Financial Aid Glossary

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A

Academic Competitiveness Grant

Federal scholarships of up to $1,300 for very needy first- and second-year college students who have taken tough courses while in high school or achieved a B grade-point average (3.0) during the first year of college.

• How much can you get from the ACG program? Freshmen can get up to $750. Sophomores can collect up to $1,300.
• How can you collect an ACG? Students must first fill out a FAFSA. If their school determines that they are so needy that they are eligible for a Pell grant (typically, that means having an Expected Family Contribution of less than about $4,000), they will automatically be considered for the ACG. They will be awarded the ACG if while in high school, they took "rigorous" courses. (For a list of what your state has decided to call "rigorous" courses, click here. Students who are freshmen in college will be considered if they have have earned a total GPA of 3.0. For the U.S. Department of Education's official information about ACGs, click here.
• How will your ACG be paid? Awards are generally sent directly to your school, which deducts any money you owe and sends you a check for anything that's left.

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Accrue

To accumulate or join together. The interest on unsubsidized Stafford loans keeps adding up, or accruing, while the student is in school or the loan is in deferment or forbearance. Students often don't realize this because lenders don't send them notices or bills before the loan comes due. See also capitalization. [Back to Top]

ACG

Academic Competitiveness Grants are federal scholarships of up to $1,300 for very needy first- and second-year college students who have taken tough courses while in high school or achieved a B grade-point average (3.0) during the first year of college.

• How much can you get from the ACG program? Freshmen can get up to $750. Sophomores can collect up to $1,300.
• How can you collect an ACG? Students must first fill out a FAFSA. If their school determines that they are so needy that they are eligible for a Pell grant (typically, that means having an Expected Family Contribution of less than about $4,000) they will automatically be considered for the ACG. They will be awarded the ACG if while in high school, they took "rigorous" courses. (For a list of what your state has decided to call "rigorous" courses, click here. Students who are freshmen in college will be considered if they have earned a total GPA of 3.0. For the U.S. Department of Education's official information about ACGs, click here.
• How will your ACG be paid? Awards are generally sent directly to your school, which deducts any money you owe and sends you a check for anything that's left.

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Adverse

Bad or unfavorable. Parents with what the federal government defines as "adverse credit" will be rejected for a PLUS loan. You will be rejected if you are more than 90 days late on any debt, or have defaulted on any federal education loan or have other serious financial problems, such as a bankruptcy in the past five years. Students whose parents are rejected for PLUS loans can take out larger Stafford loans. For general information about PLUS eligibility click here. The federal law defining adverse credit is here. [Back to Top]

Alternative loan

A loan that is not offered through the low-cost federal education loan programs. Also known as private loans, or signature loans, these are typically made by banks, other businesses, or schools. They tend to charge high interest rates. And they typically don't offer benefits such as forgiveness, deferral, or forbearance. [Back to Top]

Appeal

Students who feel a school's financial aid award is too low can contact the school's financial aid office and appeal for more money. Officially, this is called asking for a Professional Judgment Review. Technically, such appeals can be made at any time. But the earlier the better, since schools sometimes run out of financial aid money by late spring. In addition, high school seniors have the most choices and leverage if they appeal before committing to a school by the May 1 deadline. Schools will typically agree to increase aid only if the student can convince a financial aid officer of either (or both) of the following:

1. The school's original estimate of the student's need was too low. The student may, for example, show that the family had unusual expenses (such as hospital bills, funeral bills, support for relatives, or other such legitimate costs) that weren't accounted for in the FAFSA or the PROFILE. Or the family's financial circumstances may have worsened (through, for example, job loss) after the FAFSA was filed.
2. Competing schools assessed the student's need more generously and offered more aid. This is a dicier tactic and is often referred to as negotiating or bargaining. Many schools insist they refuse to bargain. But a growing number of schools including Carnegie Mellon and Harvard (see the sentence beginning with "Finally, many colleges have..." in this Harvard publication) say they want a chance to meet or beat offers from competing schools. The key, of course, is that both the school and the offer have to be competitive. CMU will probably not feel threatened by an offer from a local community college. And students should read the fine print of each award carefully to make sure they are not valuing large loans over small grants.

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APR

The total cost of a loan including the interest rate and all fees, expressed as the percentage of the original borrowed amount that would be paid out every year for the life of the loan. Because this is the only way to fairly compare loan offers, the federal Truth in Lending Act requires banks and lenders to provide an APR for mortgages, credit cards, car loans, personal loans, and almost all other consumer loans. Strangely, Congress exempted federal education loans from this law. So lenders do not have to provide an APR for Stafford or PLUS loans. That makes it very difficult for students and parents to figure out which loans are the best deal. Here is a calculator that you can use to try to figure out various loans' APRs on your own. [Back to Top]

Award

The amount of financial aid a school has given a student. [Back to Top]

B

Bankruptcy

A legal proceeding designed to help those with financial troubles reduce their debt loads and get a fresh start in life—except for educational borrowers. Congress has generally exempted student educational loans from the bankruptcy laws. The courts will allow debtors to get out from under student loans only if the debtors can prove that the payment will cause them or their dependents "undue hardship" over the long term, which is difficult to prove. Parents who have declared bankruptcy within the past five years may be denied PLUS loans. For general information about bankruptcy, the U.S. courts have published a primer. [Back to Top]

Bargaining

Many schools insist they refuse to bargain. But a growing number of schools including Carnegie Mellon and Harvard (see the sentence beginning with "Finally, many colleges have..." in this Harvard publication say they want a chance to meet or beat offers from competing schools. The key, of course, is that both the school and the offer have to be competitive. CMU will probably not feel threatened by an offer from a local community college. And students should read the fine print of each award carefully to make sure they are not valuing large loans over small grants. In addition, any bargaining should be done as early as possible, since some schools run out of financial aid money by late spring. High school seniors have the most choices and leverage or negotiating power before committing to a school by the May 1 deadline. See also appeal, negotiate, Professional Judgment Review. [Back to Top]

Board

Food costs [Back to Top]

Books

The cost of textbooks should be included in the total Cost of Attendance so that financial aid awards cover this necessary expense and families can accurately budget. For the 2003–2004 academic year, the Government Accountability Office estimated the average undergraduate spent $898 on textbooks and supplies. For the 2006–07 academic year, the College Board estimated students spent $850 on books and supplies (Page 6 of this pdf). The Association of American Publishers says undergraduates spent $644 on textbooks (not counting supplies) in the 2005–06 academic year. Use numbers like these to calculate your own realistic Cost of Attendance. Unfortunately, many schools do a poor job of giving a realistic estimate of textbook costs. Many don't reveal how much they have budgeted for books in their COA anywhere on their websites or in catalogs. They will reveal it only if you call. Why the secrecy? Some schools aren't eager to publicize the fact that they are low-balling the costs, so that they can look less expensive, or hand out less financial aid, or make their financial aid offers look like they are covering more of the Cost of Attendance than they really are. Others give very high numbers, which help qualify their students for more aid. [Back to Top]

C

Cancellation

Borrowers can have their federal education loans canceled (i.e., forgiven or discharged) if they or the student dies or becomes totally and permanently disabled, or if the student goes into one of many in-demand fields such as teaching or healthcare. The U.S. Department of Education's Web page about loan discharges can be found here. [Back to Top]

Capitalization

The adding of unpaid interest to a debt total, sometimes called its capital. Unsubsidized Stafford loans capitalize the interest (for loans made in 2007, at a rate of 6.8 percent) while borrowers are in school. So a freshman in the fall of 2007 who borrows $3,500 would owe $3,738 at the start of sophomore year. If the student never took out another loan while in school, and spent four years at college, the student's original $3,500 debt would have grown to about $4,500 by the time the bills started arriving six months after graduation. See also accrue. [Back to Top]

