PLUS or Private Student Loan

The process of paying for college is confusing. There are lots of funding options and even more forms. There are also lots of pitfalls, including advertisers willing to “help” you take care of your tuition “in one quick step.” What there are not, however, are shortcuts.

So which of the many financing options are appropriate for you and your family, and how can you avoid being trapped in debt upon graduating? The best approach is to always start with your school’s financial aid office. They will happily guide you through the process of funding your education and help make sure you get the money you need to attend, and there is no substitute for their expertise.

Having said that, it also helps to do a little research to better understand the financial aid process and be informed when you step into the financial aid office. The following guide to financial aid will help you ask smart questions and make better use of your time with a counselor. Just be sure to always listen to the advice of your financial aid office and meet your deadlines, and soon you’ll be able to worry about studying for your classes and not how you’re going to pay for them.

Step 1: Ask Questions

As noted above, you can always get answers from your financial aid officer, but who else can help you? For information about completing your FAFSA or to get more information about your Federal loan options, you can directly contact the Department of Education.  Free help is available any time during the application process at the Department of Education’s website or 1-800-4-FED-AID.

Step 2: Apply for Federal Student Aid

The following Federal Student Aid Chart provides details on all of the student aid offered through the federal government, including Pell Grants, the Federal Work-Study (FWS) Program, Perkins Loans, Stafford Loans, and PLUS Loans.

Student Aid ProgramType of AidDetailsAnnual Award Limits
Federal Pell GrantGrant – does not have to be repaidNeed-based financial aid that doesn’t have to be repaid.  Available almost exclusively to undergraduates.$5,500 
Federal Supplemental Educational Opportunity Grant (FSEOG)Grant – does not have to be repaidAvailable to undergraduates with exceptional financial needs.  Priority is given to Pell Grant recipients and depends on availability at the school.$4,000 
Academic Competitiveness Grant (ACG)Grant – does not have to be repaidFor undergraduates receiving Pell Grants who are US citizens enrolled full time, in their first or second academic year of study.First academic year students up to $750;   Second academic year students up to $1,300. 
National Science and Mathematics Access to Retain Talent Grant (National SMART Grant)Grant – does not have to be repaidFor undergraduates receiving Pell Grants who are US citizens, enrolled full time in their third or fourth academic year of an eligible degree program majoring in physical, life, or computer sciences, engineering, technology, math, or a critical need foreign language and have at least a 3.0 cumulative GPA.Up to $4,000 for each of the third and fourth academic years.
Federal Work StudyMoney is earned while attending schoolFor undergraduate and graduate students; jobs can be on campus or off campus; students are paid at least federal minimum wage.No annual minimum or maximum awards.
Federal Perkins LoanLoan – must be repaidInterest charged on this loan is 5% for both undergraduate and graduate students; payment is owed to the school that made the loan.$5,500 annual maximum for undergraduate students (lifetime maximum of $27,500); $8,000 maximum for graduate and professional degree students (lifetime maximum of $60,000, which includes Perkins loans taken as an undergrad).
Federal Stafford LoanLoan – must be repaidFederal Stafford Loans are for undergraduate, graduate, and professional degree students.  You must be enrolled at least half-time to be eligible for a Federal Stafford Loan.  You must have financial need to qualify for a Subsidized Stafford Loan, which is determined by the information provided on your FAFSA.  The Department of Education will pay the interest that accrues on a Subsidized Stafford Loan while you are enrolled at least half time and during grace and deferment periods.  Financial need is not a requirement for an Unsubsidized Stafford Loan where a borrower is responsible for the interest during the life of the loan.For Subsidized Stafford Loans, annual award limits range from $3,500 to $8,500, depending on your year in school. Annual award limits range from $5,500 to $20,500 for Unsubsidized Stafford Loans, less any subsidized amounts received for the same period, depending on year in school and dependency status.
Federal PLUS LoansLoan – must be repaidFederal Work-StudyMaximum amount is the Cost of Attendance minus any other financial aid the student receives.

You must complete a Free Application for Federal Student Aid (FAFSA) to be eligible. The FAFSA is a form that is filled out annually by current and prospective undergraduate and graduate students to determine their eligibility for federal student financial aid. Most colleges and universities use information from the FAFSA to award non-federal aid.

The FAFSA consists of numerous questions regarding your finances, as well as those of your family; these are entered into a formula that determines the Expected Family Contribution (EFC).  A number of factors are used in determining the EFC including the family size, income, number in college, and assets (not including retirement and 401K). This information is required because of the expectation that parents will contribute to their child’s education.

Upon completion of the FAFSA, you will be sent a Student Aid Report (SAR). You should review the SAR carefully for any necessary corrections. An electronic version of the SAR (called an ISIR) is sent to the school you select on the FAFSA. The ISIR is also sent to state agencies that award state need-based aid. Schools may award aid on a first-come, first-served basis, and it is strongly recommended that you fill out the FAFSA as early as possible after January 1st each year for consideration for maximum financial assistance.

Step 3: Complete Other Required Applications

In addition to the FAFSA, many schools require a separate financial aid application.  Consult the financial aid office at your school to determine what forms are necessary to complete the financial aid process.

Some schools also use the CSS/Financial Aid PROFILE Application.  Many colleges, universities, graduate and professional schools, and scholarship programs use the information collected on the PROFILE to help them award nonfederal student aid funds.  Check with your school to determine if they require the PROFILE Application, and visit the PROFILE website to learn more and apply.

Step 4: Understand Your Award Letter

Once your school has received your FAFSA and other required forms, they will evaluate your financial need and send you an Award Letter.  The Award Letter will contain all federal, state, and school grants and scholarships for which you are eligible. Make sure to read your Award Letter carefully and use it to begin planning for how you will cover any remaining balance you might have. Don’t forget to account for any outside scholarships you may have won or money that has been gifted to you from family members or friends. Once you have evaluated your options, you can accept the funding listed on your award letter, or decline any awards that you do not wish to use (such as a loan when you would prefer to pay out of pocket).

Step 5: Determine How to Fund Your Gap

Once you’ve maximized all of your grants, scholarships, work-study, and Federal and institutional loans, you may be left with a funding “Gap,” or the remaining balance to be paid. There are a few ways you can cover your balance, including simply paying it out of pocket or setting up a Payment Plan with your school (if offered) to spread out your payments throughout the school year. However, if you do not have the resources you need, you’ll need to consider taking out a loan.

There are two main types of loans that students typically use to cover the Gap: Federal PLUS Loans or Private Student Loans. To learn about the pros and cons of these two options, be sure to read our article on how to determine whether a PLUS or Private Loan is the best fit for you. Some families also use other ways to obtain funds such as home equity loans or lines of credit, but we strongly caution against paying for your education with credit cards, as they often carry extremely high-interest rates and can lead to a crippling debt burden.

That’s it! We hope this guide will help you get started as you seek to finance your education and encourage you to also check out our Ultimate Off-to-College Finances Checklist to learn about other expenses that your family should keep in mind.  Also remember that while this list is meant to help you get started, you should always go through your financial aid office and take advice from the professionals who work there. If you have any questions or any great funding ideas that you’d like to share with our community, please post them in the comments below. Good luck!

By Brooke Cobb

Brooke Cobb is a Journalism graduate of West Virginia University’s class of 2012. She contributes to the College Money Insider blog in an effort to help others to learn from her own college money experiences, the good and bad!

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