Financial Aid...Friend or Foe?

With a new school year about to start, this seems like the perfect time to talk about getting all of your financial ducks in a row. To do that, you've got to make nice with the people in Financial Aid and the Federal Aid process in general.

I will be the first person to tell you that taking out government loans is a convoluted and annoying process (having taken out more than my fair share of loans and currently being in debt up to my eyeballs). But if you have someone walking you through it, and explaining the process to you, things get a lot easier.

Your first step, always, is filling out the FAFSA (Free Application for Federal Student Aid). Do your parents make a lot of money? Great! Hazzah and kudos to them! Fill out a FAFSA anyway! You never know what is going to happen in the course of a year and filling out the FAFSA is a great way of covering your ass--and I am a firm believer in ass coverage at all times. To fill out the FAFSA, you will need an internet connection (it is a LOT faster than filling out a paper version), your parent's tax forms, and a PIN number (you can request a PIN number by going to this website: http://www.pin.ed.gov/PINWebApp/pinindex.jsp) You will use your PIN number to sign the FAFSA electronically...again, much faster than printing out the signature page and mailing it to Uncle Sam. The electronic FAFSA can be found here: http://www.fafsa.ed.gov/

So now you've completed the FAFSA and your school has sent you your Financial Aid Award Letter...you're done, right? Wrong bucko! You have a few more things you need to do to ensure that your money gets where it needs to go (i.e. to pay your bill in a timely manner).

Let's say that you were awarded a $4500 Pell Grant, a $3500 Subsidized Loan, and $4500 in Federal Work-Study. This is a pretty typical award for someone who submitted their FAFSA early (Pell Grants are "need-based" aid, meaning that they are distributed based on income, and are given on a first-come, first-served basis...proof positive that you should get your FAFSA in EARLY!!!)

Your first step is going to be to sign something called the Authorization to Use Federal Title IV Funds. My school (VCU) is a "direct lender" or "Title IV" school (meaning that we don't have to go through banks to distribute federal moneys (like grants and loans). By signing this form, you are telling the school that you give them permission to put your loan and grant funds toward your student bill. A copy of the form can be found here: http://www.vcu.edu/enroll/finaid/forms/AuthorizationForm.pdf

Your next step is going to be to deal with those loans. If you are starting your very first year of college, you have to sign something called a Master Promissory Note (MPN). This basically says that you promise the government you will repay your loans. You only need to sign this once (I promise!) Remember that PIN number you used on your FAFSA? You're going to use it again to sign your MPN. Just log on to this site: https://dlenote.ed.gov/empn/index.jsp There is a menu bar on the left (click on "Complete New MPN for Student Loans") and the site will walk you through the process.

Now, let's say, for the sake of argument, that you've received your tuition statement for the Fall semester and you owe about $8000. You're sitting pretty, right? You were awarded $12,500 in financial aid! Think again. You need to remember a few things about financial aid.
1). Your money is always cut in half (you get half in the Fall and half in the Spring.)
2). You can NEVER apply Federal Work-Study to your bill (I'll explain why in a sec), so the aid being applied to your tuition has now been cut down to $8000.
3). You need to figure in for books ($300-$500 per semester) and you should consider the one-time expense of a computer if it's your first semester of college.

By my calculations, you're going to be at least $4000 short on your tuition bill each semester. But don't lose hope, there are some alternate funding sources you can consider:
1). Parent PLUS loans: These are loans from the government that your parents take out. Because they are from the government, the interest rates are often lower than they would be through a bank. The loans ARE credit based, so this may not be a great option if your parents don't have good credit. The other thing to keep in mind is that your parents will have to start paying on the loans as soon as the second installment is disbursed (in the Spring semester). BUT, if your parents are denied for a Parent PLUS loan, you are eligible for additional Unsubsidized Loans (the difference between Subsidized and Unsubsidized Loans? With Subsidized Loans, the government pays the interest while you are in school...with Unsubsidized Loans, the interest just accrues, adding to the total amount you will have to pay back).
2). Alternative Loans: Alternative loans are done through private lenders like Bank of America, Wachovia, or Suntrust. You (the student) take out the loan. These loans are also credit based and the interest rates are usually higher than federal interest rates. Because you are (generally) younger, you will likely not have built up enough of a credit history to take out these loans by yourself--meaning that your parents will have to co-sign on the loan. But the benefit here is that you do not start paying on these loans until 6 months after you graduate! You need to be very careful when looking for alternative loans. Don't get drawn into television ads for companies like Astrive or MyRichUncle.com. These companies charge exhorbitant interest rates (26-29%) and they are NOT worth the convenience!

All right, so now you've figured out how to pay for school, now you need some spending money. You got work-study, right? Well "work-study" means that you actually have to work to get that money. You are allotted a specific amount for the year, you can work until you earn that full amount. If you don't earn all of that by the end of the school year, the money goes back to the government. There are specific jobs on college campuses that are designated as "work-study" jobs. When you get to school, your best bet is to find out how your school advertises these work-study job listings (VCU posts them all on the MyVCU Portal to which all students have access). You have to apply for a job and get hired before you can start earning your work-study money.

And if you have questions about this stuff...ASK someone! Don't let fear or worry over money be the thing that keeps you from enjoying your college experience.