or going below half-time. For example, if the student receives a degree in May, but goes on to graduate school in the fall, no payments must be made because there was not a six-month lapse in schooling.
- Federal PLUS loans: Repayment will start usually no later than 60 days after the last disbursement. All federal loans have at least two disbursements, typically one for each school term. At most schools, the last disbursement will take place in January, and the repayment will normally start between February and March.
- Private student loans: The repayment terms may vary, depending on the type of private loan you have.
Each loan is considered a separate loan, but all federal loans under the same Social Security Number may be consolidated. In a federal student loan consolidation, your individual federal college loans are paid off to create one new consolidation loan. The repayment term may then be extended to minimize the monthly payment, while maintaining the benefits of the original, separate loans. Private student loans will not be included in a federal student loan consolidation. You would need to consolidate your private loans separately in a private consolidation loan.
Student Loan Consolidation FAQs and Responses
Consolidating student loans offers many benefits-even if you’re currently making your monthly student loan payments without any difficulty.
- You can make monthly bill paying easier with one student loan payment to one lender.
- The rate on a federal loan is fixed for the life of the loan. Federal student loans and parent loans issued prior to July 1 2006, carry variable interest rates that are adjusted annually.
- Consolidating can help ease the pressure on your monthly budget by reducing your monthly student loan payment by 10% – 60%.
- You can save money by using your student loan payment savings to pay off high-rate debt, such as credit cards.
- Consolidation will help your credit scores and debt-to-income ratio, both key factors if you’re looking to qualify for a credit card, buy a car, rent an apartment, or purchase or refinance a home.
Extending the repayment period does increase total interest payments, since smaller payments are made over a longer period of time. However, there are no prepayment penalties for accelerating repayment, so you could pay off the loan in a shorter period of time and save on total interest payments.
The interest rate is determined by taking a weighted average of the interest rates on all loans to be consolidated and rounding up to the nearest 0.125% or 8.25%, whichever is less.
Most people can deduct interest paid on federal student consolidation loans. Consult your tax advisor for more information.
Call the U.S. Department of Education at (800) 557-7392, or visit the Federal Direct Consolidation Loans Information Center.
Stafford Loan FAQs and Responses
It’s all about financial need.
Subsidized Stafford student loans are awarded to students with demonstrated financial need. While students are in school, Uncle Sam pays the interest on subsidized Stafford loans, and payment is deferred (delayed) until after graduation. Once out of school, though, the student assumes responsibility for the loan, including interest.
With unsubsidized Stafford student loans, you’re responsible for the interest from the time funds are disbursed. Unsubsidized federal college loans are not based on financial need; in fact, virtually every student is eligible for an unsubsidized Stafford loan. Although interest starts to accrue immediately, you can delay repayment until after graduation.
Your maximum available Stafford loan amounts vary depending on your year in school, whether you’re considered a financial dependent of your parents, and whether your parents have qualified for a federal PLUS parent loan.
If Stafford student loans are not enough to pay for school, your parents (if you’re a dependent student) may be able to borrow under the federal PLUS program (Parent Loans for Undergraduate Students). With the PLUS loan, parents can borrow up to the total cost of education at your school, less any other aid you are awarded.
If federal aid leaves you short, you may be able to get the money for college you need with a private education loan. Private student loans are credit-based, non-federal student loans available to undergraduate, graduate, and continuing education students that can cover up to 100% of the cost of your education.
Stafford loan funds are usually disbursed at the beginning of each semester. Funds for tuition and fees are paid direction to your school, and funds for living expenses and other costs are typically distributed in the form of a check or deposit to your bank.
As of July 1, 2006, unsubsidized Stafford student loans and Stafford graduate student loans carry a fixed interest rate of 6.8%.
Private Student Loan FAQs and Responses
Federal student loans are guaranteed by the federal government, and offer attractive terms such as low fixed interest rates, deferred repayment, subsidized interest payments (for student who demonstrate financial need), and flexible repayment terms. Neither Stafford student loans nor Perkins student loans require a credit check or co-signer. The credit checks for PLUS parent loans and Grad PLUS graduate student loans are modest, much less stringent than for private student loans and other types of consumer loans. You must complete the FAFSA (the Free Application for Federal Student Aid) in order to be eligible for federal education loans.
Private student loans are non-government loans offered by banks, credit unions, and other private lenders. These loans are not based on financial need but rather on your creditworthiness and ability to repay. Private student loans are designed to supplement federal loan programs and can be used for a wide range of education purposes, including tuition, books, living expenses, and a computer. The rates and terms for private student loans vary by lender and borrower creditworthiness. If you don’t qualify for a private student loan on your own, you may need to get a co-signer.
Not necessarily. You may be eligible for a private student loan if you have a satisfactory credit history, are employed full time, and are a U.S. citizen or permanent resident. If you don’t meet the minimum eligibility requirements for a private student loan, you can apply with a co-signer who does.
Rates on private student loans vary by lender, program, and the creditworthiness of the borrower.
The Education Resources Institute (TERI) is a private, nonprofit institution that used to guarantee all Student Loan Daddy private student loans. Under previous private loan programs, to be eligible for a Student Loan Daddy private student loan, you were required to be enrolled at least halftime in a TERI-approved school.
