DETERMINING COLLEGE COST (BUDGET)

Colleges publish a budget that they use to determine what it will cost for a student to attend the institution. The budgets at the colleges you are exploring may be different, so look at the college’s publications or ask for help at the college’s financial aid office. Remember that you may not know how much you will actually have to pay until you go through the financial aid process. Remember that, thanks to financial aid, few families pay the full cost.

WHAT WILL I BE EXPECTED TO PAY? Rules of the Road– The Financial Aid Process

The financial aid process requires providing information first to the federal government (the U.S. Department of Education) and then to any of the schools you are considering attending. The process is straightforward if you allow sufficient time to complete each step and follow the directions that are given. The federal government uses a single form and a standard formula to determine how federal and most state financial aid will be distributed. The first step in the financial aid process is filling out the Free Application for Federal Student Aid, or FAFSA; you can choose the preferred method online (at www.fafsa.ed.gov) or the paper application. This is the federal government’s way of obtaining information about your family circumstances, income and assets.

Except for what is called merit aid, i.e. awards given in recognition of certain talents (academic, athletic, musical, etc.) it is assumed that the student and his/her parents are responsible for paying college costs. Those who provide financial aid use your aid application to measure what the family is expected to pay. This is called the Expected Family Contribution (EFC) and it is the sum of what parents can contribute from their income and assets (PC) plus what the student can pay from his/her income and assets (SC). The EFC is subtracted from the college cost to determine how much financial aid you will need to attend that college (College Cost - EFC= Need). You can go online (see Resources on page 29) and estimate your EFC using one of the online guides before going through the financial aid process.

How Do They Do That?– How the EFC is Determined

The federal government and colleges use a formula to distribute financial aid that treats financial aid candidates consistently. Here is how it works:

• The EFC is determined through a federal formula using the FAFSA (this is called the Federal Methodology or FM.)
• Some colleges with their own financial aid funds may also use their own formula to determine a family’s EFC (this is called the Institutional Methodology, or IM.) The EFC for college funds may be different from the EFC for federal/state aid; it might be higher, but it might also be lower.
• Both formulas attempt to determine what the parents and student can reasonably contribute toward the cost of education.
• The EFC for both federal and institutional aid is based on: –Number in household –Number of wage-earners in family –Number in college –Taxed and untaxed income
• Federal and state income taxes
• Investments (savings, real estate, business or farm equity)

Both the FM and the IM recognize that only a part of a family’s income and assets will be available for education, so some allowances, primarily for parents, are built into the formulae:

• Taxes are deducted.
• Part of a family’s income is set aside for such things as living costs, working expenses, emergencies, etc.
• Part of family assets are also protected. The amount subtracted depends upon the age of the older parent, recognizing that as you age you will have to call upon more of your savings. The value of retirement funds is also excluded in most cases. In the FM, a family’s home or family farm is not included.
• Any EFC is likely to be a function of family income, with very little coming from parent assets. Once a family of any given size has reached an income level where taxes and basic living expenses are covered, the rate of contribution in the EFC starts to go up. Here is an estimate of the total amount expected from parents at various income levels (the table will hold for most families of 2 to 6 members with one child in college):
• Because some assets are not counted and there is an allowance against the ones that are, the rate of contribution on assets overall is low, on the order of 2%–4%.
• Student assets can be treated in various ways depending upon amount, source of funds and restrictions on use.
• You can estimate EFC for yourself using EFC calculators, such as those listed in Resources on page 29.

You will be notified of your EFC in a document called the Student Aid Report (SAR), which you should receive about one month after completing the FAFSA. You should review the SAR for accuracy; any necessary changes can be made on the SAR and it can be resubmitted. SAR data also goes to the colleges you listed in the FAFSA, as well as your state’s scholarship program, if applicable.