Chancellor

The chief executive or policymaker of a college or university. A growing number of colleges are giving scholarships or grants fancy titles such as "Chancellor's Scholarship" to make them sound impressive. Many of them are in fact wonderful scholarships. But colleges have discovered that many students will take a fancier-named scholarship with less money over a bigger but more boring-named scholarship from a better school. Research by two Harvard professors showed that scholarships without names tend to be larger than those with names. And about 38 percent of students are so flattered by an impressive name that they end up choosing a college that either ranks lower or ends up costing them more. Thus, students weighing competing college awards should be wary of any fancily named scholarships and focus instead on finding the bottom-line, out-of-pocket costs and the best college fit. [Back to Top]

COA

Cost of attendance. The total cost of attending a particular college for a year. The U.S. Department of Education's information on how to calculate a COA can be found here. It is calculated by adding up:

• Tuition
• Fees
• Room (i.e., housing costs)
• Board (i.e., food)
• Books
• Supplies
• Transportation
• Loan fees
• Dependent care (such as baby-sitting), if necessary
• Purchase or rental costs of a personal computer
• Reasonable study-abroad expenses
• Other legitimate miscellaneous expenses

The COA is a very important number for three reasons:

1. It is crucial for students and families to see just how much a year of college will truly cost so that they can budget accurately.
2. Those who give out need-based financial aid (including governments, charities, and schools) use the COA to determine the student's need. The standard method is to start with the COA and then subtract out the Expected Family Contribution (orEFC), which is the amount the student and family are expected to contribute toward the cost of college. If a college's COA is $18,000 a year, and the student can afford to contribute only $10,000 a year, then the student has $8,000 of annual need.
3. The COA is part of the formula that determines how much parents can borrow from the federal PLUS program. The maximum parents can borrow is calculated as the total annual cost (COA) minus any other financial aid awarded (such as a Stafford loan).

Because COAs are so important, the federal government requires schools to provide them to students. (See Page 2-81 of this Department of Education pdf.) Despite this federal law, however, it often isn't easy for a student to discover a school's COA. Many schools don't publish it in their printed material or on their websites. Many, for example, publish only their lower "direct" costs (tuition, fees, room and board). Typically, students need to budget an additional $3,500 or so to account for books, travel, and other extras included in the COA. These schools will reveal the COA only to students who know to call and ask. Sometimes that's because the school calculates a different COA for each student, depending on the student's personal situation, such as distance from home, need for extras, etc. Other schools, however, take advantage of the vagueness of the federal law to draw attention away from their high COAs. If you can't find a COA on your award letter or on the college's website, call the financial aid office and remind its representative of the federal law. Make sure the aid officer tells you the official federal COA, not just the school's direct cost. [Back to Top]

College

An institution of higher learning. A college can offer two-year associate degrees and four-year bachelor's degrees. Some may also offer graduate degrees. Typically, colleges are smaller than universities and offer fewer graduate degrees. Some universities call certain academic divisions or departments "colleges"—such as the University of Michigan's College of Engineering. [Back to Top]

College Board

A not-for-profit organization formed by colleges. The College Board administers tests such as the SAT and analyzes families' incomes to determine a student's need for financial aid using the CSS/PROFILE. [Back to Top]

Consolidation

Joining or combining into one. The U.S. Department of Education's information on consolidation can be found here or here. Once students leave school, they can consolidate their federal education loans into one new debt and ask their new lender to stretch out payments for as long as 30 years. That lowers the monthly cost significantly, though it increases the total amount that will have to be repaid. Students who plan on taking low-paid public service jobs should consider signing up for the federal government's income-based repayment consolidation loans. Information about those can be found here.Those who can't or shouldn't consolidate include:

• Those with less than $5,000 in debt. Lenders typically don't like to bother with such small loans.
• Those taking advantage of special discounts or forgiveness programs that would be voided by consolidation. Call your original lender or those in charge of your loan forgiveness program to make sure before you consolidate.

To get the best consolidation deal: Industry insiders say that borrowers can sometimes get unadvertised special deals by filing an application to consolidate with a lender that doesn't currently hold any of their loans but offers attractive terms. Once your original lender learns it might lose your business, it may respond with an even better deal. For the U.S. Department of Education's official consolidation checklist, click here.

Joining or combining into one. The U.S. Department of Education's information on consolidation can be found here or  here.Once students leave school, they can consolidate their federal education loans into one new debt and ask their new lender to stretch out payments for as long as 30 years. That lowers the monthly cost significantly, though it increases the total amount that will have to be repaid. Students who plan on taking low-paid public service jobs should consider signing up for the federal government's income-based repayment consolidation loans. Information about those can be found here http://www.ibrinfo.org/what.vp.html.

Those who can't or shouldn't consolidate include:

• Those with less than $5,000 in debt. Lenders typically don't like to bother with such small loans.
• Those taking advantage of special discounts or forgiveness programs that would be voided by consolidation. Call your original lender or those in charge of your loan forgiveness program to make sure before you consolidate.

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Cosigner

A person in addition to the student or primary borrower who signs his or her name to a loan agreement and thus agrees to pay the debt if the original debtor does not pay. Many banks and lenders insist that students get an adult with good credit to back, or cosign, private or alternative loans. Parents who are initially rejected for PLUS loans because of bad or "adverse" credit can reverse the decision if they get a creditworthy adult to cosign the loan with them. For U.S. Department of Education information about PLUS cosigners, click here. [Back to Top]

Cost of Attendance

The total cost of attending a particular college for a year. The U.S. Department of Education's information on how to calculate a COA can be found here. It is calculated by adding up:

• Tuition
• Fees
• Room (i.e., housing costs)
• Board (i.e., food)
• Books
• Supplies
• Transportation
• Loan fees
• Dependent care (such as baby-sitting), if necessary
• Purchase or rental costs of a personal computer
• Reasonable study-abroad expenses
• Other legitimate miscellaneous expenses

The COA is a very important number for three reasons:

1. It is crucial for students and families to see just how much a year of college will truly cost so that they can budget accurately.
2. Those who give out need-based financial aid (including governments, charities, and schools) use the COA to determine the student's need. The standard method is to start with the COA and then subtract out the Expected Family Contribution (or EFC), which is the amount the student and family are expected to contribute toward the cost of college. If a college's COA is $18,000 a year, and the student can afford to contribute only $10,000 a year, then the student has $8,000 of annual need.
3. The COA is part of the formula that determines how much parents can borrow from the federal PLUS program. The maximum parents can borrow is calculated as the total annual cost (COA) minus any other financial aid awarded (such as a Stafford loan).

