The College Search: Federal Need-Based Aid

Some of these options are only for the most financially distressed candidates, but almost everyone qualifies for others.

CLICK ON THE VIDEO ABOVE THIS ARTICLE TO HEAR MORE ON FEDERAL NEED-BASED AID FROM LIZ ESHLEMAN, DIRECTOR OF COLLEGE PLANNING AND PLACEMENT AT DEVON PREPARATORY SCHOOL.

Federal grants, paid for by the U.S. Government, are geared to assist only the neediest undergraduate students. You learn whether you are eligible for this aid after filing your FAFSA. The basic federal grant is the Pell Grant. Failing to qualify for the Pell Grant makes you ineligible for all other federal grant programs. The Pell Grant has a maximum award amount of $5,500 for the 2010-'11 academic year, which represents a $150 increase from the previous year's limit. Additional Federal Supplemental Educational Opportunity Grants, Academic Competitiveness Grants, and SMART Grants can trim thousands of additional dollars from your college bill. But again, in order to qualify for any of these other programs, you must first earn the Pell Grant. Also, not all colleges participate in the extra federal programs mentioned here, so it's worth checking-out which schools can potentially help you the most, as you narrow down your final choices. Other opportunities for students with what's termed "exceptional financial need" on the FAFSA website include Perkins Loans, which are low-interest (5% currently), and do not have to be paid back until after graduation. Federal Work Study may also be available, a program that pays some of a student's bills in exchange for the student working a part-time job, often in community service, or work related to his or her major.

Stafford Loans/Plus Loans

Federal loans are available to a wider array of families, and they begin with the Stafford Loan. This loan is made directly to the student (not the parents), and is automatically awarded, assuming the student has filed his or her FAFSA. The college will inform the student of how much he or she can borrow under the Stafford Loan program as part of the financial package delivered with the acceptance packet. The loan may be subsidized, which means a student can defer payment until after graduation, or skip paying interest as long as they're in school. If the loan is not subsidized, the student must pay interest, but can have the interest folded into the principal and not make any payments until after graduation. In this case, the total loan amount will balloon, but it can make the actual college years more affordable. In general, the Stafford Loan, in whatever form, is considered to be the best loan option because the interest rate and terms are usually far better than anything a student can get on the open market. Also, most students, despite their financial circumstances, qualify for some form of this type of loan. A college financial officer can advise you better than I can, but I'll say up front that most advisors suggest that you exhaust the Stafford option before borrowing any additional money beyond the Stafford's limits. Parents, meanwhile, can apply for a Plus Loan, by filling out a form available at a college's financial aid office. Plus loans may be cheaper than other loans, but it's worth carefully investigating this. One "nice" thing about these loans is that you can defer payment until after a child graduates. But you're going to be charged interest along the way, and the rates currently run between 7.9% and 8.5%, which is more than the Stafford. You may also be able to get a deferment, if you have trouble repaying the loan years down the road, but interest will be added during that time, and overall, you're talking about a deeper financial hole.

The extent to which you qualify for this federal aid is determined by information reported on the FAFSA. This includes the salary and savings of both student and parent, the amount of money in any 529 college savings accounts, assets (which may or may not include the parent's home), as well as non-monetary items like other siblings in college, and the proximity of the parents to retirement age. Aid decisions are announced in the packet that comes with your offer of admission. Collegeboard.com includes an online calculator that can help you estimate ahead of time how much aid you can expect, but this is only a rough estimate. Different colleges will likely make different sorts of offers. You can always schedule an appointment with a financial aid officer during your campus visit, or strike up an email correspondence to better learn where you stand.