Applying for financial aid can be an overwhelming and stressful task. There are many steps involved and some of the steps can be rather complex. It is important to remember, however, that the financial aid system has been set up to help you. With a little patience, the system can really pay off in the end. This article will give you an overview of the steps in the financial aid process and will give you a little bit of advice along the way.

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I never had a car in college and I never really wanted one because our student IDs doubled as free bus passes (the cost was rolled into our student fees). In fact, there were only a handful of occasions where I really wanted a car and those were cases where the bus ride would take an hour and a half (from CMU to Monroeville, which is really just a 20 minute care ride away!). I was fortunate to live in a city where public transportation was pretty good, but what about colleges where the public transportation isn’t as good or where you need a car just to get to class? You need a reliable used car.

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I had lunch today with a few friends and the topic of private versus public college came up, a topic they recommended I put on my blog (so to appease them, I did!). As the graduates of private colleges, we were all curious what the difference in salary between graduating from a private college, paying $30,000+ a year for tuition/room/board/etc, and graduating from a public college, paying $10,000 a year for room, board, etc. The impetus of the conversation was that one friend knew someone who was graduating as a radiation oncologist and did a similar analysis between doctors and typical engineers (his analysis said it took twenty years for the doctor, a radiation oncologist, to “catch up” to an engineer, after accounting for typical raises, college loan debt, and other factors). So what’s the break-even point between private and public college graduates?

The answer …?

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CNNMoney has broken down the details of the latest stimulus package and has the following to say about the American Opportunity Tax Credit, which was a refundable credit pushed heavily by Pennsylvania Representative Chaka Fattah (D):

New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.

The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.

The stimulus package also has another education related tax break, the Pell Grant has been increased to $5,350 for 2009 and $5,550 for 2010; an increase of $500 in both cases.

The last few weeks have been hectic in the BFP household as we had a combination of the holiday festivities and my wife’s applications for graduate school. She’s applying to Ph.D. programs, so she’s been researching graduate programs, writing applications, preparing for the GRE, and taking the GRE these last few weeks. Fortunately, one problem she hasn’t had to tackle was how to pay for the Ph.D. because they often get tuition covered by the school, plus a stipend.

I graduated undergrad with about $25,000 in student loans, a paltry sum when compared to some of my friends who had upwards of $50,000 and $80,000 in student loans. Also, the majority of my loans were low-interest deferred Stafford loans. I was only able to get those loans, and other grants, because I filled out a FAFSA form… something 25% of families fail to do.

I was amazed when I read a press release from Sallie Mae that stated 25% of families didn’t even complete the FAFSA application! Sallie Mae is another one of those former government sponsored entities that privatized a few years ago (like Freddie Mac and Fannie Mae) and they deal strictly with student loans and college savings plans. The FAFSA is the Free Application for Federal Student Aid.

How do I apply?
You can either fill out a paper form or you can apply online. Applications can be submitted starting January 1st (so you can do it now) and the deadline is June 30th.

Why is the FAFSA so important?
It’s used to determine everything in federal aid. Need- and non-need-based grants, scholarships, work-study and low-cost student loans – they all use the FAFSA to determine who gets what. Last year, $163 billion dollars in student aid was awarded and 40% of them were grants that do not have to be repaid. That is free money. If you don’t complete a FAFSA, you are not eligible for any federal financial aid. No Stafford loans, no Perkins loans, no PLUS loans, and not even unsubsidized Federal loans. Zero. Zip.

I heard student loans are really hard to get this year.
That may be true, but if you don’t spend the hour or two to fill out the FAFSA, they will be nearly impossible for you to get because you won’t be eligible for any of the federal loans.

What are the interest rates on subsidized loans?
The Stafford loan is probably the most popular subsidized loan as it has the most favorable interest rates, it’s a need-based loan and the rates are schedule to be (all loan rates are listed on Sallie Mae):

• July 1, 2008–June 30, 2009 the interest rate is 6%.
• July 1, 2009–June 30, 2010 the interest rate is 5.6%.
• July 1, 2010–June 30, 2011 the interest rate is 4.5%.
• July 1, 2011–June 30, 2012 the interest rate is 3.4%.
• Beginning July 1, 2012 the rate is 6.8%.