How The Financial Aid Award Is Determined

If you receive a letter providing you with a financial aid award, it is likely to be called a Financial Aid Package. It is a combination of different types of financial aid and it may include funds from the federal and state governments, the college and other organizations. It is based on your financial need as well as how much aid money the institution has available. Every school has its own guidelines for putting together a package. Some will begin by awarding every student the maximum Stafford Loan amount and then providing other aid. Other schools will award gift-aid first, followed by workstudy and educational loans. Some may meet your calculated need, others may not. There may be a gap that the college cannot cover.

EVALUATING THE FINANCIAL AID DECISION

You should hear from the college at the time of admission or shortly thereafter. Regardless of the various terms used, a financial aid award has only two parts: (1) gift-aid and (2) self-help. Gift-aid may be called scholarships, grants, tuition waivers, or by other names, and it may come from many different sources, but it is money you receive free of any obligation on your part. Self-help can be loan aid (which you must repay) or employment (where you get paid only if you work), and is often a combination of both. In either or both cases, the responsibility for the self-help assistance is yours.

What Happens Now?

When you receive a financial aid award letter you can accept it as is, reject it entirely, accept some parts and reject others, or you can request a reevaluation of the aid award. Before making your decision, do the following:

• Read all letters carefully. Make sure all information is up-to-date and accurate.
• Provide any new or additional information, or report any changes in your family circumstances to the financial aid office as soon as possible. Information about differences in income, assets, family size, number in college are most significant.
• Return everything on time. Do not miss any deadlines – it may affect your award.
• Accept, decline or appeal the offer. If you accept the offer, sign it and promptly return it to the financial aid office. If you decline or question an offer, find out more about appealing it.
• Find out how and when financial aid money will be disbursed. Most schools credit your financial aid award against your college bill. You will have to pay the college bill before aid funds will be given to you for any other expenses. Sometimes, private scholarships will be sent to you directly or they may be sent to the college for the financial aid office to disburse. Find out how your school will treat new scholarship money. A lot depends upon whether the college award meets your full need or leaves a gap.
• Take particular care with all of the conditions for renewal of your award. Financial aid awards can and often do change from year to year depending upon need, performance and other factors. In most cases you must apply for aid every year.

What Do I Do if the Aid Package Isn’t Enough?

If the aid package you have been offered will not work, notify the aid office. Financial aid officers are there to help. They may be able to consider recent changes in your family’s circumstances, such as job loss, divorce or unexpected medical expenses. At the very least, they may be able to offer suggestions to help.

As the aid calendar moves into late spring, and students who applied for aid enroll elsewhere or decline their packages, additional aid may become available. If you have new information, it may help the aid administrator offer a better package. You are forming what will probably be a multi-year partnership. You may not have to accept their first offer, but do not assume threats or arrogance will sweeten the deal. Yet, persistence with a justifiable aid request can pay off. There are some things you can do to make certain this partnership works to your (and the college's) advantage:

• Get to know the staff in the aid office. Know the names of people, and if possible, get to know an aid officer that you can make your point of contact.
• Give good, complete information on all the forms you fill out and supplement anything else you think they need to know with a letter.
• If your information changes, tell them as soon as possible. You will have to document these changes.
• Include your social security number on all written contact with them.
• Do not hide information. If found out, which is likely, it can hurt your chances of getting more aid, what aid you have been awarded could be reduced and it may have legal consequences.
• At some point during the aid process, you are likely to have to verify some of the information you have given previously. Estimates early on are acceptable, but actual income and asset data later on will be taken into account, and that could mean an increase or decrease adjustment in your initial award.
• If you are a parent sending a child to college, make certain that he/she understands what has been filed. If the aid office has a question, they will contact the student. It is best for all concerned if the student and parents share all the financial information from the very start of the aid process.

