Applying for Financial Aid - A Quick FAFSA Primer

Financial aid is a broad term that covers financial help through the college your child attends. Financial aid includes merit and needs-based scholarships and grants, as well as work study. However, loans are the most common form of financial aid today. There are federally guaranteed, private college-sponsored loan programs.

How Much Aid Can I Get?

That depends on your assets, income, how many children you have simultaneously in college, and other factors. In general, schools expect parents to contribute a maximum of 5.64 percent of assets and income. Schools tend to exclude family assets and income from the calculation if they are low.

Students are expected to contribute 35 percent of their assets and 50 percent of their income, though some schools are beginning to reduce the student's commitment to that of the parent. Financial aid is designed to make up the difference between what the family can afford and the cost of the school.

Even families with relatively high income should consider applying for financial aid. They may qualify for  low-interest loans or merit scholarships.

Borrowing Options

Students may qualify for federally backed Stafford or Perkins loan programs. Other loan options are available to parents:

• Federal PLUS Loan
• Private College Loans
• Home-equity Loan
• Cash-value Life Insurance
• Some Retirement Accounts

Many planners discourage borrowing from retirement plans because you are taking away from your priority retirement efforts, and there is the risk of income taxes and penalties if you don't repay on time. Also, the income from them may reduce financial aid.

Keep in mind that too much college debt can delay or hurt other family financial goals, such as retirement, or saddle the graduating student with debt that might alter plans or career options.