Because COAs are so important, the federal government requires schools to provide them to students. (See Page 2-81 of this Department of Education pdf.) Despite this federal law, however, it often isn't easy for a student to discover a school's COA. Many schools don't publish it in their printed material or on their websites. Many, for example, publish only their lower "direct" costs (tuition, fees, room and board). Typically, students need to budget an additional $3,500 or so to account for books, travel, and other extras included in the COA. These schools will reveal the COA only to students who know to call and ask. Sometimes that's because the school calculates a different COA for each student, depending on the student's personal situation, such as distance from home, need for extras, etc. Other schools, however, take advantage of the vagueness of the federal law to draw attention away from their high COAs. If you can't find a COA on your award letter or on the college's website, call the financial aid office and remind its representative of the federal law. Make sure the aid officer tells you the official federal COA, not just the school's direct cost. [Back to Top]

Credit

A summary of a person's financial strength, including his or her history of paying bills and ability to repay future loans. Students are often turned down for private or signature loans because they have not established a credit history and have no income with which to repay debts. People who pay their bills after the due date, have defaulted on debts, or declared bankruptcy are usually judged to have poor credit. Several private companies gather consumers' financial information to create reports used by businesses and lenders to determine how much to lend and how much interest to charge each consumer. Federal law requires credit rating agencies to provide consumers with one free report on their credit each year. To ask for your credit report, click here. [Back to Top]

CSS/Financial Aid PROFILE

An online financial aid application form created by the College Board that is used by about 300 private colleges and some scholarship programs. Most schools use only the FAFSA to determine how much families can afford to pay for college. But the PROFILE asks for more in-depth information about things like investments and divorced parents' incomes to make sure families aren't hiding money. Unlike the FAFSA, which is free, the PROFILE costs at least $23 to fill out and send to one school or program. Each additional report costs $18. The PROFILE will automatically waive the fee for low-income students, however. For more information about the PROFILE, click here. To find out if your school or scholarship requires the PROFILE, click here. [Back to Top]

D

Dean

The head of a division of a college or university. A growing number of colleges are giving scholarships or grants fancy titles such as "Dean's scholarship" to make them sound impressive. Many of them are in fact wonderful scholarships. But colleges have discovered that many students will take a fancier-named scholarship with less money over a bigger but more boring-named scholarship from a better school. Research by two Harvard professors showed that scholarships without names tend to be larger than those with names. And about 38 percent of students are so flattered by an impressive name that they end up choosing a college that either ranks lower or ends up costing them more. Thus, students weighing competing college awards should be wary of any fancily named scholarships and focus instead on finding the bottom-line, out-of-pocket costs and the best college fit. [Back to Top]

Default

Failure to repay a loan. Federal education lenders will declare borrowers in default if they have failed to make a payment in 270 days and have not gotten permission from the lender to stop payments by, for example, qualifying for deferral or forbearance. For the U.S. Department of Education's official default Web page, click here. [Back to Top]

Deferment

Postponement or delay. You can defer your loan payments for up to three years if you lose your job, go back to school, or serve in the Peace Corps or as a soldier in a war. For the official rules, see Page 32 of the U.S. Department of Education's 2007 guide to financial aid; or here. Note that these deferments are not automatic. You have to apply to your lender and prove that you qualify. And you must keep paying your loan during the application. Defaulting on a loan disqualifies you from deferment. Also, if you have a PLUS loan or an unsubsidized Stafford loan, the interest keeps building up (or accruing) and is added to your debt. [Back to Top]

Dependent

Someone who relies on others for financial support. In the financial aid world, that means a student who is:

• under 24
• unmarried
• not a veteran
• not a parent or responsible for a child
• not declared by a court to be independent

Dependent students who want financial aid must provide their parents' financial information. Federal rules allow colleges to expect parents to contribute a percentage of their income and their savings to the child's educational costs, even if the parents don't want to or are estranged from the student. Dependent students can have parents removed from financial consideration only under exceptional circumstances, such as abuse (as verified by things like police reports) or incarceration. For the U.S. Department of Education's definition of "independent," see Page 3 of this pdf. [Back to Top]

Direct

When used to describe a loan, this refers to a federally backed education loan (such as a Stafford or PLUS) made directly by the federal government, instead of by a bank or private lender. About 20 percent of all schools use the Federal Direct Loan Program. The U.S. Department of Education's official direct loan home page can be found here. Borrowers who need help with existing direct loans should try this page.

Students whose school participates in the direct program have no choice but to take their Stafford loans directly from the federal government, which charges the maximum allowable fees and interest rates. That may be painful for students who see ads for private lenders offering no-fee, cut-rate loans. (Students who have left school, however, can shop for cheaper consolidation loans.) But as taxpayers, the students and parents should note that it costs them about 80 percent LESS to guarantee direct education loans than it does to guarantee the education loans made by banks and lenders like Sallie Mae. See Table 3 on this Government Accountability Office report. [Back to Top]

Discharge

Borrowers can have their federal education loans discharged (i.e., forgiven, canceled, or repaid) if they or the student dies or becomes permanently disabled, or if they work in one of many in-demand fields such as teaching, policing, or healthcare. The U.S. Department of Education's Web page about loan discharges can be found here. [Back to Top]

Discount

A reduction in the price of something. Parents and students may not think about financial aid in this way, but college staffers often refer to scholarships and grants as "discounts" off of the price of their school's tuition. [Back to Top]

DOE

An abbreviation for the U.S. Department of Education [Back to Top]

E

Education expenses

Federal Stafford loan funds can be used only on legitimate educational expenses, which include:

• Tuition
• Room
• Board
• Institutional fees
• Books
• Supplies
• Equipment
• Dependent-child care expenses
• Transportation
• Commuting expenses
• Rental or purchase of a personal computer
• Loan fees
• Other documented, authorized costs

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EFC

Expected Family Contribution. The EFC is the amount of money a family is expected to contribute each year to a student's education costs. Using the "Federal Methodology," the U.S. Department of Education takes the financial information a student fills in on the FAFSA and then subtracts what it considers a reasonable annual living-expenses budget (for a family of four with one student in college, about $23,000). It then expects the family to contribute anywhere from 22 to 47 percent of the remaining income. (The higher the family's income, the higher percentage it is expected to contribute.) Families with significant savings may also be expected to contribute a small percentage of that money to education costs each year. The College Board uses different formulas and budgets (the " Institutional Methodology") to calculate a separate EFC for those who file the PROFILE. For the DOE's official (and mind-bending) EFC worksheet,click here.

For an easier and fairly accurate EFC estimator, click here. [Back to Top]

F

FAFSA

Free Application for Federal Student Aid, available online here. Paper versions are usually available at high schools and college counselors' offices. To fill out the form online, you'll first be issued a personal identification number (or PIN) so that you can enter your private financial information safely.

Because some schools hand out financial aid on a first-come, first-served basis, every student should fill out a FAFSA as early in the year as possible. Don't even wait to file taxes first. You can provide estimates of last year's income and send corrections later when you do file your taxes. The FAFSA is the single most important application for need-based financial aid. Nearly every college wants a FAFSA filled out by every financial aid applicant. Even six-figure-income families should fill it out, since they may qualify for need-based aid from expensive schools. Students who feel they have a low chance of receiving a grant (only about 50 percent do) should also fill out the FAFSA to qualify for low-cost loans such as unsubsidized Stafford loans. Note that the first word in the name of the form is free. Be wary of sound-alike websites (such as Fafsa.com) that charge money for filling out what should be a free application. Here is the U.S. Department of Education's FAQ about the FAFSA. [Back to Top]

Federal Direct Loan Program

A federal program that makes education loans (such as a Stafford or PLUS) directly to students, instead of guaranteeing loans made by banks or other middlemen. The U.S. Department of Education's official direct loan home page can be found here. Borrowers who need help with existing direct loans should try this page. About 20 percent of schools require their students to borrow directly from the federal government. The rest allow their students to shop for federally guaranteed education loans. If a school participates in the direct program, students have no choice but to take their Stafford loans directly from the federal government, which charges the maximum allowable fees and interest rate. That may be painful for students who see ads for private lenders offering no-fee, cut-rate loans. (Once students leave school, however, they can shop for cheaper consolidation loans.) But as taxpayers, the students and parents should note that it costs them about 80 percent less to guarantee direct education loans than it does to guarantee the educational loans made by banks and companies like Sallie Mae. See Table 3 on this Government Accountability Office report. [Back to Top]

Fees

Charges. Students are often surprised by many hidden fees charged by colleges and lenders. So they should be sure to ask ahead of time about all fees from colleges and lenders when making their budgets, calculating their Cost of Attendance and applying for enough financial aid. Failure to account for fees can be expensive. The University of Massachusetts–Amherst, for example, charged only $1,714 in tuition for the 2006 academic year, but $7,564 in fees. And many classes, majors, or departments charge their own extra fees, such as lab or equipment fees. In the 2005–06 academic year, New York University's Tisch School of the Arts charged film and television students an additional $840 a year in lab, equipment, and insurance fees.

