Your Retirement Center

Financial Aid

More than half of all American college students or their families borrow part of the cost of their education.

When your child is ready for college, will you be ready to pay for it?

That's the question you're probably going to face, even if you've been actively investing in a college fund since your son or daughter was small. Financial aid, in the form of scholarships and loans, may provide the extra funding you need. But to apply for it, you must supply detailed information about your family's finances on the Free Application for Federal Student Aid form (

That information determines whether your child will qualify for federally funded loans and the amount you're expected to contribute to the annual cost of the education. You get a copy of the report, and so does each of the colleges to which your child applies.

You may have to file a separate application for state-sponsored aid, and some colleges require individual financial aid applications in addition to the federal form.


  • Family income
  • Family's savings and investments
  • Student's savings and investments
  • Number of other students in the family also paying tuition
  • Family expenses, both ordinary and unusual


  • Financial resources of the college or university
  • Needs of other students
  • Special interest in your child


When a college offers a financial aid package, it's usually for one year at a time. The amount can be - and often is - less after the first year, even if the student does well. Ask the college to make a four-year commitment as long as your child meets academic requirements. You've got nothing to lose. Colleges are sometimes willing to negotiate.

PREPAID TUITION AND SAVINGS PLANS Since the cost of a college education continues to grow faster than the rate of inflation, you might want to use one of the innovative approaches that have been introduced to help families plan ahead. You may choose to prepay tuition through a state or private 529 prepayment program, or you may decide to put money into a state-sponsored college savings plan, commonly known as a 529 savings plan. Today, millions of people are using prepayment plans. Although the details differ, all of the plans let you prepay at least part of the cost of future tuition by buying credits at today's rates or a small discount to those rates. You put money aside either as a one-time lump sum or in monthly installments during the year. If you're counting on your prepayment to cover your child's cost, check the plan's terms. Some make that guarantee but others do not.
All states offer tax-free savings plans, which allow you to put money into a special college savings account on behalf of a designated beneficiary's higher education expenses. The return isn't guaranteed. What you have to spend when the child enrolls is based on the amount you contribute, the child's age when you begin to participate, and the investments that the plan makes. The bonus, of course, is that the withdrawals are federally tax free, and sometimes state-tax free if you use them to pay qualified higher education expenses. Because the plans vary from state to state, you should check the College Savings Plan Network at You may find that using the plan that your home state sponsors has additional tax advantages, but you are eligible to enroll in most state plans no matter where you or the beneficiary live. That allows you to compare costs and investment options. Not everyone agrees that using these plans is the best way to cover college expenses. For example, you may realize a stronger return by putting your money into individual stocks or mutual funds because you control how the money is invested and you may pay less in fees. But although you're investing after-tax money in a 529, the opportunity for tax-free withdrawals of your earnings can be a significant advantage.


The US Department of Education is the most important source of education loans. Student loans are made directly to applicants who complete the Free Application for Federal Student Aid (FAFSA), and may be either subsidized or unsubsidized. Subsidized loans require demonstration of financial need and offer lower rates. In addition, the student is not responsible for interest that accrues while he or she is enrolled at least half-time. Unsubsidized loans are not linked to financial need but have higher interest rates. Borrowers are responsible for all interest that accrues. There is also a Direct Loan program for parents, known as PLUS. For more information, go to


You might look into the year-round payment options some colleges offer. They let you divide the year's cost into ten or more equal payments, usually for a small fee. Your money may earn enough in interest or dividends to offset the charge - and then some.
Stafford Loans
  • US Department of Education provides Direct Loans
  • Total amount of loan varies based on dependency and other factors, and there's an annual cap
  • There is a six-month grace period for beginning repayment from the date of graduation
  • Unsubsidized loans are available regardless of family income, but subsidized loan awards are available if your family's income is below an amount that Congress sets
Parent Loan for Undergraduate Students (PLUS)
  • Loans are provided by the federal government's Direct Loan program
  • Interest rates are capped
  • Repayment begins immediately
  • Total loan available is equal to cost of college minus financial aid
Home equity loan
  • Interest on loan is usually tax deductible
  • Can typically borrow up to 80% of home equity
  • Information about college costs and financial aid is available in libraries, high school guidance offices, and online
  • Financial aid offices publicize their own programs as well as government loans and work/study programs
  • The US Department of Education has regional offices and a website ( for information on scholarships, grants, and work programs
  • High school guidance offices should know about local scholarships, and your employer, service club, or religious organization will know about the ones they sponsor
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