Advice: Financial Fitness

Paying for college for you or your kids

A college education may be the second most expensive thing you pay for in your life, after your own home. Fortunately, aid does exist for future students. Let’s break down the often confusing slate of loans, grants, scholarships and other programs.

To start the financial aid process, complete a Free Application for Federal Student Aid (FAFSA) to report your income, assets and demographic details (and your child’s, if applicable). FAFSA numbers are calculated to determine your Estimated Family Contribution. Some assets are safe from FAFSA consideration, such as traditional IRAs, Roth IRAs, employer-sponsored retirement accounts, cash value life insurance and annuities.

If you and your partner are married where your union is recognized by the federal government, you’ll file the FAFSA as married. If you aren’t married, the breadwinner parent fills out the FAFSA individually. This may be advantageous in establishing financial need, because the other partner’s assets and income aren’t factored into the formula. Colleges use FAFSA results to tailor a student’s Financial Aid Package, which may consist of loans, grants and other types of aid.

Stafford Loans offer money borrowed from the federal government by the student at low interest rates, with repayment deferred until six months after graduation.  These loans have a range of repayment options. Parent Loans for Undergraduate Students (PLUS Loans) allow parents to borrow money from the federal government. Repayments must begin within 60 days of taking the loan, and repaid in 10 years. With Perkins Loans, colleges receive federal funds and act as lenders for students.  Repayment is delayed until nine months after graduation, and must be repaid in 10 years. These funds are of limited supply, so submit applications early.

Grants may also be an option. Pell Grants are based solely on financial need, and limited by annual congressional appropriation. Federal Supplemental Educational Opportunity Grants (FSEOG) allow the federal government to give money to colleges to distribute to students with financial need. You may also be eligible for TEACH grants if you plan to become a highly qualified teacher in a high-need field in a low-income area.

In addition grants and loans, scholarships are an option. They may be based on grades, merit, athletics or some combination of skills.  These may be offered by the college, or by outside organizations to defray your college costs. Work Study Programs offer the student a convenient but often "character-building” job, usually on campus. (My college roommate’s job was to clean the Rider College Pub after-hours. Another friend was the costumed school mascot!) Parents may also qualify for tax credits while paying for college. The American Opportunity Credit is worth a maximum of $2,500 in 2013. The Lifetime Learning Credit is worth a maximum of $2,000 per year.

Financial aid is not guaranteed to fill the gap between your contribution  and full tuition, so limit your college choices to those you can realistically afford. Try not to raid your home equity or retirement accounts. Middle-aged parents may not have many years to rebuild nest eggs, whereas your child will have many productive years to pay back loans.

And more importantly, plan ahead. Early birds may get the most money!

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds.  Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries.

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