Free FAFSA Guide
The Free Application for Federal Student Aid (FAFSA) controls access to federal student financial aid and, in some cases, state or institutional aid. But, the FAFSA may not impact all forms of financial aid. Families should also consider other sources of financial aid, such as scholarships, education tax benefits and private student loans.
Scholarships are free money, a type of gift aid that does not need to be repaid. Winning scholarships can provide the student with flexibility to enroll in a more expensive college. Scholarships can also reduce the student’s debt and work burden.
Never invest more than a postage stamp to search for scholarships or apply for scholarships. If you have to pay money to get money, it’s probably a scam.
There are several education tax benefits that can be claimed on federal income tax returns based on amounts paid for college. Examples include the American Opportunity Tax Credit, the Lifetime Learning Tax Credit and the Student Loan Interest Deduction. Families sometimes overlook these tax benefits because they are claimed at tax time, not when the family needs to pay the college bills.
The American Opportunity Tax Credit provides a $2,500 tax credit based on the first $4,000 in college tuition, required fees and course material expenses. Since IRS rules prevent double-dipping, one cannot use a tax-free scholarship or a tax-free distribution from a 529 College Savings Plan to pay for expenses that justify the American Opportunity Tax Credit. Instead, the parents will need to pay for these expenses with cash or student loan money. This may affect the parent’s strategy for spending down student money first. The parents should consult with their tax preparer, accountant or financial planner about how best to maximize eligibility for the American Opportunity Tax Credit and other education tax benefits.
Private student loans are loans which are based on credit, not demonstrated financial need. Students should borrow federal first, because federal student loans are cheaper, more available and have better repayment terms and conditions. The Direct Unsubsidized Loan, Grad PLUS Loan, and Parent PLUS loan do not depend on demonstrated financial need. But, if the student is ineligible or if the federal student loans are not enough, students (usually with creditworthy cosigners) may be able to obtain a private student loan. Look on PrivateStudentLoans.com for a list of lenders that offer private student loans.
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