Lenders also often charge fees on top of their interest. In 2006, Congress voted to phase out the amount of fees on federally backed education loans to 1 percent of the loan total by 2010. Lenders are free to charge whatever fees they like on private loans, however. Of course, lenders are also free to waive (not charge) fees if they like. For a summary of the 2006 changes to federal education laws, including the changes in loan fees, click here. [Back to Top]

FFELP

Federal Family Education Loan Program. About 80 percent of colleges make federal education loans (such as Stafford and PLUS) through this program. They allow students and parents to shop among banks, lenders and non-profits for the best federally guaranteed education loan deal.

By shopping carefully, borrowers can reduce their overall costs by thousands of dollars by finding lenders who will, for example, waive fees, and cut as much as 3 percentage points off the federal maximum interest rates. Nonprofit lenders often offer low-cost loans. For a list of nonprofit lenders, click here. Borrowers may not realize they can choose from any approved lender, however, because many schools issue lists of "preferred lenders" and imply that students should choose from only those lenders. This practice is under investigation by New York state's attorney general because of allegations that "preferred lenders" are not those that offer the best deal to borrowers, but the ones that have offered the best goodies to a college or financial aid officer. Although the competition-driven discounts make the FFELP program popular with borrowers, there is no free lunch. Someone has to make up for those discounts, and the federal government says that ends up being the taxpayer. For every $100 borrowed through the FFELP program, taxpayers pay about $9.20, or about five times the amount it costs taxpayers to provide the loans directly from the US Treasury at full rates and fees. See table 3 here. [Back to Top]

Financial aid

Assistance given in the form of money, typically for educational expenses. There are three main kinds of college financial aid:

1. Free money—otherwise known as grants, scholarships, or gift aid.
2. Low-cost or subsidized loans.
3. Work-study jobs.

How can you get financial aid?

1. Need: You can show that you can't afford to pay the full cost of college on your own and need financial help. To apply for need-based aid, students must fill out the federal government's Free Application for Federal Student Aid. Some schools and charities also require the CSS/PROFILE form.
2. Merit: You may have some special merit, such as good grades, athletic ability, musical skill, etc. Private charities, schools, and governments all give out aid based on various student skills, talents, and achievements. High school and college counselors can help students track these down.
3. Benefit: You may have an employer, or a parent with an employer, that offers education benefits.

Who gives financial aid?

1. Governments: The federal government hands out various need-based grants (such as Pell and SEOG) and loans (such as Stafford and Perkins). Many states also hand out need-based grants. Many states also hand out grants based solely on grades, such as Georgia's HOPE scholarships. A growing number of cities and towns are also providing financial aid, such as the Kalamazoo (Mich.) Promise.
2. Schools: Almost every college gives away money to a select group of students to reduce their out-of-pocket costs of attendance and lure them to the school. Many schools use money to lure athletes. Many schools also give grants or scholarships to lure students who have top grades or test scores (i.e., merit). And many schools give grants to students who can't otherwise afford to attend (in other words, who have need).
3. Charities: There are thousands of organizations, ranging from local Lions Clubs to the Gates Foundation, that hand out more than $3 billion in private scholarships a year. For a report on the extent of private scholarships, click here.
4. Businesses: Some employers will pay tuition for their employees or their employees' children. In addition, some businesses hand out small scholarships to generate free advertising and goodwill, such as Duck Tape brand's prom costume contest.

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FM

Federal Methodology. The formulas used by the U.S. Department of Education to calculate a student's need for financial aid based upon the information provided by students on the Free Application for Federal Student Aid (FAFSA). The federal government first calculates how much the student can afford to pay for college (the Expected Family Contribution). It then subtracts the EFC from the cost of the college (Cost of Attendance) to calculate need. The official worksheet explaining how the federal government calculates the amount a student can afford to pay for college (EFC) for the 2007-08 academic year can be found here. [Back to Top]

Forbearance

Patience or delay. If you don't qualify for deferment but are having trouble repaying your loan, you can ask your lender to forbear (suspend or reduce the monthly payments) for up to three years. Each lender has different rules, but generally you can qualify if you can show that you are having a temporary crisis such as medical problems or unemployment. You can also qualify if your monthly federal education loan payments exceed 20 percent of your monthly gross income. Keep making your payments during the application process, however, because defaulting disqualifies you from forbearance.

For the U.S. Department of Education's official forbearance advice, clickhere, or check out Page 33 in the 2007 guide. [Back to Top]

Forgiveness

Pardon or cancellation. There are a growing number of programs that forgive, repay, or cancel the education loans of students who enter in-demand or public-service professions such as teaching, healthcare, and social work. [Back to Top]

Free money

A colloquial term for the best kind of financial aid because it doesn't have to be repaid. See grant, scholarship, or gift aid. [Back to Top]

G

Georgia HOPE

The state of Georgia's Helping Outstanding Pupils Educationally program gives scholarships to Georgia students with good grades. For the official Georgia HOPE website, click here. [Back to Top]

Gift aid

Money that students can use to cover their education expenses that does not have to be repaid. See scholarships or grants. [Back to Top]

GPA

Grade-point average. The number reflecting a student's grades (where an A is counted as a 4, a B = 3, and so on) divided by the number of classes taken. GPAs are used to award many merit scholarships. [Back to Top]

Grace period

The length of time a lender has agreed to wait for payment on a loan or bill. Different education loans have different grace periods. Perkins borrowers must start repaying their loans within nine months of leaving school or dropping to below half time.  Stafford borrowers must make their first payment within six months of leaving school or dropping below half time. Parent and private loans have a variety of grace periods. Some require payments start immediately. Others let borrowers defer payments until they leave school. If you defer repaying, remember that most loans will build up interest even if the payments aren't due, so by the time you do actually start paying, you'll owe much more than you originally borrowed.[Back to Top]

Grant

A gift of money. Much of the free money handed out to cover education costs is in the form of grants. The federal government hands out to undergraduates Pell grants, Supplementary Educational Opportunity grants, SMART grants, Academic Competitiveness grants, and more. States hand out Cal grants, North Carolina Student Incentive grants, etc. Charities and schools also hand out many grants. The word is often used interchangeably with scholarship. See also gift aid. [Back to Top]

H

Half time

Typically, at least six credit hours of classes each semester. Students must attend college at least half time to receive the full amount of federal aid for which they are eligible. The full official definition is on Page 39 of the federal guide here. [Back to Top]

HOPE

One of several different scholarship and education tax credit programs. Georgia residents may get a Georgia HOPE scholarship if they can keep a Grade-point average (GPA) above 3.0. Tennessee residents may get a Tennessee HOPE scholarship if they have a GPA of 3.0 on graduation from high school, a 2.75 after their freshman year, and a 3.0 during the rest of their college career. (That's much harder than it sounds. Both Georgia and Tennessee report that about 50 percent of freshmen who get a HOPE scholarship lose it in their sophomore year because of poor grades.) Some taxpayers may also take advantage of the HOPE tax credit during their or their child's first and second years in college. [Back to Top]

I

IM

Institutional Methodology. The formulas used to determine a student's need for financial aid by the College Board when it evaluates the financial information students provide on the CSS/PROFILE. The College Board first calculates how much the student can afford to pay for college (the Expected Family Contribution). It then subtracts the EFC from the cost of the college (Cost of Attendance) to calculate need. Often, the College Board's calculation of a family's EFC and need will be different from that calculated by the U.S. Department of Education based on the FAFSA. The vast majority of students are not affected by this because only a few hundred colleges and charities rely on the CSS/PROFILE. For the College Board's explanation of its methodology, click here. [Back to Top]

Independent

Self-sufficient, not reliant upon others. Schools do not expect the parents of independent students to contribute to the cost of their education, so independent students do not have to provide parents' financial information when applying for financial aid. But students or parents cannot simply declare themselves independent to get out from under tuition bills or qualify for more aid. For the 2007–08 academic year, the U.S. Department of Education says students can qualify as independent only if they are or were at least one of the following:

• Born before Jan. 1, 1984
• Married
• Supporting children
• Orphans or wards of the court
• Soldiers
• Veterans

For the DOE's official definition of "independent," see Page 3 of this pdf. [Back to Top]

Interest

Most education lenders charge interest on their loans. Here's an excellent definition of interest and other financial terms. Because of interest, if you borrow $5,000 today, you have to pay back more than $5,000 in the future. Lenders charge interest for two reasons:

1. Inflation: Because the cost of living keeps rising, $5,000 today will very likely buy more than $5,000 will in a few years. So lenders need interest to keep the value of their money even with the cost of living.
2. Profit: Lenders, like other businesspeople, need a profit to pay their staff and investors, so they have to charge more than their costs.

