Financial aid: What you need to know

For many families, financial aid can help make it easier to pay for college. However, financial aid can be a bit intimidating or even confusing to those unfamiliar with their options. Read on to learn more about financial aid and how families like yours can better prepare for college costs.

What is financial aid?

While many people refer to financial aid as a single package, it actually encompasses various opportunities to help provide money for college. The different types of financial aid packages include:

• Scholarships
• Grants
• Work-study opportunities
• Loans
• Various aid packages

Each of these financial aid types offers differences in potential benefits, and some, like scholarships and grants, do not need to be repaid. However, to see what type of aid your child is eligible for, families must fill out a Free Application for Federal Student Aid (FAFSA) form. FAFSA forms must be applied for every year your child is attending school.

How is financial aid determined?

The total financial aid someone receives is based on two factors: student merit and financial need. To determine financial need, a family’s expected family contribution (EFC) is subtracted from a school’s cost of attendance (COA). EFC is calculated from a FAFSA and is not dependent on a specific school’s COA.

With FAFSA, not all money is considered equally. A family’s EFC is broken down into three types of contributions:

• Parent income
• Parent assets (not including retirement savings)
• Student contribution

Out of these three factors, parent income is most heavily weighted.

Are all student loans the same?

Many families use student loans to help pay for college. Unlike scholarships and grants, student loans must be repaid. Knowing the types of federal student loans can help you make the best choice for your family:

• Subsidized loans: Interest on the loan is paid by the US Department of Education while the student is in school.
• Unsubsidized loans: Interest on the loan accrues while the student is in school.

How can I make education more affordable?

With the rising cost of education, it might seem difficult to save for college. However, here are some things that can help make saving for college easier:

• Know your goals. Take a deep look at your financial health and see how much money you can use toward an education savings goal.
• Make a plan. After assessing your financial health, consider taking advantage of the various savings plans that can be used to grow your money. A popular option is a 529 plan, designed to give families a tax-advantaged way to help reach their education savings goals.
• Start saving today. Whatever you decide to do, don’t wait. Saving money today will help turn your child’s dreams into reality. Many families simply put off saving money, but if your children are young, time is an advantage you don’t want to lose.