Families planning their Spring Break trip may also be planning on how to pay for college. By now many high school seniors have received their financial aid award letters for the 2021-2022 school year. The award letter typically includes all aid offered — including scholarships, grants, work study and loans.

Most students and parents are just interested in the free money — however, some students may only receive loan offers as their financial aid package. A lot of families are surprised to learn that student and parent loans are types of financial aid. The aid letters are seldom in the same format from each school making it difficult to understand and compare the offers.

Gift aid is in the form of a scholarship or grant — and is free money that reduces the financial obligation. Keep in mind that some schools will reduce the aid they offer when your student wins private scholarships, others do not change their offer.

It is important to know if your aid will be reduced if you have private scholarships – that could make a big difference in the net cost of college. Many of the local scholarships will not be announcing the winners until April or May.

Work study is a way for students to earn money to help offset the cost of college. The amount earned is paid directly to the student and is typically used for living expenses. Not all schools participate in work study, and jobs are limited. It is important to accept the award early, and apply for jobs as soon as they are posted. Most students prefer to have work that is related to their program of study.

The income that comes from work study is not counted in the following years’ FAFSA (Free Application for Federal Student Aid).

There are several forms of loans offered to students and their parents. Once the FAFSA is completed, students will be offered a Stafford Direct Loan — offered by the Federal Government. Freshmen can borrow $5,500, sophomores are offered $6,500 and juniors and seniors are eligible for $7,500 each year.

Each student is able to borrow a total of $31,000 for their undergraduate degree — so there is $4,000 available if they take more than four years to obtain their degree. The current interest rate for the Stafford loan is 2.75 percent — and the rates for 2020-2021 loans have not yet been announced. There is also a loan fee that is deducted from the disbursement — the current fee is 1.057 percent.

There is currently an Automatic Temporary 0% Interest and Administrative Forbearance as a Result of the COVID-19 Emergency for students that currently have Direct Loans. To provide relief to student loan borrowers during the COVID-19 emergency, interest is being temporarily set at 0% on federal student loans.

In addition, federal student loan borrowers were automatically placed in an administrative forbearance, which allows you to temporarily stop making your monthly loan payments. This 0-percent interest and suspension of payments will last from March 13, 2020, through at least Sept. 30, 2021, but you can still make payments if you choose.

Students may also be eligible for private loans offered by a bank, credit union, state agency or the school. The lender may require an established credit record, and a student often needs a cosigner.

Private loans typically do not offer the same benefits as the federal loans — including deferment, consolidation and loan forgiveness.

The Parent Plus loan is offered to parents once the FAFSA is completed. The Plus loan is credit based — so a student may be eligible to borrow additional unsubsidized loans if their parents are not approved for a Plus loan.

The maximum amount available to borrow is the total cost of attendance less any other aid awarded. The current interest rate is 5.3 percent. The loan fee for the Plus loan is currently 4.228 percent.

Once you have received your aid award letters it is important to compare them and determine what your total out of pocket expense will be.

Now may be a great time to become a negotiator. Reach out to the school of your choice if you have received a better offer from another school. They may reevaluate your award package.

It is also important to communicate to the school any changes in your financial status — especially since the financial aid applications utilized 2019 tax returns. Many families were negatively impacted financially due to COVID.

May 1 is the deadline to commit to your school — so there is still plenty of time to determine which school is the most affordable for you.

Take advantage of Michigan College Planning’s College Planning workshops to learn more about how to reduce stress, save time and potentially money during the college planning process.

Visit www.michigancollegeplanning.com or https://www.tcaps.net/programs/leap/for locations and dates.

The workshops are informative and include steps you can take right now to assure you understand the cost of attendance and how you can afford college. If you are unable to attend a workshop, feel free to call Michigan College Planning with your questions.

Vicki L. Beam is a college planner at Michigan College Planning located in Traverse City. She encourages questions and comments about future columns. Contact Michigan College Planning at (231)947-0203, by email at vicki@michigancollegeplanning.com and at www.michigancollegeplanning.com.

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