PAYING FOR YOUR EDUCATION

Pursuing a certificate or degree can cost a lot of money, but it is usually money well spent. On average, people with undergraduate and graduate degrees make more money than those who do not have these credentials. Still, the question remains: How are you going to pay for school and support yourself (and perhaps your family) at the same time?

Most adult distance learning students solve the problem of paying for their education by continuing to work full-time and attending school part time. As one student put it, "I work and I pay as I go."Although attending part-time does not cut the total cost of your certificate or degree, it does have the advantage of spreading your costs over a longer period and enables you to pay for your education out of your current income. Note, however, that attending school less than half-time will disqualify you from most forms of financial aid.

In this section, we'll discuss ways to pay for your education, both by looking for low-cost alternatives and by finding financial aid. We'll discuss types and sources of aid, where you can find information about financial aid, and the application process. Finally, we'll describe some of the tax issues that may be relevant to students pursuing higher education.

LOOKING FOR LOW-COST ALTERNATIVES

There are ways you can cut the cost of your education, even before you look for sources of financial aid. These include attending a community college rather than a four-year college and attending a public institution of higher education rather than a private one.

COMMUNITY COLLEGE VERSUS FOUR-YEAR COLLEGE

If you are an undergraduate pursuing a bachelor's degree, you could consider enrolling at a community college for your first two years of study. Most community colleges charge less tuition than four-year colleges do. Toward the end of your second year of study, you can apply to a four-year college as a transfer student and complete your bachelor's degree there.

PUBLIC VERSUS PRIVATE COLLEGE OR UNIVERSITY

Since four-year public colleges and universities get most of their support from government funding, they are less expensive than private colleges and universities. Public colleges and universities usually have two scales for tuition and fees—one for out-of-state residents and a much less expensive scale for state residents.

With so much money at stake, and if moving is an option for you, it is definitely worthwhile to find out how you can establish residency in the state in which you plan to get your degree. You may simply have to reside in the state for a year—your first year of school—in order to be considered a legal resident. But being a resident while a student may not count, and you may have to move to the state a year before you plan to enroll. The legal residency requirements of each state vary, so be sure you have the right information if you decide to pursue this strategy.

TYPES OF FINANCIAL AID

Before we get into a discussion of the various sources of financial aid, it would be helpful to understand some basics. For example, financial aid can be classified in a few ways. First, it can be categorized by type of aid:

• Grants, scholarships, and fellowships are gifts that do not have to be repaid. These words are used somewhat interchangeably; there is no real difference among them, except that scholarships are usually awarded to undergraduates and fellowships are awarded to graduate students.
• Loans are awards that do have to be repaid, with interest, either while you are in school or after you leave school, it depends on the terms of the loan. If you consider loans, note that financial aid counselors recommend that your total student debt payment should not exceed 8 to 15 percent of your projected monthly income after you receive your degree.
• Work-study awards are amounts you earn through part-time work in a federal aid program.
• Reimbursements , generally from employers, repay you for amounts you've already spent on tuition.

You can also classify financial aid according to the reason the student is awarded the aid:

• Need-based aid is financial aid awarded on the basis of your financial need. It may take the form of grants, loans, or work-study.
• Merit-based aid is funding awarded on the basis of academic merit, regardless of financial need.
• A subset of merit-based aid is student profile-based aid—financial aid to students because of their identities. For example, some scholarships are targeted for veterans, minorities, or women; and others are targeted for people with very specific qualifications that the philanthropist wants to reward, such as an Eagle Scout studying labor relations.

A third way to classify financial aid is by its source. The major sources of aid for students are as follows:

• The federal government , by far the largest disburser of financial aid—over $50 billion to more than 8.5 million students each year
• State governments , some of which have large financial aid programs
• Private sources of aid , which include colleges and universities, employers, foundations, service organizations, national scholarship and fellowship programs, home equity loans, and private loan programs

THE LANGUAGE OF FINANCIAL AID

There's some financial aid jargon that you'll have to master in order to understand need-based financial aid programs. Some terms that you'll see frequently include the following:

• Enrollment status— Whether you are enrolled full-time, three-quarter time, half-time, or less than half-time in a degree or certificate program. Your status affects your eligibility for most types of aid.
• Expected Family Contribution (EFC)— The amount you and your family are expected to contribute to the cost of your education per academic year. If you are a dependent, family means you and your parents; if you are independent, this means you and your spouse, if you are married. The formula was established by the U.S. Congress to help estimate federal aid amounts for eligible students, and it is used by college financial aid offices as well as the U.S. Department of Education.
• Cost of attendance— The total cost—tuition, fees, living expenses, books, supplies, and miscellaneous expenses—of attending a particular school for an academic year. Each school estimates its own cost of attendance, and you can find out what it is if you check your admissions information packet or call the financial aid office. Distance learners should make sure that technology costs are included in the school's cost of attendance and in their own budgets. The cost of transportation, hotels, and meals during residency periods, if any, should also be accounted for in the cost of attendance.
• Financial need— The amount of money you need to be given or loaned or that you will earn through work-study in order to attend your school. It is calculated by subtracting your Estimated Family Contribution from your cost of attendance:

Note that your financial need will differ from program to program. That's because the cost of attendance will vary from school to school, but your Expected Family Contribution will remain the same, whether you attend the local community college or an expensive private university.

FEDERAL FINANCIAL AID

As we've mentioned, the U.S. government is the largest player in the financial aid arena, and most of your financial aid is likely to come from this source. The federal government provides need-based aid in the form of grants, work-study programs, and loans. Up-to-date information about federal financial aid programs can be found at the U.S. Department of Education's Web site, www.ed.gov/studentaid, or by calling 800-4-FEDAID (toll-free). Eligibility issues relevant to distance learners and some of the basics of federal aid are discussed below. Note that some of these eligibility criteria may change in the future as distance degrees become more common and financial aid programs are modified to reflect the new realities.

ARE YOU ELIGIBLE FOR FEDERAL FINANCIAL AID?

Your financial need is just one criterion used to determine whether or not you are eligible to receive aid from the federal government. In addition, you must

• have a high school diploma or GED or pass a test approved by the Department of Education.
• be enrolled in a degree or certificate program.
• be enrolled in an eligible institution (see below).
• be a U.S. citizen or eligible noncitizen.
• have a Social Security number.
• register with the Selective Service if required.
• maintain satisfactory academic progress once you are in school.

If you have been convicted under federal or state laws of the sale or possession of illegal drugs, you may not be eligible to participate in federal financial aid programs. Call the Federal Student Aid Information Center at 800-4-FEDAID (toll-free) for further information.

If you are not sure if you qualify as an eligible noncitizen, call the financial aid office of the school you plan to attend.

INSTITUTIONAL ELIGIBILITY: AN ISSUE PERTINENT TO DISTANCE LEARNERS

In order to participate in federal financial aid programs, an institution of higher learning must fulfill the criteria established by Congress for the disbursement of Title IV funds, as federal student aid is officially known. There are many complex regulations that establish institutional eligibility. Of these, several may apply to institutions that offer certificates or degrees at a distance. For example, in order to be eligible to participate in federal financial aid programs, an institution must be accredited by an agency—other than the Distance Education and Training Council (DETC)—recognized by the U.S. Department of Education. The reason that schools accredited only by the DETC are not eligible is that they are classified as "correspondence schools," and schools that teach primarily by correspondence are ineligible according to the law. In order to qualify to disburse Title IV aid, an institution must teach at least 50.1 percent of its classes in the traditional classroom or must be classified as an independent study institution rather than a correspondence school. Other requirements for participation in federal financial aid programs involve the academic schedule; for example, there must be a thirty-week academic year, a template that doesn't fit some of the new virtual universities.

The Distance Education Demonstration Program. The rules governing federal aid were originally promulgated to prevent fraud and to assure that funds would be provided to students at schools that met certain standards. However, with the growth of distance education, these regulations are increasingly becoming obstacles to provide aid to students at legitimate but innovative institutions. Recognizing this, Congress established the Distance Education Demonstration Program under the direction of the Department of Education. "The purpose of the Distance Education Demonstration Program is to collect data that will provide some understanding of what constitutes quality in distance education," explains Marianne R. Phelps, former special assistant to the assistant secretary for postsecondary education. "Congress needs information in order to become comfortable with the risks involved in funding distance education." Under this program, the department is permitted to waive some of the Title IV regulations, if necessary, for the fifteen participating institutions of higher education. Eventually, the experiences and data generated by the Distance Education Demonstration Program may provide a basis for a review of current rules and regulations.

