A Message from Kimberly Clouse, Financial Expert:

I have worked in the financial services industry for nearly a decade in many capacities, most recently as a financial adviser for individuals. Over the course of my career, I have had the privilege of working with a diverse range of people, from the single mother just starting her own business to the dot.com billionaire. Based upon my experiences, I have learned that the same basic principles and lessons apply to a successful and healthy financial life, whether you’re starting out or cashing out. These guiding principles include simplicity, a long-term perspective, and above all, knowing that you have control of your financial destiny, and all the information you need is well within your reach.

ABCs of Financial Aid

‘Tis the season! Students are heading back to school, and parents are heading to the bank! The bad news is that college costs keep skyrocketing–according to the College Board, on-campus residents can expect one-year costs of $18,888 at 4-year private colleges and $9,151 at 4-year public colleges. The good news is that more than $60 billion in financial aid goes to students every year in the form of grants and scholarships, loans, and work-study jobs.

Understanding the differences among types of aid is important when creating your game plan. Scholarships and grants are outright gifts that students typically do not have to repay. Loans, on the other hand, are borrowed money, and the amount that must be repaid includes the amount borrowed plus any accrued interest. Finally, student employment is work arranged by the school during the academic year; sometimes work-study jobs qualify for academic credit as well.

The students and parents who best understand the financial aid process and are persistent typically receive the most aid dollars. Keep the following tips in mind to improve your chances of getting the most financial aid:

Family Contribution and Need
The amount of financial aid you receive is based on the relationship between the “cost of attendance” and the “family contribution.” The cost of attendance represents the sum of college costs (tuition, fees, books, and supplies) plus living costs, namely room and board, transportation, and an allowance for personal expenses.
Family contribution is the amount of money the college expects from the family for the student’s education in a particular year. To determine family contribution, colleges consider your family’s expenses as well as its income. Even though your family has a high income, you may qualify for financial aid if your older brother is in college and your parents are paying for your grandmother’s elder care needs.

If the cost of attendance is greater than the family contribution, you have demonstrated “need” and are eligible for financial aid. The amount and type of aid you are awarded by any one college will most likely differ from what is offered by other colleges because costs of attendance differ, creating various amounts of need. So don’t necessarily rule out that expensive Ivy League institution since the more expensive the school, the greater your level of need.

Even if you do not appear on paper to have financial need, you may still receive aid. Many colleges offer merit aid–in the form of grants and scholarships–that do not take financial circumstances into consideration. Used by colleges to attract top students, these merit awards are typically based on a student’s academic performance or specific talent or ability.
Eligibility and Timing
Eligibility for financial aid for a student’s freshman year in college, for example, is largely determined by the parents’ and student’s taxable and untaxed income during the calendar year beginning January 1 of the student’s junior year in high school through December 31st of his or her senior year¹. Check with your family’s accountant or tax adviser about making changes–if appropriate and possible–to lower your family contribution and increase your “need” in a given year.
Target the Big Three
The federal government, state governments, and colleges award the bulk of financial aid funds.
- According to Peterson’s, an education resource on the Web, the largest single source of aid is the federal government, which awards over $30 billion to more than 7 million students each year.
- The next largest sources of financial aid are the colleges and universities themselves, which award an estimated $8 billion to students each year.
- State governments are also major sources of financial aid, and all 50 states offer grant aid. While most is need-based, some is merit-based. Most state programs award aid only to state residents who attend a college in their home state.
While other sources of financial aid, such as private agencies, foundations, corporations, clubs, fraternal and service organizations, civic associations, unions, and religious groups certainly exist, spend your time where you will get the biggest economic bang for time spent–the federal government, state governments, and colleges.

If you need extra guidance navigating the financial aid maze, seek professional help from a private aid consultant. An effective aid consultant should be able to advise you on ways to increase your aid eligibility and ultimately receive more aid. A good consultant should “pay” for his or her fees many times over with increased financial aid awards. Just be sure that the person you hire is experienced in financial aid as well as income taxes and personal finance.

For more information, consult the Student Loan Marketing Association (Sallie Mae) and the nonprofit College Board.

¹If you are graduating from high school in May 2002, your financial aid eligibility for your freshman year will be based on calendar 2001 income, with calendar 2001 covering the second half of junior year (beginning January 1st, 2001) and the first semester of senior year (ending December 31st, 2001).

This column is designed to provide accurate and authoritative information on the subject of personal finances. It is provided with the understanding that the Author is not engaged in rendering legal, accounting, or other professional services by publishing this column. As each individual situation is unique, questions relevant to personal finances and specific to the individual should be addressed to an appropriate professional to ensure that the situation has been evaluated carefully and appropriately. The Author specifically disclaims any liability, loss or risk which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this work.