Those rates may not look incredibly favorable now but remember that interest is tax deductible if you earn under a certain amount and the interest is deferred until after graduation.

I recognize that some part of that 25% of families may not be eligible for federal financial aid on a need basis, but there are plenty of non-need related federal financial aid options that everyone should try to apply for.

I am extremely thankful that I was able to get federal financial aid (and some grants directly from Carnegie Mellon) and it all starts with filling out and submitting a FAFSA.

(Photo: btreenews)

If you want to compare the economic policies and plans of Presidential hopefuls John McCain and Barack Obama, CNN Money has a good comparison between the two on a variety of issues from Social Security to Personal Taxes.

Jeremy at Generation X Finance has a very good explanation of why the GAO report of 2/3rds of companies paying zero tax is political hogwash. Besides Jeremy’s good points, famous United States Court of Appeals for the Second Circuit judge Learned Hand once said – “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

SVB tackles the question of saving for college, a question I’m going to put off for a little while.

Nickel’s favorite cashback credit card is the Blue Cash from American Express, a card I don’t have. It seems to have a lot of great features, like a comparison of your cashback performance, and good cashback categories as well.

The Consumerist confirms once again why I love Southwest in publishing it’s top 3 most and least “fee crazy” airlines. Southwest was they’re #1 least fee crazy airline.

Flexo wrote about a study that says sleep makes you smarter.

Have a great long weekend!

It’s fitting that the sixth deadly sin of personal finance would be this one, after making a case for adequate insurance in the 5th deadly sin. Sometimes, in the quest to be frugal, we make decisions that can be short-sighted. These decisions, which may be beneficial in the short run, end up costing us big dollars in the long run because of unintended consequences or unforeseen circumstances. This is why the sixth sin of personal finance is …

Being Penny Wise, Pound Foolish

The simplest and most relatable example I can think of is buying 12-packs of Diet Coke at the super market. At normal prices, a 12-pack costs about four bucks a piece, for a unit price of thirty-three cents each. When it’s on sale, you can get a 12-pack for only $2 a piece (5 for $10 deals in the summer happen about once a month). I would only buy packs when they were at the $2 price… and then find myself spending $1.39 for 16 oz. bottles whenever I had an urge for Diet Coke. Penny wise… pound foolish.

That was a simple example, how about a more realistic one? Let’s say you’re a young professional looking to buy a car and trying to find easy ways to some extra money. You stumble onto my post about credit card offers and think about signing up for a few cards for their bonuses. Bad idea. In the short term, you might get a few hundred bucks signing up for cards and spending the required amount but in the long term, you lower your credit score. That lower credit score will result in a car loan with a high interest rate. If you’re planning on buying a house in the next year, avoid these types of things!

Finally, here’s one that I grappled with while I was in school: working during college. My dad and I often discussed whether I should work while I was in college. His reasoning was that I was going to school to get a degree, not to work a part-time job that would distract me from the primary goal. I understood my Dad’s position, why work for $10/hr when I was paying $30,000 a year for tuition?

But I was impetuous and eager to earn my own way in the world, so I took some odd jobs and did some things on the side. Fortunately none of the jobs ever detracted from my study time (while my grades weren’t stellar, I could claim graduating early which saved a good chunk of change) but it could have. While I’m not saying you shouldn’t work in school, make sure you’re working for the right reasons. Working at a research assistant in your field of study is a smart move, working anywhere because you need the money to pay for school is a smart move, working at the local coffeehouse so you have some beer money is probably not the best.

To make sure you’re not committing this deadly sin of personal finance, weigh both the long term and short term impacts of the decisions you’re making. You don’t want to be too heavily emphasized in either direction.

While these types of lists are about as valuable as lists for the top paying jobs, they sure are fun to read, aren’t they? I put even less stock in these types of lists since they’re far more generic than top job lists and less quantifiable. It’s like when the coaches are polled to get the rankings of the NCAA Division I football teams… I can’t remember the last time a pre-season #1 ended up with the trophy that next January (I don’t follow much college football though, I did go to Robocup powerhouse Carnegie Mellon).

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