Financial Aid: Federal Programs
Federal Programs Overview:
The Higher Education Act (HEA) provides for federal student financial aid programs. The government’s largest program is the Federal Pell Grant. The Federal Supplemental Educational Opportunity Grant (FSEOG) is the government’s other grant program. The FSEOG is one of three federal programs that are administered on-campus. Colleges that participate in the three campus-based programs receive a certain amount for each program and make need-based award decisions, using federal guidelines. Some schools have more money for these programs than others. In addition to the FSEOG, the other two campus-based programs are the Federal Perkins Loan program and the Federal Work-Study (FWS) program. In addition to the Pell Grant and the three campus-based programs, the federal government also provides Federal Stafford Loans for students and Federal PLUS loans for parents. Keep in mind that federal funding is subject to legislative appropriations.
Federal Pell Grant
Federal Perkins Loan
Additional Federal Programs:
Federal Stafford Loan (FFEL or Direct)
Federal PLUS Loan (FFEL or Direct)
The Federal Pell Grant program is for undergraduates, full-time or part-time, who have not yet earned a bachelor’s or professional degree. Pell entitlement is determined by the FAFSA form, which generates a Student Aid Report (SAR). The SAR indicates a dollar amount for the Expected Family Contribution (EFC). Aid administrators begin work by checking whether a student’s EFC is low enough to qualify for a Pell Grant. The lower the contribution expected, the more “need” the family is considered to have. The dollar amount of Pell Grants depends on yearly appropriations by Congress. For the 2004-2005 aid year for full-time students at most schools, an Expected Family Contribution of zero results in a maximum Pell award of $4,050. The maximum EFC that qualifies for a Pell grant is $3,850. Only a very small percentage of families that file a FAFSA actually qualify for a Pell Grant. Such families generally fall into the lowest income third in the nation.
The Federal Supplemental Educational Opportunity Grant is administered by colleges, using federal guidelines. It is a smaller program than the Pell. SEOGs are grants for undergraduate students with high need; primarily recipients of Pell Grants. The amount of the grant can be between $100 and $4,000 per year. Unlike Pell Grants, SEOGs aren’t an entitlement promised to all students at a certain “need” level. When a school has used the money received from the government for SEOGs, no more grants from the program are available for the year.
Federal Perkins Loans are campus-based loans with award decisions made at the colleges. They are for students with exceptional financial need. Perkins Loans have an interest rate of 5% in repayment and favorable payback terms. No interest is charged while the student is in school at least half time. Students don’t begin repayment until nine months after they graduate, leave school, or attend less than half time. The usual repayment period is ten years.
The maximum Perkins Loan is $4,000 per year for undergraduate study and $6,000 per year for graduate students. Certain circumstances (such as economic hardship or study at least half-time at a postsecondary school) allow deferment (postponing repayment) of Perkins Loans. A few of the conditions that qualify borrowers for full or partial forgiveness of Perkins Loans are volunteer service in the Peace Corps, teaching in certain fields, and employment in law enforcement or nursing. For detailed information, consult the U.S. Department of Education’s Student Guide.
PLUS (Parent Loans for Undergraduate Students) is a federally-sponsored loan program for parents of undergraduates who attend at least half time. The interest rate varies (4.22% for the year that began July 1, 2003) with a maximum of 9%. Unlike student Stafford loans, PLUS loans are not based on financial need and are always unsubsidized. They can be used toward the Expected Family Contribution and toward any aid gap. PLUS loans cannot be higher than the Cost of Attendance minus any other financial aid for which the family is eligible. For example, if the Cost of Attendance is $10,000 and the family is eligible for $7,500 in aid, the PLUS borrowing limit is $2,500. Every borrower’s immigration status and social security number are checked.
The government doesn’t require filing a FAFSA form to qualify for a PLUS loan. However, filing a FAFSA is a requirement for any federal aid. It’s also a requirement for most private aid from colleges. Even families that won’t qualify for any financial aid should file a FAFSA. Why? It entitles the student to borrow a Stafford Loan and it’s free insurance–if the unexpected occurs, you may qualify for assistance. If parents do not qualify for a PLUS Loan due to poor credit, a student can borrow higher amounts through the unsubsidized Stafford, as if she or he were an independent student.
There is a choice of repayment plans, with the standard period being ten years. Repayment of interest and principal on PLUS loans begins within 60 days of the time that money is first paid out. Delay of principal repayment can be requested on the basis of economic hardship or if the borrower is in postsecondary school at least half time. Remember that the borrower of a PLUS loan is the parent, rather than the student. With delay of repayment, interest continues to accrue.
FFEL vs. Direct
As with Stafford loans, PLUS loans are administered in one of two ways. In the FFEL (Federal Family Education Loan) Program, the money is sent to the school by a private lender. If the college participates in the Direct Loan Program, the Department of Education sends the funds directly to the school.
Staffords are student loans that are basic to the concept of “self help” and appear as part of most aid packages. The Stafford is an entitlement program. No credit check is necessary. Any student who has applied through the FAFSA form, is attending school at least half time, and has at least one full academic year of study remaining in an eligible program, has the right to borrow up to certain limits. Some students will qualify on the basis of calculated financial need for “subsidized” Stafford loans.
