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When college aid falls short

Updated: May 3, 2013 12:15PM

Q. My son was accepted at his first-choice college and given an aid package based on the FAFSA form we filed earlier this year. But we have to come up with the balance -- and it's a lot of money! What should we do? (And what if we can't afford to do it?)

A. The excitement of receiving the coveted admission letter has worn off, and now parents across the country are trying to figure out how they'll come up with the money! But don't despair, says Reecy Aresty of www.Pay "In fact, there's more money available this year than ever -- $156 billion of financial aid, including scholarships, loans, grants and work-study programs, some private and some federally subsidized."

College is just too expensive these days for parents to pay for, especially if they have several children. The Education Department estimates that of all full-time college undergraduates in 2007, 58 percent applied for aid, and 47 percent received it. But you have to know what steps to take to access that money.

Parents filed the FAFSA form, detailing their income and assets, earlier this year. Based on that, the school sent you a financial aid package along with the admissions letter. The package probably had several components:

**Grants and scholarships that do not have to be repaid.

**Work-Study programs that require an on-campus job, usually $2,000 a year, with earnings credited to this program.

**Subsidized Stafford Loan -- $3,500 for freshman; interest at 5.6 percent deferred until six months after graduation

**Unsubsidized Stafford Loan -- interest at 6.8 percent accrues immediately (and parents should pay this and take the Student Loan Interest Deduction, with a maximum $2,500, if they qualify.)

**An additional $2,000 Unsubsidized Stafford Loan (You may have to ask for this!)

Then, there was a second part to the financial aid award letter -- the "expected family contribution." That's the amount the parents have to fund. Depending on the assessment from the FAFSA form, this can still run into many thousands of dollars a year. The family has several choices:

**Home equity loan -- The interest is tax deductible, but rates could rise sharply. And they're difficult to get these days, with real estate values falling.

**Borrowings from an IRA -- You'll pay ordinary income taxes but not the 10 percent penalty for early withdrawals under age 59½. Withdrawals count as income, and so may affect next year's aid!

**PLUS loans for parents -- Not based on need; applications are available through school financial aid office. It may be a "direct" loan (7.9 percent interest) or FFEL Plus loan (8.5 percent interest), depending on your school. The yearly limit is the cost of college, less any financial aid received.

**Private loans -- The student gets the loan, and the parents co-sign. Rates are higher and loans may be more difficult to get.

Those are the basic sources of money for college. And the burden for both students and parents could be overwhelming, both now and in the future. But there is still hope. The first step is to contact the financial aid office.

It's not too late to appeal that "unappealing financial award letter," says Aresty. If you explain that you're having trouble meeting the balance of your financial need, they may be able to come up with additional resources to fill the gap.

Aresty offers to review financial aid award letters for readers of my column who send him an e-mail to Reecy@PayLessforCollege. com and mention this column.

Simpler financial aid forms in works

SPECIAL NOTE: It may be easier to apply for financial aid next year.

Under a new proposal by the Obama administration, the "dreaded" FAFSA (Free Application for Federal Student Aid) would be shortened by about two-thirds, from its current 153 questions. And it will be easier to sync the application form with tax returns submitted to the IRS.

The proposal needs to be passed by Congress before becoming law.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.HOW YOU CAN PICK TERRY'S BRAIN

To celebrate the 20th anniversary of my Chicago Sun-Times column, I'll be responding to your most frequently asked questions on a regular basis. Of course, you always can submit individual questions on my Sun-Times blog reached on the home page at

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