PAYING THE BILL: COLLEGE COST - FINANCIAL AID = WHAT YOU PAY The Financial Aid Part – Federal Student Aid

Federal student aid consists of grants, loans and work-study. You don’t have to pay back grants, work-study allows you to earn money for your education while you are attending school, and loans allow you to borrow money for school under various federal loan programs. To get any need-based federal aid you must submit the Free Application for Federal Student Aid (FAFSA). Federal student aid programs include the following:

Federal Pell Grants (Pell) – The amount of Pell Grant (up to $4,050) you can get depends upon your FM calculated need, the cost of attending your school, your status as either a full-time or part-time student, your plans to attend school for a full academic year or less, and making satisfactory academic progress in your course of study. Pell grants come directly from the federal government; your school disburses the funds. Campus Based Aid – The following federal aid programs are called campus-based because federal funds are given to schools, which agree to contribute funds of their own or match the federal money. The financial aid office at each participating school awards and administers the aid based upon your FM financial need and the funding level at that school. Campus-based funds are limited at many schools and once they are gone no more awards can be given for that year. For the most part, the students with the most need get campus-based aid first.

Federal Supplementary Educational Opportunity Grants (FSEOG) – FSEOG’s are grants (from $100 to $4,000) for students with exceptional need. Federal Perkins Loans (Perkins) – A Perkins Loan is a low-interest, fixed rate (5%) loan for both undergraduate and graduate students with exceptional financial need. Your school administers this program as a lender using government funds and some of its own money. You can borrow up to $4,000 per year as an undergraduate. No payments are required while you are attending school at least half-time (this is called a “deferment” period). Repayment to your school begins nine months after you graduate, leave school, or drop to below half-time status. No interest is charged on your loan until you reach repayment. Perkins loans are often used in combination with Stafford Loans. Federal Work Study (FWS) – FWS provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn extra money to help pay for education and discretionary expenses. Your school must pay you directly and at least monthly. The amount you earn cannot exceed your total FWS award amount. When assigning work hours, your school will consider your award amount, your class schedule and your academic progress.

Stafford and PLUS Loans

In addition to Pell and the campus-based aid programs, the U.S. Department of Education administers a group of loan programs that are often described as guaranteed loans. The loans are insured by the federal government. If the borrower should die, be permanently and totally disabled or is otherwise incapable of paying the loan back, the federal government pays the balance of the loan principal and interest on the borrow-er’s behalf. These programs consist of Stafford Loans (for students) and Parent Loans for Undergraduate Students - PLUS (for parents). There are two versions of Stafford and PLUS Loans: the Federal Family Education Loan Program (FFELP) and the William D. Ford Direct Loan Program (Direct Loans). Under the Direct Loan Program the school you attend gets money directly from the federal government and lends it to you. The funds for the FFEL Program come from a bank, credit union or other lender that participates in the program. Schools generally participate in one or the other but usually not both. Eligibility rules and loan amounts are identical under each plan, but repayment plans and borrower benefits differ somewhat.

Stafford Loans – Whether your Stafford Loan comes from the FFEL Program or the Direct Loan Program it will show up as a Subsidized Stafford Loan, an Unsubsidized Stafford Loan or a combination of the two. A Subsidized loan is awarded on the basis of financial need. The government pays (subsidizes) the interest on your loan while you are in school and for the first six months after you leave school. An Unsubsidized loan is available to any student, without regard to need, up to the annual limit, provided your financial aid does not exceed your cost of attendance. You are responsible for paying all interest on an Unsubsidized loan from the date the loan is disbursed until it is paid in full. You can choose to pay the interest while you are in school or defer it and let it be added to your loan balance when you go into repayment. If you choose this option, (i.e. capitalize the interest) you will increase the total amount you will have to pay over the life of the loan.

Your school’s aid officer will use FM to determine your eligibility for a Subsidized Stafford Loan, an Unsubsidized Stafford Loan or a combination of the two for any given year, but the total amount cannot exceed the borrowing limits in the chart on page 26. The variable interest rate on Stafford Loans is set by the federal government each year on July 1st, but cannot exceed 8.25%. The current interest rate on all Stafford Loans for July 1, 2004 through June 30, 2005 is 3.37% for borrowers in repayment and 2.77% for borrowers in deferment.

