“I plan to have a part-time job while I go to college.”--Matt
It’s a great idea to save for college and try to work part-time while you are going to school, but you still may come up short with the money you need. Don’t be discouraged. Very few students and their families are able to pay for college completely on their own, without any financial assistance, even when the student works part-time. Most students rely on financial aid.
Here are some answers to questions you and your family may have about saving for college and getting help to pay for college.
What Should I Know About Saving for College?
The more money you and your parents are able to save for college, the less financial aid you will need. And because financial aid is often in the form of loans, saving for college could mean that you will have less debt when you graduate.
Another thing to know: Your financial aid award could be less if you save money in your own name, instead of saving money in your parents’ name. That’s because financial aid calculations assume that you can direct a large percentage of your savings toward college costs. These same calculations expect parents to direct a smaller percentage of their savings for your college because parents also need to save for retirement and other financial goals.
In addition, there are special ways to save for college. The following are a few options that you and your parents may want to check out:
State “529” College Savings Programs. These programs allow you and your family to save money for your college costs through state-sponsored investment accounts. Earnings and withdrawals are free of federal income taxes and can be used at any college or university, in any state.
State “529” Prepaid Tuition Programs. These programs allow you to lock into the tuition price being charged at the state’s public universities in the year when you’re enrolled in the program.
Coverdell Education Savings Accounts. Formerly known as Education IRAs, these accounts let families put away a certain amount of money every year and use the money, tax-free, to pay for college expenses. ESAs are counted as the student’s asset, which can reduce federal financial aid eligibility under current financial aid formulas. In addition, there are income restrictions to make full contributions to a Coverdell account.
Roth IRA. If your parents have savings in a Roth IRA, they can withdraw money to pay for college expenses without having to pay a 10 percent penalty on early withdrawals.
Can My Parents or I Get a Tax Break for College Costs?
You or your parents might qualify for either a Hope tax credit or a Lifetime Learning tax credit. In addition, certain borrowers can take a tax deduction for the interest they pay on student loans. For more information, visit the IRS Web site at www.irs.gov and look for IRS Publication 970, “Tax Benefits for Higher Education.”
What Is Financial Aid and Why Do I Need It?
Financial aid is money you get from someplace other than your family to help you pay for college tuition, books, fees, and living expenses. Most college students find that they need some financial help to get through college.
Financial aid comes in several forms, and you will apply for each source.
Grants and scholarships. You might receive a grant or a scholarship. Grants and scholarships are basically “free money” because you don’t have to pay back the funds. Apply for as many scholarships and grants as you can. (Tip: There are even special scholarships if you are the first person in your family to go to college.) But never pay to find out about a scholarship. That’s a scam.
The largest source of grants and other student aid in America is the U.S. Department of Education’s Federal Student Aid programs. For example, depending on your financial need, you might be eligible to receive a Federal Pell Grant or Federal Supplemental Educational Opportunity Grant.
In addition, your state probably has its own scholarship program. And colleges and many private organizations award scholarships. Your guidance counselor can help you research these possibilities. Another excellent resource is the U.S. Department of Education’s Federal Student Aid Web site. Go to studentaid.ed.gov. Click on “If you attend junior/senior high school” and look for the “Funding Your Education” booklet.
Work study. With work study, the college gives you a job and the money you earn goes toward paying your school expenses.
Loans. Many students take out loans to pay for college. While loans may be relatively easy to get, remember—they are legal obligations. You must pay back the money—with interest. Many students spend 10 or 20 years repaying their college loans. That’s a long time, but also don’t be too afraid of student loans. If they can help you get a college education, a good-paying job, and a better future, they are probably worth it!
Here are four tips about student loans:
Look for a loan that has the lowest interest rate and, if possible, does not require you to start paying it off until you graduate. Government loans often offer the best deals. Government loans to check out are Federal Perkins Loans, Stafford Loans, and PLUS Loans. Private loans also are available from banks, credit unions, and other sources.
Never borrow more than you need.
Keep track of your loan totals, so you’ll know what your monthly repayment amount will be after graduation.
Learn more about student loans by visiting the U.S. Department of Education’s Federal Student Aid Web site. Go to studentaid.ed.gov. Click on “If you attend junior/senior high school” and look for the “Funding Your Education” booklet. You’ll find an entire chapter on student loans.
How Do I Get Financial Aid?
The first step in applying for financial aid is to complete the government’s Free Application for Federal Student Aid (FAFSA). You will complete this form during your senior year in high school. The form will ask for a lot of information about your family’s finances. Most of this information will be on your parents’ income tax returns, so your parents will need to help you. This information will be used to calculate how much financial aid you need.
A paper version of the FAFSA is available each November at high schools, career centers, libraries, and college financial aid offices. Or, you can call 1-800-4FED-AID (1-800-433-3243) to request a copy. You also can complete the FAFSA online at www.fafsa.ed.gov. If you need help completing your FAFSA, ask your high school counselor or a college financial aid office for help.
What does the FAFSA do?
The FAFSA helps map out your financial need by determining how much of the college costs you and your family can afford, and how much help you’ll need from other sources, such as scholarships, grants, work study, and loans. The FAFSA is also your initial application for state and federal financial aid.
Important tip: Apply for financial aid as soon as possible after January of the year in which you will be attending college. The earlier you get started in your financial aid search, the better your chances are of finding the money you need. If your parents’ income tax return won’t be done in January, you can still complete the FAFSA using estimates. Then, you can update the FAFSA later. You also must complete a new FAFSA every year that you are in college.
Very important tip: Find out what the deadlines are for submitting a FAFASA and any corrections. If you miss the deadlines, you won’t be able to get financial aid for that year.
How do I find out more about financial aid?
Talk to your high-school counselor, teachers, and coaches. Contact the financial aid office at the colleges you are interested in to learn about their financial aid resources. And surf the Internet.
You will apply for some scholarships during your senior year of high school. But you can start applying for others as early as the 9th grade! So, the sooner you get started, the better.