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L

Lender

A person, organization, or company that lends money. While just about anybody can make a private or alternative loan to a student who needs money, the U.S. Department of Education regulates those who make federally guaranteed Stafford, Perkins, or PLUS loans. Organizations wishing to make federally guaranteed loans must meet certain requirements. Once they meet those requirements, though, any student allowed to shop for a loan (i.e., who does not attend a school that requires students to borrow directly from the federal government) should be able to borrow from any federally approved lender. Schools are not supposed to limit students to the members of the school's "preferred lender" list. [Back to Top]

Loan

A debt, IOU, or agreement to accept money now in return for repayment later, usually of a higher amount. (See interest.) There are three main kinds of education loans:

• Private or alternative loans. These are made by businesses just like auto or home loans.
• Federally guaranteed loans. The federal government spends billions of dollars so that students and parents can borrow education funds at below-market rates. Students can borrow from the Perkins program at just 5 percent and from the Stafford program at about a rate of 6.8 percent (though the APR may reach 7.3 percent if fees are charged). Parents can borrow from the PLUS program at a rate that is capped at 8.5 percent plys 4 percentage points in fees, giving a true APR of 9.4 percent.
• Charitable loans. A small number of schools and charities offer loans that don't charge any interest at all. For a list of some no-interest education loans, click here.

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M

Master Promissory Note

A contract in which a borrower agrees to repay a loan. Borrowers who have signed MPNs for a federal education loan such as a Stafford or PLUS typically can take similar loans again the next year from the same lender with much less paperwork. [Back to Top]

Merit

Quality or worth. A growing percentage of financial aid is being awarded to students who have demonstrated special ability or talents, regardless of their need for the money. Students should be aware that most merit scholarships and grants come with strings attached. Each year, for example, tens of thousands of college students lose merit grants because they changed majors, quit an athletic team, or couldn't maintain the required grade-point average. Most students don't realize that freshmen in college typically see their grades drop significantly from their high school GPA. Three fourths of the freshmen who got Georgia or Tennessee HOPE scholarships, for example, failed to maintain high enough grades to keep the scholarship all four years. For a report showing how few University of Georgia students retained their merit scholarships, click here. For a report showing how few Tennessee students retained their merit scholarships, click here.

• How much does it cost to get merit aid? It shouldn't cost a penny. Anybody who charges you is probably a scammer.
• How much in merit aid can you get? For a handful of top students, the college sky is the limit. Some schools offer elite athletes or academic geniuses completely free rides—including grants to cover books and transportation home for the holidays. And there are a few generous private scholarships. The Coca-Cola Foundation awards $20,000 apiece to 50 students a year. Even plain old B-plus students are in luck in 14 states, which offer grants of up to full in-state public college tuition based on grades or test scores. (For a pdf of the states and their terms, click here, and look at Table 1-1.)
• How can you get merit aid? Well, obviously you have to develop some merit—which may mean good grades, essay writing skills, musical ability, or even, in the case of the Tall Clubs International scholarship, height. Then you have to find someone willing to give you money for that merit. There are four main sources of merit aid: 1) Governments give out modified "merit" grants such as Academic Competitiveness and SMART grants to top students who also qualify as needy on the FAFSA. Fourteen states give out scholarships for good grades or test scores. (For a PDF of the states and their terms, click here and look at Table 1-1.) 2) Charities hold thousands of essay contests, speech contests, etc. 3) Colleges and universities hand out millions in merit aid to attract athletes or to lure students who will raise the student body's average GPA or test scores. To increase your chances of getting merit aid, apply to a couple of schools that would consider you a catch because, for example, your SAT scores are much higher than the current student body's average. 4) Businesses often have scholarship programs for their employees or children of their employees. Call your human resources office to find out.
• How will merit scholarships be paid? Typically, awards are sent directly to your school, which deducts any money you owe and sends you a check for anything that's left. Some private scholarships, however, send the check directly to the winner.

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N

Named scholarship

A scholarship or grant with a fancy-sounding name attached, such as "Academic Scholarship" or "Distinguished Scholarship." A growing number of colleges are giving scholarships or grants fancy titles to make them sound impressive. Many of them are in fact wonderful scholarships. But colleges have discovered that many students will take a fancier-named scholarship with less money over a bigger but more boring-named scholarship from a better school. Research by two Harvard professors showed that scholarships without names tend to be larger than those with names. And about 38 percent of students are so flattered by an impressive name that they end up choosing a college that either ranks lower or ends up costing them more. Thus, students weighing competing college awards should be wary of any fancily named scholarship and focus instead on finding the bottom-line, out-of-pocket costs and the best college fit. [Back to Top]

National Merit Scholarship

Grants of up to about $2,500 awarded to more than 8,000 high school students who have scored very high on the Preliminary SAT/National Merit Scholarship Qualifying Test. For more information, click here. [Back to Top]

Need

Obligation or requirement. In the financial aid world, need is the difference between how much a student can afford to pay for college and the cost of college. The formula is this: Cost of Attendance – Expected Family Contribution = Need. Because the cost of some private schools now exceeds $50,000 a year, many students from families with incomes in excess of $100,000 are considered to "need" money to pay for college. Students deemed to be needy by a college's financial aid office may be awarded need-based aid such as low-cost loans, grants, and campus work-study jobs. See need-based aid. [Back to Top]

Need-based aid

Grants, loans, or work-study jobs that are awarded to students solely because of their financial situation and not because of their grades or other merit.

• How much does it cost to get need-based aid? Nothing. Anyone who charges you is a scammer.
• How much need-based aid can you get? Probably not enough. Students with low incomes and Expected Family Contributions up to about $4,000 are eligible for federal Pell and, in some cases, Supplemental Educational Opportunity grants of up to about $4,000 each. But on average, schools are not meeting the full financial need of students. They are instead leaving a gap averaging about $4,000 between what the student can afford and the net price (i.e., the student's out-of-pocket cost after free money is subtracted). But a growing number of scholarship programs are awarding extra money to needy students who also have merit. So needy students with top grades, test scores, athletic ability, or other achievements do often get enough aid. The most elite schools generally meet the full need of their students. Needy students (typically those coming from families with incomes of less than about $60,000) admitted to Harvard, Princeton, and a few other highly selective schools generally get enough grants to cover all college costs. Several other elite schools will cover most costs but expect students to contribute by taking, typically, federal loans of up to $5,500 a year and by taking jobs to earn a few thousand dollars a year, which may sound daunting but advisers say is generally doable. Even if you're not admitted to Harvard, ask your high school or college counselor if you can take advantage of any of the other programs that give additional money to students with need and good grades or test scores. These programs include the federal Academic Competitiveness and SMART grants, California's Cal grants, and many private scholarships.
• How can you get need-based aid? All students should fill out the Free Application for Federal Student Aid because you never know if the formula might determine that you have "need" and thus qualify you for free money, low-cost loans, or campus jobs. Students applying to private colleges should check to see whether the school also requires the CSS/PROFILE form, which is an additional application.
• How will need-based aid be paid? Typically, awards are sent directly to your school, which deducts any money you owe and sends you a check for anything that's left over.

