Looking for More Ways to Save?
In a previous article, I told you that there are only five places to get money for college:
In this article, I want to spend more time on the first, the federal government.
How to pay for school with help from the federal government.
Let’s say you walked into my office and said, “My child is finishing 11th grade. I want to send her to college, but I haven’t saved a dime and school is going to cost $25,000 a year. I want to borrow as little money as possible. What do I do?” Conversations like this happen more often than you’d think.
Here’s what I’d tell you: Before you think about anything else, know that it’s never too late. There’s always a way.
(Do I wish you had invested in a 529 plan when your child was born? Of course I do. Because you can either save your money now and earn interest, or borrow money from the federal government later—and pay it back with interest. So why not make payments now? But when that’s not an option, there are others. So let’s proceed.)
The first thing we need to look at is parental income. Is your student going to qualify for any need-based money from the federal government? That means either a Pell Grant (currently capped at $6,195) or a Supplemental Educational Opportunity Grant (SEOG), which maxes out at $4,000.
Unlike loans, grants don’t require repayment. Awards of these grants are based on your family income. If your family income is low— somewhere under $50,000—you will likely qualify for grant money.
The higher your expected family income, the lower the grant money you’re likely to receive.
Now let's look at FAFSA
To know if you’re eligible, you need to fill out the FAFSA, the Free Application for Federal Student Aid. The FAFSA is based on your prior year’s income. (In other words, if you were filling out the form for October 2019, your information would be your tax information from 2018.) Good news is, they have made the process much easier with a direct link into the IRS database that pulls parents income into the FAFSA form.
The application opens October 1, and you should start applying for aid October 1 the year before your child is going to school (the first day you can apply for aid for August 2020 is October 1, 2019). Don’t procrastinate. Financial aid is given out on a first-come, first-served basis. The quicker you can get your financial aid information in (your child has to be admitted first) the quicker they can start making you an offer.
When you fill out the FAFSA, you will get an instant estimate of how much aid you will be eligible for. The report will provide your expected family contribution (EFC), and whether you can expect to receive any grant or loan money.
When you submit the FAFSA, it goes to the universities your student is applying to. Then each university will make you a customized financial-aid offer. It’s possible that a student will also qualify for need-based aid from individual schools. That’s based on a formula:
Need is calculated by each school, and unless you’re in the upper income levels ($250,000 and above), it’s possible that you’ll qualify for need-based aid. The thing is, you may be offered need-based aid at one school but not at another.
It’s important to know there are two methods for calculating the EFC: the federal method and the institutional method. For example, I have a student this year whose EFC was calculated at $3,300 under the federal method. West Virginia University honored that. But Syracuse University’s Office of Financial Aid calculated the EFC using its own formula and declared her EFC to be $12,500.
She’s going to WVU.
Bottom line: The federal government is a good place to start looking for financial aid, but it’s very unlikely that it will take care of all your needs.
Next time, we’ll look at state aid and what individual colleges and universities can do to help.
Jamie Dickenson, MBA, CEP
Independent Educational Consultant specializing in college admissions and financial aid, motivational speaker, business coach and owner of Jamie Dickenson, LLC., IEC Advisors, and Yoga Power, LLC.
Jamie Dickenson is not affiliated with Hartford Funds. Hartford Funds has separately contracted with Ms. Dickenson to provide additional insight about college savings issues.