By Lee Shulman Bierer
The Charlotte Observer
WWR Article Summary (tl;dr) Lee Shulman Bierer, an independent college adviser based in Charlotte, N.C. breaks down the “need to know” financial terms when planning for college.
The Charlotte Observer
Every parent’s goal is to pay the least amount of money for the highest-quality education for their children.
Understanding the alphabet soup of financial aid and knowing how to maximize your financial aid eligibility should be your first step in the process.
“The most aid goes to those who are savviest about applying for it, not necessarily those who are neediest,” says Kal Chany, author of “Paying for College Without Going Broke.”
Below is the final installment of this year’s financial aid glossary.
Federal Direct Loan programs: Four types of loans to student and parent borrowers:
Subsidized Stafford loans: Federally financed low-interest loans are only for undergraduate students and are awarded based on financial need. Interest doesn’t start accruing until after the student has left college. Also known as direct subsidized loans, these federal loans have slightly better terms than the similar-sounding unsubsidized Stafford loans.
Unsubsidized Stafford loans: Also known as direct unsubsidized loans, these federal loans are available to undergraduate or graduate students, and there is no financial need requirement, so anyone can use them. Historically, interest rates on unsubsidized loans were slightly higher than those for subsidized loans, though the rates have been equal in recent years. Still, unlike with subsidized loans, interest on unsubsidized loans starts adding up from the day you take out the loan.
PLUS loans: Loans for parents borrowing for the education of their dependents.
Consolidation loans: Loans arranged through the U.S. Department of Education’s Direct Loan Servicing Center designed to combine Title IV education loans into a single loan with one monthly payment.
Grants/gift/grant aid/scholarships: Financial aid, generally in the form of a grant or scholarship, that the student is not required to repay.
Merit aid/non-need-based aid: This is money awarded without regard to financial need. It can be based on academic achievement (grades and test scores), artistic or athletic abilities, leadership skills, community service or other characteristics. These are generally scholarships that do not need to be repaid and come from private organizations, foundations, your state, or funded directly by the college or university.
Net price: The amount you’ll actually pay for a college after tuition discounts, scholarships and grants are accounted for. For private colleges, this is usually far less that the advertised price. Colleges will tell you that their net price is the cost of attendance minus grants or scholarships AND loans, so it makes the price more attractive. However, loans, as we know, must be repaid, so a more accurate net price is a simple cost of attendance minus grants or scholarships.
Net price calculator: A net price calculator is on every college website, typically under either the financial aid or admissions tabs. The net price calculator is a relatively new planning tool. Although it is not perfect, it will provide families with a fairly reliable estimate of what your net price will be at each college or university on your list.
Pell grant: A need-based grant program for undergraduate students.
Perkins Loan: Federal loans that are reserved for low-income students. The interest rate is relatively low, and the time before a first payment is due is longer than with other loan programs.
Student Aid Report (SAR): A report sent to a student by the federal government summarizing financial and other information reported on the FAFSA; includes the Expected Family Contribution (EFC).
Tax credit: The amount subtracted from your federal income taxes dollar-for-dollar for the cost of education. Taxes must be owed for the given tax year, and a tax return must be filed to receive any tax credit.
Uniform Gifts to Minors Act: Legislation that introduced a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.
Work study: A program in which students are given a job on campus to help pay for college bills. There’s the Federal Work Study program, and some colleges also have their own programs.
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Lee Shulman Bierer is an independent college adviser based in Charlotte, N.C. Visit her website College Admissions Strategies.