If a student qualifies for a subsidized Stafford loan, the federal government pays interest on the Stafford loan while the student is in school at least half time and for six months thereafter. On unsubsidized Stafford Loans, interest accumulates from the time that the money is paid out. The student who borrows an unsubsidized Stafford Loan may choose to pay interest while in school or after she or he leaves school (or attends less than half time). Waiting to pay the interest means that the borrowed amount will be larger, as interest is “capitalized” it is continually being added to the original principal amount of the loan. Students who qualify for only a portion of their loan eligibility to be subsidized may combine a subsidized with an unsubsidized loan up to the limit in any enrollment period.
Interest is adjusted yearly, but never exceeds 8.25%. For the year that began July 1, 2003, the interest rate for Stafford Loans was set at 2.82% for loans that are in in-school, grace, or deferment status and 3.42% for loans that are in repayment or forbearance status. Repayment need not begin until six months after the student completes school or drops below half-time enrollment. There is a choice of repayment plans, with the standard plan being over a period of ten years. On the standard plan, a borrower would pay $184 per month to repay a subsidized loan of $15,000 with terms of 8.25% (maximum) interest repaid over 10 years.
Stafford Maximum loan limits for Dependent undergraduate students for one full year of study (includes subsidized and unsubsidized):
Third & Remaining Years
Total for Four Years
Maximum Total Debt for a Dependent Undergraduate
Students may not borrow more than the Cost of Attendance less other financial aid. If your COA for one year is $8,000 and you’re awarded $6,000 in other aid, your borrowing limit for that year is $2,000. If parents of a dependent student can’t pass a credit check and therefore cannot obtain a PLUS loan, then the dependent student may borrow from the Stafford program up to the same limits as an independent student.
Stafford Maximum loan limits for Independent undergraduate students for one full year of study:
Third & Remaining
Total for Four Years
As with dependent students, the total amount borrowed cannot be more than the Cost of Attendance less other financial aid.
Stafford Maximum loan limits for Graduate or Professional students for one full year of study:
$138,500 = maximum total debt for a graduate or professional student (including Stafford loans from all levels of study).
The total amount borrowed cannot be more than the Cost of Attendance less other financial aid. Graduate and professional students are, by definition, independent for purposes of federal aid.
Most borrowers choose the Standard Repayment Plan and pay a fixed amount monthly for up to 10 years. Additional plans include Extended Repayment (over a longer term), Graduated Repayment (payments increase over time), and Income-related Repayment (payments go up or down according to your income). Consult the Department of Education’s The Student Guide for more information.
It’s possible to combine several types of federal education loans into a single loan with a single monthly payment. Since interest rates are so low for the July 2003 through June 2004 period, it’s an especially good time for consolidation.
Deferment / Forbearance
Certain circumstances allow deferment (postponing repayment). These include economic hardship, inability to find full-time employment, graduate study in an approved program, and continued study at least half time in an eligible postsecondary program. During the deferment period, the federal government continues to pay the interest on subsidized Staffords, but on unsubsidized loans the interest continues to accrue. If you are not eligible for deferment but are temporarily unable to make payments due to hardship, you may apply for forbearance. With forbearance, payments are postponed or reduced for a specific period of time. However, even if the loan was subsidized, interest continues to be added during forbearance.
Under certain circumstances, the loan may be forgiven. These include: death or total permanent disability of the borrower, bankruptcy if the court declares that repayment would cause undue hardship, and closure of the school before the student completed the program. Reduction of the loan may be allowed for certain child care providers in low-income communities and for certain teachers who have taught for five years serving low-income families.
FFEL vs. Direct
If your school participates in the William D. Ford Federal Direct Loan Program, the funds are lent directly by the U.S. government. These are Direct Stafford loans. At schools that don’t work through the Direct Program, the loans are of the FFEL (Federal Family Education Loan) type, made through banks, credit unions, and other private lenders. Stafford and PLUS loans fall in either the Direct or FFEL category.
The Federal Work-Study (FWS) program provides the colleges with a lump sum of money to help students who have financial need. As with the SEOGs, it is campus-based which means the colleges decide which students will qualify for job awards and the size of the awards. Aid packages include a dollar amount of wages that the student is allowed to earn under the program. Like Stafford loans, Work-Study is part of the “self-help” portion of aid packages. The federal money is used to pay part of the student’s wages. It’s helpful to employers, as well as students. Colleges and nonprofit organizations that hire Work-Study employees are able to pay less for their work to be accomplished.
Your Work-Study job can help build work experience. When you apply for summer and after-college jobs, employers may provide references. With some effort, you may be able to find a job in your field of interest. You may be able to set up an off-campus job working with a nonprofit organization. Learn and develop a resume for the future. Current guidelines encourage Work-Study recipients to work to improve conditions in the communities where their schools are located. Many work as reading and family literacy tutors.
Work-Study wages are valuable, because in calculating a student’s expected contribution from income, Work-Study earnings are not counted. By contrast, as much as 50% of a student’s regular earnings may be assessed by aid formulas. Work-Study wages are subject to income tax. Students usually work on campus for 10 to 15 hours per week until they earn the Work-Study sum granted. Generally students use Work-Study money to pay for personal expenses and books. These are portions of the Cost of Attendance which are not billed directly by the school (unless charged to a school account).