College Financial Aid Made Easy: For the 1996-97 Academic Year

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Copyright (c) 2009 Marc Hill

As they were ringing in the New Year on January 1, high school juniors and their parents were also ringing in their college financial aid “base year.” Although the actions taken in the base year can mean the difference between saving thousands on college expenses and needlessly overspending, few people understand what they need to do to achieve the former rather than suffer the latter. So, let’s take a closer look.

If you are like the vast majority of American’s in our sagging economy, your family will be looking for additional funds to help cover the cost of a college education. The largest share of this need-based supplemental money comes from the federal government through its financial aid system.

But the government also assumes that you are able to participate in the expense of educating your child prior to considering how and to what level they will participate in funding your child’s education. Therefore, in order to determine your initial level of participation, families are required to fill out the Free Application for Federal Student Aid, or FAFSA form.

The FAFSA captures the required financial information used to calculate how much your family is expected to pay via a formula known as the Federal Methodology (FM). Your initial or beginning monetary participation level is known as your Expected Family Contribution (EFC).

The data used to generate the initial EFC calculation is collected beginning in January of your child’s junior year in high school and ends on December 31 of that same year, which would be his or her senior year in high school. This time frame is referred to as your “base year.”

In essence, if you’re in your base year, you are now under the financial aid microscope and any financial moves being considered (including the sale of real estate or stocks, withdrawals from IRAs, contributions to retirement plans, receiving monetary gifts, etc.) must be weighed not only from a federal tax standpoint but also in relation to the financial aid system. The catch is that what makes sense from a 1040 point of view may have adverse consequences on your chances of receiving financial aid.

Case in point: Consider contributions made to your 401(K) plan at work during your child’s base year or any year prior to financial aid application. In order to encourage individuals saving for retirement, the federal government does not tax contributions made to 401(K) plans up to a specified annual limit. This money enters the retirement plan on a pre-tax basis with taxes being accounted for as money is withdrawn to supplement retirement.

The Federal Methodology used to calculate your EFC treats these contributions from an entirely different prospective. The financial aid system believes that you can stop contributing towards retirement and apply these contributions to college expenses. They anticipate you playing “catch up” with these contributions after your child is out of school.

Accordingly, your pre-tax retirement contributions, which are not considered taxable 1040 income, are considered “untaxed income” by the financial aid system and are added back into the EFC calculation and assessed at the applicable rate.

If we assume an assessment rate of 30 percent and $10,000 of retirement contributions, your initial EFC just increased by $3,000 for the year in which federal aid is applied for. This could very well eliminate you from being considered for preferred financial aid.

This is not to suggest that you discontinue your retirement contributions. However, the harsh reality of the situation is that the enormity of funding your child’s college education and your retirement collide with each other at an inopportune time, especially as our national economy struggles. As you make decisions regarding college education versus retirement funding, you should carefully weigh how each decision will impact your wallet, both during the base year and well into the future.

Understanding the pros and cons of any financial moves made during your base year – or any year in which financial aid is applied for – from both a tax and financial aid standpoint goes a long way toward determining what you pay for college. The process is complicated and should only be done in consultation with a qualified professional.

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Brand New College Grant Information for the Upcoming Year

George W. Bush has approved funding for a couple of college grants called the National Smart Grant and Academic Competitiveness Grant. There is around $700 million dollars set aside particularly for these two grants. The aim of the new grant money is to help students pursue a career in the science, math, and technological fields. Both grants grants have gone into effect for the current school year. Each of the grants has their own set of eligibility requirements. The items below describe the eligibility requirements. Students may need to meet additional prerequisites before they can receive grants for college.

The Academic Competitiveness Grant is awarded only to first and second year college students. First year students are eligible to be awarded up to $750 toward tuition costs and sophomore students may be awarded around $1300. Here is a list of the requirements to become eligible for the Academic Competitiveness Grant.

Students may be eligible to receive the Academic Competitiveness Grant if:

They’re enrolled full-time as either a first or second year student in a 2-4 year program.

They are eligible to receive the Pell Grant. (College students who are given the Academic Competitiveness Grant may also use the Pell Grant towards their tuition.).

They’ve gone through a rigid plan of study in high school as defined by the national education guidelines.

They maintained a 3.0 grade point average during their first year. (For second year students)

They’re currently a United States citizen.

They completed high school no sooner than January 1, 2006 for freshmen and January 1, 2005 for second year students.

The National Smart Grant is awarded to junior and senior students in college. Senior and junior students may be eligible to receive up to $4000. Below you’ll find the list of current requirements for the National Smart Grant.

College students may receive the National Smart Grant if:

They are enrolled as a full time third or fourth year college student in a four-year degree program.

They’re eligible to receive a Pell Grant. (College students who receive the National Smart Grant may also apply the Pell Grant towards tuition for college.).

They’re a citizen of the U.S.

They maintained at least a 3.0 grade point.

They have declared to graduate with a degree in technology, science, mathematics, engineering, or a significant foreign language.

If college students don’t meet the criteria for the National Smart Grant or the Academic Competitiveness Grant, there are various other college government grants out there. Requirements are based on the grant. Students may be eligible to obtain a grant depending on academic performance, athletic talent, or financial need. Others could get a grant based on their religious background, ethnic background, or major. Listed are some helpful pointers on how to better your odds of being approved for college grant money:

Check out various government grant programs to find college grants you may qualify for. Fill out applications for a variety of college grants. Start the application process early in the year. Complete a Free Application for Federal Student Aid. Earn and maintain a 3.0 grade point average. Always stay positive.We encourage high school students to plan to go to college as early as possible. A big number of requirements for grants are dependent upon high school grade point average (GPA), extracurricular activities (including athletics), and area of study. Those who plan early on are more than likely to receive one or more grants.

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