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Negotiate

Many schools insist they refuse to bargain or negotiate over the amount of aid they offer students. But a growing number of schools including Carnegie Mellon and Harvard (see the sentence beginning with "Finally, many colleges have..." in this Harvard publication) encourage students to fax offers from competing schools. The key, of course, is that both the school and the offer have to be competitive. CMU will probably not feel threatened by an offer from a local community college. And students should read the fine print of each award carefully to make sure they are not valuing large loans over small grants. In addition, any bargaining should be done as early as possible, since some schools run out of financial aid money by late spring. In addition, high school seniors have the most choices and leverage or negotiating power before committing to a school by the May 1 deadline. See also appeal, Professional Judgment Review. [Back to Top]

Net cost or net price

The amount a student will have to pay for a year of college after subtracting out any free money. Because of scholarships and grants, about half of college students don't have to pay a college's advertised Cost of Attendance (COA), sometimes called its "sticker price." The amount of money a student actually has to take out of the family pocket (or bank account) is reduced by the total amount of free money. To calculate your true net or out-of-pocket cost, use this formula: Cost of Attendance – the sum of all grants and scholarships = net. [Back to Top]

O

Out-of-pocket

Money actually spent. Because of scholarships and grants, about half of college students don't have to pay a college's advertised Cost of Attendance (COA), sometimes called its "sticker price." The amount of money a student actually has to take out of his pocket (or bank account) is reduced by the total amount of free money. To calculate your true net or out-of-pocket cost, use this formula: Cost of Attendance – the sum of all grants and scholarships = net. [Back to Top]

P

Parent

Dependent students must provide the financial information of their parents on their FAFSA. Since many students don't live with their parents, defining "parents" can be tricky. Grandparents, legal guardians, and foster parents are not considered parents unless they have legally adopted the student. Students whose parents have divorced, unfortunately, have to deal with a bunch of confusing financial aid rules. Most public colleges and universities follow the Federal Methodology, which asks for the income statements of the parent the student lives with and that parent's spouse, even if the step-parent hasn't adopted the student. Private colleges that ask students to fill out the PROFILE generally follow Institutional Methodology, which asks for income statements from both legal parents, even if one parent is absent and not contributing to the student's expenses. [Back to Top]

Parent Loan for Undergraduate Students

A loan guaranteed by the federal government that allows parents to borrow all the money they need to pay for their child's college education. For the U.S. Department of Education's explanation of the PLUS program, click here. Families who see a PLUS loan as a part of a financial aid award should be extremely wary. Including them as a part of financial aid awards is a controversial practice. Many financial aid officers consider it to be somewhat misleading, since almost every other college the student is considering will offer a similar PLUS loan if asked. PLUS loans do not cost colleges a cent. And they are comparatively expensive for parents.

• How much can you borrow from the PLUS program? Each year, you can borrow the full net or out-of-pocket cost of each child's annual college costs. To calculate the maximum amount of your PLUS loan, take the college's annual Cost of Attendance and subtract out any other financial aid, such as grants, scholarships, and other federal student loans.
• How much do PLUS loans cost? The federal government makes PLUS loans directly to parents at an annual rate of 7.9 percent, plus a fee of 4 percent, which raises the Annual Percentage Rate (APR, or total cost) of a typical $10,000, 10-year loan up to 8.85 percent. Private lenders can charge a maximum of 8.5 percent a year and a 4 percent fee for a total APR of 9.5 percent. But many private lenders are starting to compete for PLUS borrowers and are thus offering to waive fees or reduce interest rates, bringing the cost, or APR, down.
• How do you get a PLUS loan? Parents have to choose a lender (click here to see why you shouldn't stick with the "preferred lender" list suggested by your school), then fill out a loan application with the lender, which will do a credit check. Parents who have or had significant financial trouble (known as "adverse" credit) will be rejected unless they can find a cosigner with good credit. It is not, technically, necessary for the parent to fill out a FAFSA, though many schools urge it so that students can see if they qualify for other aid. Children of parents who have been rejected for a PLUS loan are allowed to borrow more from the Stafford program.
• Who makes PLUS loans? The federal government makes PLUS loans directly. Many banks, lenders, and nonprofits also make PLUS loans. Ask your college financial aid officer what kind of choice you have. Do not feel constrained to limiting your choice to lenders the school may prefer or recommend, however.

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Pell grant

A federal grant awarded to all needy college students.

• How big of a Pell grant can you receive? In the fall of 2008, the maximum Pell grant will be $4,731.
• How do you get a Pell grant? Students must fill out a Free Application for Federal Student Aid. Students with an Expected Family Contribution of $0 can receive the maximum Pell grant. Those with higher EFCs get smaller grants. Those with EFCs above about $4,200 will be disqualified. Ninety percent of all Pell grants go to students whose families have incomes of less than about $40,000 a year.
• How do you collect your Pell grant? Pell grants are usually paid directly to your college, which uses the money to pay off any tuition, fees, room, board, or other bills you may owe the school. If there is any money left over, the school will forward it to you.

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Perkins

In 2007, this is the federal government's lowest-cost student loan. For the U.S. Department of Education's official information, click here or see Page 11 of the 2007 guide.

• How much can you borrow from the Perkins program? Your school will decide how much you qualify for, but no student can borrow more than $4,000 a year through the Perkins program. The average Perkins loan is $1,948.
• How much do Perkins loans cost? There are no fees, and schools cannot charge more than 5 percent interest.
• How do you get a Perkins loan? A student must fill out a Free Application for Federal Student Aid, or FAFSA. Generally, Perkins loans are awarded only to students who are found to be very needy and have very low Expected Family Contributions (EFCs). The most recent figures show that the EFC of the average Perkins recipient was $3,628.
• Who makes Perkins loans? Although these loans are guaranteed and partially funded by the federal government, the loans are made by colleges, which have to put up some of the money themselves. This makes Perkins loans different from federally guaranteed Stafford and PLUS loans, which can be made directly by the federal government or by middlemen such as banks and other lenders.
• How do you collect your Perkins loan? Perkins loans are usually paid directly to your college, which uses the money to pay off any tuition, fees, room, board, or other bills you may owe the school. If there is any money left over, the school will forward it to you.

