College Planning: Grants, Work-Study, and Loans

In our prior videos (College Planning), we have talked about ways to reduce the cost of education through AP course, college selection, and scholarships.  Assuming you have done that and still have a shortfall, you are probably moving on to methods of obtaining financial aid.  Today we are going to talk about the $150 billion in federal aid that the US Department of Education offers to 15 million students each year.

Before getting into it, there is a common form that most students and parents will fill out, called the FAFSA (link), or the Free Application for Financial Student Aid.  If you have your tax and investment documents together, the FAFSA form is neither difficult nor time consuming to complete.  The FAFSA form calculates something called the Expected Family Contribution (EFC).  The EFC is exactly as it sounds:  the amount that the parents and child are expected to contribute toward the child’s educational expenses for that year.  It is worth noting, that many states including Wisconsin (link), also have aid forms available, that you probably should also fill out to attempt to receive their aid.

Each college you are considering has their own number called the Cost of Attendance (COA). Quite simply, if the COA is higher than the EFC, then you have a reasonable likelihood of receiving some form of financial aid.  The aid can be awarded in grants, work-study, or loans.

Grants of course are the most attractive, because they don’t have to be repaid. If some of your aid comes as grants, rejoice! Quite simply, however, there is not enough money to go around to make it free for everyone.

That means we move on to work-study programs.  The ideal work-study job is one in which little actual work needs to be done.  My favorite example is the parking lot attendant.  Perhaps a car leaves every 15 minutes or so, where you need to accept payment, which takes perhaps 30 seconds.  Then you have another 10-20 minutes to be reading or studying before the next car comes along.  This is an ideal situation – the employer needs someone there, but the work only happens intermittently.

Last, loans.  Let me caution you here.  Loans dig a deeper hole.  As of 2015 here in Wisconsin, for students that take loans, the average loan balance is $29,000 at graduation(1).  Nationwide, former students owe $1.26 trillion(2).  With that in mind, I want to reiterate how important it is to be sure that the courses and majors you are pursuing are likely to have a reasonable career with an income that can support your student loan repayment, along with your other goals.  I am personally aware of someone that spent $200,000 on an undergraduate degree that they are not using and will not use.  I don’t know the exact amount that was borrowed, but surely some of it was.  That was clearly a poor use of that money, essentially a 4 year expensive vacation from reality.  

Take note that some loans are federally subsidized, which at ground level means lower interest rates, payments delayed until you graduate or leave school, and in some careers may mean partial loan forgiveness.  Private (non-subsidized) loans, on the other hand, have much less favorable interest rates and payment terms.

To sum it up, be sure to do the FAFSA to take a shot at receiving aid.


Patrick Stoa
Financial Advisor

[1] $29,000 per WI student:
[2] $1.26 Trillion total: chart with the detail of the Non-Housing Debt Balance, Q1 2016

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