How to get your fair share: financial aid can be a piece of cake when you know where to look

Careers and Colleges, Nov-Dec, 2002 by Gary Drevitch

You've been accepted to the college of your choice. You're ecstatic. You're excited. Then you see the bill. The No. 1 question for the incoming freshman with financial need is: Where will the money come from? For many students, it's a four-part answer.

The financial aid package your college will offer you may consist of funding from four major sources--the federal government, your state, and your college, as well as private scholarship sources.

An in-depth guide to the major financial aid programs for undergraduates follows. Review the information carefully: The last thing you want to do is miss out on money that may have been available to you. Plus, we've included profiles of students detailing dollar by dollar how they managed to pay for college.

1. FEDERAL GOVERNMENT

Federal programs supply about 70 percent of all financial aid for undergraduates. After you fill out your FAFSA, the essential application form, you'll be told whether you qualify for money from the following sources:

* Federal Pell Grants. These grants, which do not have to be repaid, go to students who have significant financial need, and funds are guaranteed to every student who qualifies. The maximum award for 2002-03 was $4,000.

* Federal Supplemental Educational Opportunity Grants (SEOGs). Also directed to students with exceptional financial need, SEOGs range in size from $100 to $4,000. Unlike Pell Grants, these awards are not guaranteed to all who qualify. It depends on the availability of funds at your college, its aid policies, and even how early you turn in your FAFSA.

* Federal Work-Study. This program provides jobs paying at least minimum wage to undergraduates with financial need. The money is paid directly to you based on the hours you work.

* Federal Perkins Loans. These loans come with a guaranteed low interest rate of 5 percent. Undergraduates are allowed to borrow up to $4,000 a year, to a total of $20,000 over their undergraduate careers. After graduation, you pay the loan back to your school; the minimum annual repayment is $480.

* Federal Stafford Loans. The Stafford is the government's major loan program. With interest rates that can vary but cannot top 8.25 percent, the programs offer loans up to $2,625 for freshmen, $3,500 for sophomores, and $5,500 for juniors and seniors. You can borrow more if you are considered financially independent of your parents. (See the definition of independent on page 40.)

There are two types of Stafford loans. Subsidized loans are based on need, and do not charge interest while you're enrolled in school or while you're in a deferment period (an authorized time when you're allowed to delay repayment, such as when you're still in school or unemployed). The government "subsidizes" the loans by paying the interest during these periods. Repayment normally begins six months after you graduate or leave school.

Unsubsidized loans can be taken regardless of need. But you're responsible for the interest from the day you receive the loan until it's repaid. You can receive both subsidized and unsubsidized loans for the same academic year.

* Federal PLUS Loans. These loans for parents can be taken our to pay education bills for any dependent child enrolled in college at least half-time. PLUS loans are limited to the total cost of tuition, room and board, minus any aid you've already received.

The most common method of getting a Stafford or PLUS loan is through a private lender or bank as part of the Federal Family Education Loan (FFEL) Program. However, if you attend one of the more than 1,000 schools that participate in the Federal Direct Student

Loan Program and take a loan, the U.S. Department of Education directly is your lender. No matter the method, the terms of the loans stay the same but some repayment options may differ.

* Tax Credits. Depending on your family's income, you or your parents may be able to benefit from special tax deductions during the years you're in college and beyond. The Hope Scholarship is a tax credit of up to $1,500 your parents can claim during each of your first two years of college. The Lifetime Learning Credit applies to subsequent years of enrollment. The current maximum tax credit for that program is $1,000 per year, but the annual maximum will rise to $2,000 in 2003. Additionally, the government's student loan interest deduction allows you or your parents to deduct up to $2,500 from your taxes during each of the first five years you repay your loans after college, depending on your income. And the government allows you or your parents to make penalty-free withdrawals from Individual Retirement Accounts if the money will be used to pay for college.

2. STATE GOVERNMENT

Your state's department of education can fill you in on information about grants, tuition assistance, fee reductions, and loans. Your first question should be whether your state will make its aid decision based on your FAFSA. At least 23 states rely on the FAFSA exclusively, but others may require you to fill out separate paperwork, at least for certain programs. Many state aid programs are restricted to students who en-roll at in-state colleges; in fact, some have created generous programs designed to entice top students to stay at home for college. But you may be able to take advantage of certain programs even if you go out of state: Ask if your state has reciprocal arrangements with other states that will help you receive discounted tuition or other benefits elsewhere. Most state programs are need-based, but others are based on academic achievement, military status, or minority status.