Parents’ FrequentlyAsked Questions and Responses
How much you need to save depends on the school your child attends. Tuition and fees at public colleges are generally lower than those at private schools. Regardless of the school, though, education costs have been rising, and are expected to continue increasing over the next decade.
Here’s how much college funding you’ll need to save to send one child to an average four-year private or public college. Don’t let these numbers frighten you. Start implementing your college savings plans today.
Child’s Age (Years) Average Cost
One $257,543 $118,312 Four $222,475 $102,200 Eight $183,031 $84,080 Twelve $150,580 $69,173 Sixteen $123,884 $56,909
A prepaid tuition plan offers a conservative approach to investing for college, and can be right program for students planning to attend a state college. And, if tuition costs increase, you win-the number of credit hours you purchased remains the same, regardless of any changes in college costs.
The Student Loan Daddy Scholar’sEdge™ savings plan is more flexible, allowing you to save for any attendance at any college. The amount you invest, plus the accumulated return on your investment, may well exceed college costs-so you’ll come out ahead.
Both plans are tax-deferred, and allow tax-free withdrawals for education-related expenses.
Whether you save or not, you will be expected to contribute to your child’s education to the extent possible. If you haven’t put away any money at all, then you may have to take out parent loans either as part of your financial aid package or to pay part or all of your expected family contribution, or both. Even though you and your child may be eligible for low-cost federal student loans, any type of college loans means paying interest, whereas saving money means earning interest.
To meet the cost of attendance, each school looks to the student and parents to make an expected family contribution (EFC). The EFC is based on your family’s ability to pay and is determined by need analysis derived from the information reported on your child’s FAFSA (the Free Application for Federal Student Aid. The EFC normally includes both a student’s share and the parents’ share, both of which take into account income and assets. The total EFC is calculated using a standard formula established by law so that, regardless of the college your child attends, your EFC will be the same.
The EFC calculation uses a standard formula based on the information reported on the FAFSA. This calculation considers family size, the number of family members attending college, whether the student is dependent or independent, and the family’s income and assets (both student’s and parents’), including cash, checking and savings accounts, real estate other than your family home, and investments. The difference between your EFC and the cost of admission (COA) determines your financial need.
Because both the cost of the school and your family finances are considered, your family may qualify for more financial aid than you think.
Although your savings will be considered in the EFC calculation, income is a bigger factor than assets. However, both types of 529 plans will impact your EFC. A college savings plan, such as the Student Loan Daddy Scholar’sEdge plan, is considered the parents’ assets and is factored into the EFC at 5.6% so that a portion of the assets are considered in the financial aid calculation. A prepaid tuition plan, on the other hand, is considered to be the student’s asset, and reduces financial aid dollar-for-dollar.
While there are potential tax benefits to saving in your child’s name, there are also potential financial aid implications. Parent assets are factored into the EFC at low rate-5.6%, while student assets are assessed at 35% of assets and 50% of after-tax income over $1,750.
You should definitely investigate federal college loans for your student first, such as Stafford student loans. These are the lowest-cost student loans available and offer significant benefits such as flexible repayment terms, deferment and forbearance options, and the perks of consolidation student loan consolidation.
Both loans are federally guaranteed, but federal PLUS loan are made to the parents of dependent undergraduates, while Stafford loans are available to both undergraduate and graduate students and are made directly to the student in her or his name.
PLUS loans and Stafford loans also differ in rate, maximum loan amount, and repayment terms:
- Interest Rates: The interest rate on a Stafford loan disbursed after July 1, 2006, is a fixed 6.8%, generally among the lowest available student loan rates. The interest rate for a PLUS loan disbursed after July 1, 2006, is a fixed 7.9%, slightly higher than the Stafford loan rate, but still quite low compared to other types of consumer financing.
- Repayment: Repayment on federal PLUS loans begins within 30–60 days after the final disbursement, although parents have the option to defer their payments until six months after their child has graduated or left school. Repayment on federal Stafford student loans can also be deferred until after the borrowing student has graduated, left school, or dropped below half-time enrollment.
- Loan Amounts: PLUS borrowers can take out up to 100% of their child’s college cost of attendance, less any financial aid (such as student loans and work-study) their child has received. Students qualify for different maximum Stafford loan amounts depending on their year in school, their dependency status, and whether their parents qualified for a parent PLUS loan.
Yes, parents must pass federal guidelines for creditworthiness. These guidelines are generally less stringent than for other types of consumer credit, such as private student loans, home equity loans, and credit cards.
A student whose parent(s) have been turned down for a PLUS loan may be eligible to borrow additional funds in unsubsidized Stafford student loans, subject to the school’s approval.
The Federal PLUS loan has a 3% government origination fee and a 1% guarantee fee, which is normally waived. Fees are taken out of the proceeds of the loan, so there’s no upfront money required to obtain a PLUS loan.
The school’s financial aid office will distribute the funds directly to the student in scheduled payments over the course of the academic year. All federal college loans have at least two disbursements, typically one for each school term. At most schools, the last disbursement will take place in January, and the repayment will normally start between February and March.