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To determine whether your child is eligible to receive federal financial aid for college, the U.S. Department of Education
) uses a formula called the expected family contribution (EFC)
. The formula considers the financial resources of the student's parents, as well as those of the student. Federal aid programs for college include:
A grant is a gift. It does not require repayment. In general, the government gives grants to only those students it deems most in need of financial assistance. The two main types of grants include Pell grants
and Supplemental Education Opportunity Grants (SEOGs
loans are those student loans whose interest is paid by the federal government until the loan-repayment period begins. A subsidy is also like free money, since qualified recipients have to repay the
but can avoid hundreds or thousands of dollars in interest expense. Stafford loans
may or may not be subsidized. All Perkins loans
, however, are subsidized student loans.
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is administered by the university or college, which reserves some on-campus paid jobs for recipients. Work-Study lets students earn money to offset some of their school-related expenses. To the extent that the student is able to pay some of his or her cost with an on-campus job, he or she may have to borrow less.
For purposes of counting assets in the EFC formula, the DOE considers money in UGMA/UTMA
accounts and education savings accounts
to be the student's assets. Assets in Section 529 plans
are considered assets of the parents.
To apply to the subsidized programs described above, the DOE requires a student to complete a Free Application for Federal Student Aid (FAFSA
). To be eligible to receive aid from one of these programs, a student must meet the following requirements:
Demonstrate financial need (see below).
Have graduated from high school or have earned a G.E.D.
Be enrolled in an eligible program of study.
Maintain a level of satisfactory academic progress.
Certify that you are borrowing to pay for educational purposes.
Not be in default
on any other student loans.
Have a Social Security number.
Be either a U.S. citizen or eligible non-citizen.
Have registered with the Selective Service, if required.
Financial aid applicants fall into one of three categories.
For students who are claimed as a dependent
on someone else's income tax return, the EFC formula is based on assets and income of parents and
For the 2008-2009 financial aid year, 12% of the parents' adjusted assets and 100% of adjusted income are included in the EFC calculation to determine their potential contribution. For the child, 20% of his or her adjusted assets and 50% of adjusted income are used in the calculation.
Independent student with no dependent(s) other than a spouse. The expected contribution is based on the married couple's combined assets and income. For the 2008-2009 financial aid year, 20% of adjusted assets and 50% of adjusted income are used to determine the potential contribution.
Independent student with dependent(s) other than a spouse. The expected contribution is based on the married couple's combined assets and income. For the 2008-2009 financial aid year, 7% of adjusted assets and 100% of adjusted income are used to determine the potential contribution.
You may wish to refer to the worksheet
used by financial-aid officials at the DOE's Office of Student Financial Assistance to calculate your EFC for the 2008-2009 financial aid year.
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.