Parent Loans for Undergraduate Students (PLUS) – Parents with an acceptable credit history can borrow a PLUS loan to help pay for education expenses related to a dependent undergraduate student. PLUS loans are only in the parent’s name. PLUS loans are not financial need based, but are limited to your cost of attendance minus other financial aid. The variable interest rate on PLUS loans is set by the federal government each year on July 1st, but cannot exceed 9.00%.

The current rate on PLUS Loans for the period July 1, 2004 through June 30, 2005, is 4.17%. Repayment of both principal and interest generally begins within 60 days after the loan is fully disbursed. Deferments may be granted under certain circumstances.

State Aid – Most states also have financial aid in the form of grant and loan programs; you apply for them at the same time that you apply for federal programs through the FAFSA. In Maine, students may find state financial aid through the Maine State Grant Program, the Robert C. Byrd Honors Scholarship Program, and the Educators for Maine Program. In Maine, call the Finance Authority of Maine (FAME) at 1-800-228-3734 or visit www.famemaine.com for more information.

Institutional or Collegiate Aid – Many schools will have their own aid funds available to provide incoming students with financial aid opportunities. These resources may consist of gift-aid (grants, scholarships, or the college’s willingness to discount tuition rates to certain students) and/or self-help (college loans and jobs). College aid can be substantial enough to significantly reduce the cost of education for eligible students. To receive these funds, students may be asked to fill out additional financial aid forms such as the College Scholarship Service (CSS) Profile, or a school’s in-house form.

Private Scholarships – Outside sources of aid can include scholarships from local, state and national sources. Many scholarships are available through high schools, civic groups, companies, foundations, churches, organizations and individuals. You should check with your guidance office for scholarship information. You should also check the MES web site (www.mesfoundation.com) and the Maine Community Foundation web site (www.mainecf.org) for information on their scholarships. You can search for scholarships available in Maine on the Finance Authority of Maine’s web site (www.famemaine.com).

Employers may also offer assistance. If you are working, check with your employer for tuition assistance or scholarships. If you are a dependent student, ask your parent or legal guardian to check their personnel office for the availability of awards.

Many national scholarship databases and search engines are available online, and are usually free of charge. Plugging in “scholarship” in any search engine will reveal them. There are a small number of students that actually apply for scholarships in comparison to the number of scholarships that are out there, so your chances of receiving an award may be better than you think.

The What You Pay Part – Dealing With Your Bill

Now that you know what your college will cost and how much financial aid (if any) you will receive, what is left is what you will have to pay for that college year (see The College Aid Comparison Worksheet, pg. 35, specifically lines 6 and 8).

The first step is to decide how much the parents will pay and how much the student will pay. In the final analysis, those who provide need-based aid assume that the family is responsible for paying for college. The aid you receive is intended to supplement family efforts, not replace them. As a general matter, whatever parents choose not to pay will become the student’s responsibility. In either case, eligibility for federal aid will not change and colleges for the most part will not use their own funds as a substitute for any family resource in the EFC. There can be exceptions in some cases when family circumstances “require” an adjustment and where a “choice” by the family is not at issue. Guidance from the financial aid officers at your college is essential in these situations. In such cases loan aid is often used to give families time and flexibility in paying for college; additional gift aid may be possible but usually available only as a last resort.

Whether paying all of the cost or only part of it, families have only two resources they can all upon: income and assets. And, there are only two ways to pay the bill; now (within one year) or later (through borrowing). A conscious decision about the now part is essential; it will help determine the amount both parents and student will draw from yearly income and how much they will draw from assets (i.e., savings). The amount you choose should be realistic in terms of current living expenses and sustainable, that is something you can live with on a monthly basis for one or more college years.