Heading off to college is a thrilling milestone in your kid’s life, but it also comes with its own set of anxieties for you, from worrying about their grades to concerns over how to pay for higher education. While we can’t help ease your mind about your teen’s study habits, we can offer insight into one aspect of their college years: financial aid. Here, we go over the basics of financial aid to help you prepare for this important investment in the future.
What Is Financial Aid?
Financial aid is money distributed by the federal government and colleges through student loans, grants, scholarships and work-study jobs. Loans and work-study must be repaid (through monetary or work obligations), while grants and scholarships do not need to be repaid. A student can receive financial aid from both the federal government and the college they’re attending.
What Is FAFSA and How Does It Work?
The Free Application for Federal Student Aid, or FAFSA, is a form used to determine how much financial aid a student qualifies for, including need-based and non-need-based aid. FAFSA asks questions about parents’ and student’s incomes, assets and other household information, and it relies on income tax information from two years prior. Before each year of college, your child must complete a FAFSA to apply for aid. After submission of the form, your child will receive a Student Aid Report, a document summarizing the info reported on FAFSA.
In December 2020, Congress passed the Consolidated Appropriations Act, 2021, a relief package in response to the COVID-19 pandemic. Included in the bill were provisions related to education and financial aid, such as the FAFSA Simplification Act. This takes effect July 1, 2023, for the 2023-2024 academic year. Highlights include:
- Fewer questions on the FAFSA form
- Changes to the definition of “cost of attendance” to make it more favorable to families
- Expanded income protection allowance
- Changes to untaxed income and benefits. For the FAFSA formula, the definition of “untaxed income and benefits” has been streamlined and several types of untaxed income and benefits have been omitted, including child support, workers’ compensation, veterans’ benefits and money paid on the student’s behalf.
- Expanded eligibility for Pell Grants
What Are the Types of Financial Aid?
Financial aid can be divided into need-based, which is based on your child's financial need, and merit-based, which is based on your child's academic, athletic or artistic talent. Types include:
- Pell Grant
- Federal Supplemental Opportunity Grants (FSEOG)
- Subsidized federal student loans
- Unsubsidized federal student loans
- Federal work-study
- State-based financial aid, including grants, scholarships and loans
- School-based financial aid, including need-based grants and scholarships
- School-based merit aid
How Much Financial Aid Can I Get?
Sometime in late winter or early spring, your child will receive financial aid award letters that explain the amount and type of financial aid that each college is offering. To compare offers, follow these steps:
- Determine your out-of-pocket cost, or net price, for each school by subtracting any grant or scholarship aid (which doesn't need to be repaid) from the total cost of attendance.
- Look at the loan component of each award to see how much you or your child will need to borrow.
- Compare the net price and loan amounts across all colleges.
- If you’d like to ask a school for more aid, a letter to the financial aid administrator followed up by a telephone call is appropriate. Your chances for getting more aid are best if you can document a change in circumstances that affects your ability to pay, such as a recent job loss, high medical bills or some other unforeseen event.
When Should I Apply for Financial Aid?
The FAFSA can be filed as early as October 1st in the year prior to the year your child will be attending college. Private colleges require both the FAFSA and the standard PROFILE form or their own aid form, which you'll need to submit by each individual college deadline. The PROFILE form is submitted in late fall or winter but is often required earlier if your child is applying early decision or early action.
How Much Should I Rely on Financial Aid?
Although financial aid can help ease the burden on the cost of higher education, it’s important to note that student loans — not grants or scholarships — often comprise the largest percentage of a standard aid package. This can create considerable debt for years after your child’s graduation. Reach out to your Farm Bureau wealth management advisor to discuss if financial aid is the right move for your family.