The financial aid fab four: hit the right chord with a combo of federal, state, college, and private funding

The financial aid fab four: hit the right chord with a combo of federal, state, college, and private funding

Don Rauf

When you compare your complete financial aid packages from the colleges that have accepted you, you will find that your aid can consist of funding from four major sources–the federal government, your state, your college, and any private scholarship dollars that you may have won.

What follows is a detailed look at the major financial aid programs for undergrads, as well as profiles of students who tell how they pay for college. Review these sources carefully and make sure you’re not missing out on any college cash.


More than 65 percent of all financial aid comes from the federal government. (See pie chart at top of page 20.) When you apply with the FAFSA, you will find out if you qualify for these programs:

FEDERAL PELL GRANTS. Award amounts depend on program funding each year. Last year the Pell Grant maximum was $4,000. Pell grants go to students demonstrating significant need and funds are guaranteed to students who qualify.

FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANTS (SEOGs). Ranging from $100 to $4,000 a year, these awards are also for undergraduates with exceptional need. Unlike the Pell, this program does not guarantee an award if you qualify–it depends on the availability of funds at each school.

FEDERAL WORK-STUDY. This program provides jobs paying at least minimum wage to undergraduates with financial need.

FEDERAL PERKINS LOANS. These low-interest (5 percent) loans allow undergraduates with exceptional financial need to borrow up to $4,000 a year. The total amount borrowed over the course of college cannot exceed $20,000.

FEDERAL STAFFORD LOANS. The Stafford is the government’s major loan program. With a variable interest rate that can never exceed 8.25 percent, these loans offer up to $2,625 for freshmen, $3,500 for sophomores, and $5,500 for juniors and seniors. Fortunately, interest rates are at record lows–the rate on the Stafford is currently 2.82%. You can borrow even more if you are considered financially independent of your parents. (See the definition of independent in our FAFSA article on page 28.)

There are two types of Stafford loans–subsidized and unsubsidized. Subsidized loans are awarded based on need, and you are not charged interest while you’re in school or in deferment (an official time when you can delay repayment–for example, if you’re unemployed). Repayment typically begins six months after you graduate, leave school, or drop below half-time status. Unsubsidized loans are available regardless of need. However, with these loans, you’re responsible for the interest from the day you receive the loan until it is repaid.

FEDERAL PLUS LOANS. This program lets parents borrow for each dependent child who is enrolled at least half-time. PLUS provides an amount no more than the cost of tuition, room and board, etc., minus the amount of aid already received. First payments on these loans must be made 60 days after the final disbursement.

In the past, you could only take out Stafford and PLUS loans through a private lender, but now you can take out a direct loan if you’re attending one of the more than 1,000 schools that participate in the Federal Direct Student Loan Program. If you take out a loan under this plan, the U.S. Department of Education is your lender–not a bank. Loans through private lenders are still most prevalent..

NEW TAX CREDITS. Depending on your family’s income, you or your parents may be able to benefit from special tax deductions during the years you’re in college and beyond. The Hope Scholarship is a tax credit of up to $1,500 your parents can claim during each of your first two years of college. The lifetime Learning Credit is an annual maximum of $2,000 and applies to subsequent years of enrollment. Additionally, the government’s student loan interest deduction allows you or your parents to deduct up to $2,500 from your taxes during each of the first five years you repay your loans after college, depending on your income. And the government allows penalty-free withdrawals from Individual Retirement Accounts if the money will be used to pay for college.

Plus, you may benefit from loan forgiveness programs (see page 23), and the military also offers funding for those willing to serve (see page 37).


When you’re done researching federal resources, look closer to home. Contact your state’s department of education and ask for literature on grants, tuition assistance, fee reductions, and loans. You may have to fill out additional financial aid forms, since only 22 states currently rely on the FAFSA. Many state funding programs are specifically for students who go to college in-state. Increasingly, states are offering financial incentives to keep top students within state borders. However, reciprocal arrangements between states often permit students to receive discounted tuition in other states, usually nearby. Although many programs are need-based, several are based on academic, military, or minority status.


Colleges offer a variety of finding from their own financial resources, including grants, scholarships, student job programs, and low-interest loans. Be sure to check with your college’s financial aid administrator about programs you may qualify for. Although some will be need-based, college awards often recognize academic achievement or a special talent. Many schools also have dollars to support specific fields of study.

Furthermore, at about 460 colleges, students are able to participate in cooperative education. Through this system, young people divide their time between on-campus learning and off-campus earning. Typically, co-op students work at a job related to their field of study and earn course credit as well as a salary, typically between $2,500 and $15,000 a year.


Corporations, professional associations, unions, religious groups, and other “private” organizations award scholarships to students based on a wide range of qualifications, including need, heritage, and talent–whether it be artistic, athletic, scientific, or something else. Although these types of awards make up one of the smallest slices of the financial aid pie (see chart), they can still make college affordable.

Because there are thousands of scholarships out there, finding the ones you qualify for can be a daunting task. For a fee, scholarship search services will hunt for awards that match your qualifications. However, there are many free ways to find scholarship dollars (For more on scholarships, see page 6.)

Now that you know the basics of the top four sources, check your aid offers and make sure you’re getting your fair share.


Federal Loans $42.5 billion (40.7%)

Federal Tuition Tax Credits $9.95 billion (9.5%)

Employer-Paid Tuition $4.8 billion (4.6%)

Federal Grants $13.75 billion (13.1%)

Veterans Administration $3.5 billion (3.4%)

Collegiate Resources $18.78 billion (17.9%)

The States $8.03 billion (7.7%)

Private Sources/Scholarships $3.28 billion (3.1%)

Source: Octameron Associates (

Note: Table made from pie chart.