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PJR

Professional Judgment Review. Although the federal government initially calculates how much a student can afford to pay for college (the Expected Family Contribution) based on the information provided in the FAFSA, each college's financial aid office is free to apply its "professional judgment" to adjust the EFC (and thus the student's financial need and aid award) based on additional information. So if you feel the EFC you receive from the federal government in your Student Aid Report is unreasonably high, you should contact your college's financial aid office and ask for a "Professional Judgment Review." You'll need to prove that the EFC is unreasonably high with, for example, receipts showing large medical expenditures, evidence that a family member has recently lost a job, or evidence of other legitimate expenses that were not taken into account on the FAFSA. Proof that you or your family have no money for college because of vacation bills or other fun spending will not win much sympathy, since aid officers believe that education is a more important investment than Jacuzzis. See also appeal. [Back to Top]

PLUS

Who makes PLUS loans? The federal government makes PLUS loans directly. Many banks, lenders, and nonprofits also make PLUS loans. If your school allows you to shop, do not llimit your choice to lenders the school may prefer or recommend. You can check out cheap nonprofit lenders here, or use our web shopping tool. [Back to Top]

"Preferred lender" list

A list of lenders that a college suggests its students use when taking out federally guaranteed education loans such as Stafford or PLUS loans. While in the past some of these lists steered students to unnecessarily expensive lenders who paid kickbacks to colleges, tough new rules ban kickbacks and require colleges to shop for better deals for students. Still, students who receive a "preferred lender" list from a school should remember that those lists are not legally binding. Borrowers can choose from any federally approved lender and may often find a better deal by checking their local non-profit lender, which can be found at the Education Finance Council, or by using U.S. News's web shopping tool, Simple Tuition. [Back to Top]

President

The chief executive of a college or university. A growing number of colleges are giving scholarships or grants fancy titles such as "President's scholarship" to make them sound impressive. Many of them are in fact wonderful scholarships. But colleges have discovered that many students will take a fancier-named scholarship with less money over a bigger but more boring-named scholarship from a better school. Research by two Harvard professors showed that scholarships without names tend to be larger than those with names. And about 38 percent of students are so flattered by an impressive name that they end up choosing a college that either ranks lower or ends up costing them more. Thus, students weighing competing college awards should be wary of any fancily named scholarship and focus instead on finding the bottom-line, out-of-pocket costs and the best college fit. [Back to Top]

Private loan

A loan that is not offered through the low-cost federal education loan programs. Also known as alternative loans or signature loans, these are typically made by banks, other businesses, or schools. They tend to charge high interest rates. And they don't offer benefits such as forgiveness, deferral, or forbearance. [Back to Top]

PROFILE

The full official name is the CSS/Financial Aid PROFILE. It is an online financial aid application form created by the College Board and used by about 300 private colleges and some scholarship programs. Most schools use only the FAFSA to determine how much families can afford to pay for college. But the PROFILE asks for more in-depth information about things like investments and divorced parents' incomes to make sure families aren't hiding money. Unlike the FAFSA, which is free, the PROFILE costs at least $23 to fill out and send to one school or program. Each additional report costs $18. The PROFILE will automatically waive the fee for low-income students, however. For more information about the PROFILE, click here. To find out if your school or scholarship requires the PROFILE, click here. [Back to Top]

Promissory note

The legal contract that requires a borrower to repay a loan. [Back to Top]

R

Repayment

You must pay the bills your educational lender sends you. Most students will start receiving bills on their federal educational loans six to nine months after they leave school or reduce their schedule to less than half time. Parents may receive bills on their educational loans almost immediately after they get the money. Some lenders will allow parents to defer paying the bills until the student leaves school. Except for Perkins and subsidized Stafford loans, the interest quietly builds up even if you don't receive a bill. That means when you finally do start repaying, you'll owe more than you originally borrowed. You cannot get out of educational debts, even if you file for bankruptcy, except in very unusual circumstances. There are only a few ways of getting out of repaying education loans. Federal education debts are typically canceled or discharged, if you die or become permanently disabled. Parts of student federal loans may be forgiven if you sign up for the federal government's Income-based Repayment plan, and then work for several years at low-paying public service jobs. For the U.S. Department of Education's FAQ about repayment, click here. [Back to Top]

Rigorous

The federal government will give very needy college freshmen (generally, those with Expected Family Contributions of less than about $4,000) up to $750 in an Academic Competitiveness grant if the student completes "rigorous" courses in high school. For a list of what your state has decided to call "rigorous" courses, click here. [Back to Top]

S

SAR

Student Aid Report. This is the report the federal government sends to students who fill out a Free Application for Federal Student Aid (FAFSA). The SAR tells how much the federal government believes the student and his or her family can afford to pay for college in a number it calls the Expected Family Contribution or EFC. Students attending a college with a Cost of Attendance (COA) greather than their ability to pay (or EFC) generally qualify as needy. To calculate your own need for financial aid, use this formula: COA – EFC = Need. Students can get a paper SAR mailed to them, or they can access an electronic version on the Web. For a sample of the SAR sent out in fall 2006, click here. While qualifying as needy is the first step to getting financial aid, it is not a guarantee, unfortunately. Because of a shortage of financial aid funds, the vast majority of students don't get enough aid to cover their federally calculated need, which means families have to contribute even more than their official EFC. [Back to Top]

Scholarship

Money given to cover education costs. The word is often used interchangeably with grant. See also gift aid. [Back to Top]

Self-help

Financial aid that must be earned or repaid by students or parents. All loans and work-study jobs are considered self-help. The other (and more desirable) kind of aid is called gift aid because that doesn't have to be earned or repaid. Most schools expect even the neediest students—those with an Expected Family Contribution (EFC) of $0—to provide self-help to cover some college costs by, for example, taking out Stafford or Perkins loans each year. Many private schools also expect students to contribute at least $1,500 a year toward their costs from summer earnings. So, many schools leave a gap of $4,000 to $8,000 a year between the student's net or out-of-pocket cost and the student's EFC. They expect the student to make up that gap with self-help: loans and jobs. [Back to Top]

SEOG

Federal Supplemental Educational Opportunity grants of up to $4,000 are awarded to some, but not all, needy students. SEOG is a controversial program because the federal government doesn't hand out SEOG money proportionately to schools. That means needy students at one school might not get SEOG grants they would get if they attended another school. For a simple description of SEOGs, click here.

• How can you get an SEOG? A student must fill out a Free Application for Federal Student Aid. Generally, SEOGs are awarded only to students who are found to be very needy and have very low Expected Family Contributions.
• How much SEOG money can you get? Each school will determine how much, if any, SEOG money to distribute to each qualified applicant. SEOGs are capped at $4,000 a year.
• How will you get your SEOG? The school will first use the SEOG to pay off whatever tuition, room, board, book, or fee bills you owe it. The school will forward you whatever, if anything, is left.

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Signature loan

A loan that is not backed by any property (such as a house or car) or any other collateral. Instead, the lender relies only on the borrower's signed promise to pay. Sometimes also referred to as private or alternative loans, these are typically made by banks, other businesses, or schools. They tend to charge high interest rates because they are riskier. And they typically don't offer federal education loan benefits such as forgiveness, deferral, or forbearance. [Back to Top]

SMART grant

National Science and Mathematics Access to Retain Talent grant (National SMART grant). For the federal government's official SMART grant rules, click here. Generally, upperclassmen are eligible to receive up to $4,000 per year in SMART grants if they are:

• U.S. citizens
• Eligible for a Pell grant
• Enrolled full time
• Majoring in mathematics, science, technology, engineering, or a critical foreign language
• In their third or fourth academic year at a four-year college
• Maintaining at least a cumulative 3.0 grade-point average on a 4.0 scale.

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Stafford loan

A loan that is awarded only to college students for education expenses. Because the federal government (using your tax dollars) gives lenders a guaranteed profit on Staffords, these are generally one of the best loan deals for students. See this site for the U.S. Department of Education's official Stafford information. There are two kinds of Stafford loans:

• Subsidized loans are awarded to students who qualify as "needy." They cost less because the government pays the interest while the student is in school.
• Unsubsidized loans are awarded to almost any other student. Though the lender doesn't send out bills while the student is in school, it will be quietly adding on the interest to the debt and will start sending you bills on the higher total six months after you leave school. See also capitalization.

