One of the many joys of parenthood is when your young adult shows you a coveted, thick admissions package from their college of choice. You proudly congratulate them for all their hard work and dedication that got them to this point. Yet, for many parents, the admissions process produces a financial headache. There’s lots of paperwork involved with complicated terminology and enrollment cost estimates making what could have been a fun voyage into the college transition oftentimes confusing and frustrating.
Savings and Financing an Education
In America, there are a multitude of options to save for your child’s education. If you have seen good economic times, you and your other family members might have set aside a college fund or a 529 plan, which offers certain incentives for educational savings. Others save for college in the form of bonds, CDs, Education Savings Accounts or various other accounts.
If you don’t have access to a 529 plan or any other college savings vehicles, there are other options to consider before withdrawing from life insurance or 401(k) plans. Many students are eligible for scholarships and financial aid from their school, the state, third parties, and, of course, the Federal government by using FAFSA.
What to Expect from FAFSA and an Award Letter
The Free Application for Federal Student Aid (FAFSA) is available online to parents and students. Those students who meet certain eligibility requirements can receive federal student aid. Based on your reported income and assets, FAFSA will determine your EFC, or Expected Family Contribution, and match your student with applicable loans and grants. Your complete financial aid package will be sent to you in an Award Letter after acceptance into a college. In this letter, you will be notified of the aid for which you are qualified.
The FAFSA is due at specific times depending on the state where you reside, as displayed here. Typically the best time to apply is the year before a student is due to enroll. The school then applies the results of FAFSA within the Award Letter. Note that more and more schools are requiring incoming as well as current students to submit a FAFSA just to qualify for other financial aid programs completely unrelated to federal student aid.
Types of Financial Aid
The type of financial aid you receive in your Award Letter may include grants, loans, and work-study programs. Grants, such as the Federal Pell Grant, award monies to the student and have no requirement for repayment. They typically go to low-income individuals, those with a low EFC, or sometimes to students filing as independents. Those with higher EFCs will typically receive fewer grants (if any), but will have more loans available.
Federal student loans may have lower interest rates than private student loans and are more flexible with repayment plans, often including options like income-based repayment.
Lastly, your child might receive aid money in the form of a work-study program. With a work-study program, your child is given on-campus employment, helping them gain work experience and often leaving some extra time to study or complete school projects.
With tuition continuing to rise, sending your child to college may seem like a far-off dream. However, staying on top of your annual FAFSA application and getting the most out of your financial aid can help make that dream a reality. If you have any questions along the way, whether you are years, months, or just days away from your child’s first semester, feel free to contact us at Sharkey, Howes & Javer for financial and college planning advice.