Web Watch

Student Aid on the Web. Check out this Complete guide to federal financial aid at

FinAid. For a comprehensive resource on all financial aid, visit

It’s a Family Affair

When Lindsay Eckert settled on small, rigorous, and expensive DePauw University in Greencastle, Indiana, her divorced mother wondered how the family could ever swing the more than $30,000 cost. “I’ve always been told that money shouldn’t be an issue when looking at colleges,” Eckert says, “but this has been a bit of a stretch for the whole family. Mom’s had to cut back on some of her shopping. Dad’s dipping into his savings. And I’m working 30-hour weeks over the summer at a local clothing store. It’s really a joint effort.” Eckert’s grandparents even got in on the action–putting up $5,000 toward her education.

Digging deep is paying off for Eckert, who is loving her time at DePauw. Although she hasn’t settled yet on a major (“maybe psychology,” she says), she’s excited about exploring career and academic options during DePauw’s winter session. After their first year, students are encouraged to spend the five-week winter term studying abroad or doing internships in other cities. “I’d love to check out Chicago or New York,” she says.

Parental Contribution (Key Bank) AMOUNT: $12,000

Through Key Bank’s College Program, Eckert’s father kicks in

$7,000 ($700 per month is deducted from the account for 10

months) and her mother contributes $5,000. The no-interest program

costs $40 to set up.

DePauw Academic Scholarship AMOUNT: $7,000

Eckert’s stellar academic record netted her this renewable award.

Grandparent Contribution (Merrill Lynch) AMOUNT: $5,000

Through a Manulife 529 college savings plan sponsored by the Education

Trust of Alaska, Eckert’s grandparents give $5,000.

Federal Stafford Loan AMOUNT: $2,625

To cover costs, Eckert took advantage of a subsidized Stafford

Loan. Repayment starts after graduation.

Wilbur B. Brown Scholarship AMOUNT: $1,710

DePauw included this need-based award in Eckert’s package.

Federal Work-Study AMOUNT: $1,700

Eckert works two jobs (11.5 hours per week)–at the campus performing

arts center and the philosophy department office.

Federal Perkins Loan AMOUNT: $1,500

Eekert qualified for this low-interest (5 percent) need-based

loan. The school acts as lender.

TOTAL $31,535

Service Leads to Dollars

During his years at White Station High School in Memphis, Tennessee, Joseph Anthony Bynum devoted much of his free time to volunteer work. Besides pitching out to help out the United Way, the Ronald McDonald House, and the NAACP, Bynum also organized voter registration drives. Bynum’s dedication to service helped land him a meaty scholarship from Rhodes College in Memphis. As a Rhodes Service Scholar, Bynum gets $12,100 from the school in exchange for his competition of at least 140 hours of community service a semester and at least 280 hours of service for two summers. To fulfill his end of the deal, Bynum, 18, volunteers at a local soup kitchen and a daycare center. In addition to his volunteer work, Bynum is active with the Black Students Association, Kappa Sigma fraternity, and a mentoring program designed to help freshmen become more acclimated to college life. Bynum, a biology major who wants to become a pediatric neurologist, never thought he would choose to go to college in his hometown. “To my surprise, I fell in love with Rhodes after I stayed on the campus for a scholarship interview,” he says. “The Gothic buildings, genuinely nice students and faculty, and small size sealed the deal.” The generous financial aid package didn’t hurt, either. For this school year, 73 percent of all Rhodes students received some form of need-based or merit-based financial assistance. The’ average financial aid package of students with demonstrated financial need is $18,123.

Dean’s Scholarship AMOUNT: $16,500

Bynum won this renewable award based on his strong academic record.

Awarded to outstanding entering African-American students.

Rhodes Service Scholarship AMOUNT: $12,100

This renewable award is based on Bynum’s strong service record, for

students who have demonstrated exceptional leadership and service and

who wish to become effective leaders who promote positive change in

the world, Service scholars are expected to contribute 10 hours per

week toward community service projects.

Family Contribution AMOUNT: $1,000

Bynum’s family kicks in the rest of the cost for Rhodes.

TOTAL: $29,600

State Aid Makes the Difference

Ben Durham a Louisville native found bonuses to staying in-state for college. The Kentucky Higher Education Assistance Authority (KHEAA) administers near y $114 million in grant scholarship, work-study and savings programs to help state students pay for college. And Durham’ top grades and test scores netted him more than $6,000 in state grants and scholarships. That kind of money will surely have the freshman government major proudly singing “My Old Kentucky Home” for years to come.

Brown Faculty Scholarship AMOUNT: $9,000

This renewable merit award was based on “all-around excellence.”

KHEAA State Grant AMOUNT: $3,800

Based on academic record and his decision to got to a state school.

Federal Pell Grant AMOUNT: $3,000

He demonstrated significant need.

Kentucky Educational Excellence Scholarship AMOUNT: $2,437

Renewable state merit dollars based on GPA and test scores.

Federal Perkins Loan AMOUNT: $2,400

Durham’s financial need qualified him for this low-interest loan.

Centre Endowment Grant AMOUNT: $2,300

Durham’s college kicked in these funds.

Federal Stafford Loan AMOUNT: $2,100

This federal subsidized loan will help him meet the cost.

Federal Work-Study AMOUNT: $1,500

Durham assists aim economics professor several hours per week.

Supplemental Educational Opportunity Grant AMOUNT: $1,000

Federal grant for students with exceptional financial need.

TOTAL: $27,537

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