• How much do Staffords cost? For the semester starting in fall 2008, lenders cannot charge more than 6.8 percent annual interest and cannot deduct from your loan more than 2 percent of the loan balance in fees. Adding up the maximum of fees and interest rates gives a maximum true total interest rate, or Annual Percentage Rate (APR) of 7.25 percent. Students who qualify as "needy" can receive a "subsidized" Stafford, which charges no interest at all while the student is in school, and only 6 percent during the 10-year repayment period. For the semester starting in fall 2007, lenders cannot charge more than 6.8 percent annual interest and cannot deduct from your loan more than 2.5 percent of the loan balance in fees. Adding up the maximum of fees and interest rates gives a maximum true total interest rate, or Annual Percentage Rate (APR) of 7.375 percent.
• How much can you borrow? Stafford loans come in two sizes. Students who are independent can borrow as much as $9,500 in the first or freshman year, $10,500 in the second or sophomore year, and $12,500 annually during their remaining school years. These students cannot borrow more than a total of $57,500, however. Less than half of that can be in subsidized Staffords. Younger students who are financially dependent on their parents will be limited to loans of no more than $5,500 in the first year, $6,500 in the second year, and $7,500 annually in the remaining undergraduate years. Dependent students are not allowed to borrow more than $31,000 in total through the Stafford program during undergraduate studies. Only $23,000 of that can be in the form of the cheaper "subsidized" Staffords. Some students will qualify for only a partially subsidized Stafford loan. Dependent students whose parents have been rejected for a PLUS loan can borrow extra money through the Stafford program.
• How do you get a Stafford loan? Students must first fill out a FAFSA, then a loan application and a Master Promissory Note (MPN). Your college's financial aid office will help you with the forms. Staffords are awarded only to U.S. citizens or permanent residents enrolled at least half time in college. Staffords won't be awarded to students who have defaulted on (i.e., failed to repay) other federal education loans. There are two main ways of borrowing the money: directly from the federal government or from a private lender. Check with your college to see which way you can borrow.
• How will you get the Stafford money? The government or the lender will send the loan money directly to your school, which will use the money first to pay off whatever bills you have remaining. If there is anything left over, the school will forward you what's left.

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Sticker price

The full asking price, such as the retail price dealers put on a sticker on a new car. Many schools advertise very high prices or Costs of Attendance. But less than half of all students pay those high official prices. About three quarters of all students attending private colleges and half of all students attending public colleges receive grants or scholarships so that they have to come up with much less than the advertised price out of their own pockets and bank accounts. Colleges have found that advertising a high sticker price, but offering lots of grants to applicants, is a moneymaking strategy since students (often incorrectly) associate high prices with exclusivity and quality. Then they are flattered when the school offers them a grant to reduce their net price. See named scholarships. [Back to Top]

Subsidized

Supported or helped, typically with money. All federally guaranteed education loans—Stafford, PLUS and Perkins—are subsidized to some extent by taxpayers. But when used to describe Stafford loans, subsidized means that the federal government pays the interest while the student is in school. Subsidized Staffords are awarded only to the neediest students. The average EFC of students who receive a subsidized Stafford is $4,154. This payment of interest makes the subsidized Staffords a much better deal than the unsubsidized Staffords offered to most other students. A freshman who gets a $3,500 subsidized Stafford loan owes only $3,500 when he or she graduates and has to start repaying the debt. A freshman who gets an unsubsidized Stafford of the same amount owes about $4,500 upon graduation because the interest quietly builds up. See also accrue or capitalization. [Back to Top]

T

Textbooks

The cost of textbooks should be included in the total Cost of Attendance so that financial aid awards cover this necessary expense and families can accurately budget. For the 2003–2004 academic year, the Government Accountability Office estimated the average undergraduate spent $898 on textbooks and supplies. For the 2006–07 academic year, the College Board estimated students spent $850 on books and supplies (Page 6 of this slow-loading pdf). The Association of American Publishers says undergraduates spent $644 on textbooks (not counting supplies) in the 2005–06 academic year. Use numbers like these to calculate your own realistic Cost of Attendance. Unfortunately, many schools do a poor job of giving a realistic estimate of textbook costs. Many don't reveal how much they have budgeted for books in their COA anywhere on their websites or catalogs. They will reveal it only if you call. Why the secrecy? Some schools aren't eager to publicize the fact that they are low-balling the costs so that they can look less expensive, or hand out less financial aid, or make their financial aid offers look like they are covering more of the Cost of Attendance than they really are. Others give very high numbers, which help qualify their students for more aid. [Back to Top]

Tuition

The charge for instruction at a school. Unfortunately, tuition has become only a small part of the cost of attending college. A growing number of schools are adding (sometimes hidden) fees to their charges. And families should remember that they will have to cover the total Cost of Attendance for their student, which includes room, board, books, and many other extras. [Back to Top]

U

Undergraduate

A college student who has not yet received a bachelor's degree. [Back to Top]

University

An institution of higher learning that offers bachelor's as well as graduate degrees such as master's and doctorates. [Back to Top]

Unsubsidized

Receiving no outside help or money. In the financial aid world, this word is often used to describe unsubsidized Stafford loans, which are awarded to college students who don't qualify as needy but are U.S. citizens or permanent residents attending school at least half time. Although the federal government does pay money to support unsubsidized Stafford loans, they are called "unsubsidized" because lenders charge interest on the loans from the moment they lend the money. (Students may not realize that, though, because they don't get the bills until six months after they leave school.) Subsidized Stafford loans don't charge interest while borrowers are in school. A freshman who gets a $3,500 subsidized Stafford loan owes only $3,500 when he or she graduates and has to start repaying the debt. A freshman who gets an unsubsidized Stafford of the same amount owes about $4,500 upon graduation because the interest quietly builds up. See also accrue or capitalization. While the unsubsidized Staffords are more expensive than the subsidized loans, they still are better deals than most students could get from banks or other lenders. For a Government Accountability Office report showing how much the federal government pays to subsidize " unsubsidized" Staffords, click here. [Back to Top]

V

Verification

Proof or confirmation. In financial aid, that means providing tax forms, W-2s, and other documentation to support the answers the student has filled in on the FAFSA or PROFILE. Public colleges typically ask for verification from about 30 percent of their financial aid recipients every year. Private colleges typically ask for every recipient to provide verification. Usually schools will ask for verification before they pay out any financial aid. In one federal study more than one third of verifications resulted in changes to financial aid awards. To see what the U.S. Department of Education tells financial aid officers about verification, click here. [Back to Top]

W

Work-study

A federally subsidized program that offers needy college students part-time campus or community service jobs. While work-study jobs typically don't pay especially well, they have some advantages over regular jobs. Since they are usually on campus, they are easy for students to get to. In addition, supervisors tend to make accommodations for students' class and test schedules. Some studies indicate work-study jobs improve students' college education. Students with part-time campus jobs are more likely to graduate. Counselors believe the part-time work responsibility forces students to organize their time better. And getting to know the campus better encourages students to push through to graduation. In addition, while regular jobs' earnings can reduce a student's eligibility for future need-based aid, work-study jobs aren't subtracted from future years' financial aid awards. Students who see a work-study job on a financial aid award letter should remember that money must be earned in the future and so does not reduce the student's net or out-of-pocket college costs. For the U.S. Department of Education's information about work-study jobs, click here.

• How much can you earn from a work-study job? Your school is technically free to make as large a work-study award as it likes. But you cannot earn more than your college awards you. On average, though, the awards are comparatively low. In 2005, the average work-study student earned just $1,447 over the school year. In addition, studies show that students who work more than 15 hours a week do worse in school, so most campuses won't schedule students for more than 10 or 12 hours a week. Finally, while there are a range of work-study jobs, most pay only about $6 or $7 an hour. So awards of more than $2,700 rest on assumptions that the student will either get an above-average wage or work more hours than is advisable.
• How can you get a work-study job? First, students must fill out a Free Application for Federal Student Aid. If a college decides that a student qualifies as needy, it may award the student a chance to earn money through the work-study program. Students must then apply for one of the school's work-study job openings. Students are free to decline the work-study award.
• How do you receive work-study money? Typically, students receive biweekly or monthly paychecks.

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Updated 7/24/08

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