Determining the Eligibility Status of an Institution or Program. In the meantime, what can you do to make sure that the school and program in which you are interested are eligible to participate in federal financial aid programs? The simple answer, of course, is call them and ask. However, you can also do some double-checking on your own to confirm what the school tells you.

If you plan to enroll in a regionally accredited traditional college or university, you can safely assume that the institution as a whole is eligible to participate in federal aid programs—since distance certificates and degrees are likely to be a very small proportion of its overall offerings (see "Selecting a Good Distance Learning Program" for a discussion of accreditation). However, because institutions have the discretion to exclude specific programs, you should double-check to see if the school disperses federal aid to students enrolled in programs that interest you. Call the financial aid office and ask. If you are not sure of the accreditation status, and therefore the Title IV status, of the school in which you are interested, first check with the school to find out which agencies, if any, have accredited it. Then visit the Department of Education's Web site to check on the accrediting agencies. The department lists the accrediting agencies of which it approves, and in its short description of each agency, it indicates whether or not the institutions it accredits qualify for Title IV funding. You can then call the accrediting agency to make sure it has indeed accredited the school or program in which you are interested.

FEDERAL AID PROGRAMS

Once you've established the eligibility of the institution and program in which you are interested, you may want to check the federal aid programs in which they participate. Not all schools participate in all the available programs.

Among the federal aid programs are Pell Grants, Federal Supplemental Educational Opportunity Grants, work-study, Federal Family Education Loans (FFEL) and William D. Ford Direct Loans (commonly called Stafford loans), and Perkins Loans.

Pell Grants. Pell Grants, which do not have to be repaid, are awarded to undergraduate students on the basis of need, even if they are enrolled less than half time. In some cases, a student enrolled in a postbaccalaureate teacher certification program may be awarded a Pell Grant. There are no Pell Grants for other graduate students.

The maximum amount of the Pell Grant changes each year and depends on annual funding allocations by Congress. The maximum award for the school year 2000–01 was $3,300. The amount of an award depends on a combination of your financial need, your costs to attend school, your enrollment status as a full-time or part-time student, and whether or not you plan to study for a full academic year or less.

If you are awarded a Pell Grant, the money can be applied directly to your school costs or be paid to you directly or some combination of these methods. Your school must inform you on how it will be disbursing your grant. Disbursements must occur at least once per term or a minimum of twice a year.

Federal Supplemental Educational Opportunity Grants. Federal Supplemental Educational Opportunity Grants (FSEOGs) are awards to undergraduates with exceptional financial need, even if they are enrolled less than half time. These grants generally go to Pell Grant recipients with the lowest Estimated Family Contributions. The amount of an FSEOG ranges from $100 to $4,000 per year.

Unlike the Pell Grant program, which provides funds to each eligible student, the FSEOG program is campus-based. This means that the federal government awards each participating institution a certain amount of money, and the school's financial aid office decides how to allocate it. When the school uses up its funding for the year, there are no more FSEOGs awarded. Check with your school to see whether or not it participates in this program.

Federal Work-Study Program. Some colleges and universities participate in the federal work-study program, which provides part-time jobs in public and private nonprofit organizations to both undergraduate and graduate students who demonstrate financial need. The government pays up to 75 percent of your wages, and your employer pays the balance. The value of a work-study job depends on your need, the other elements in your financial aid package, and the amount of money the school has to offer. Not all universities have work-study funds, and some that do have the funds limit their use to undergraduates.

If you receive work-study funds, you may be able to use them in a job that is related to your field. You will have to check with the financial aid office to find out what jobs are available, whether or not you can use the funds in a job you find elsewhere, and what bureaucratic requirements you will have to satisfy.

Stafford Loan Programs (FFEL and Direct Loans). The Federal Family Education Loan (FFEL) program and the William D. Ford Direct Loan Program, commonly called Stafford loans, are two loan programs sponsored by the federal government. Schools generally participate in one of the two programs. The terms and conditions of these loans are similar; the major differences are the source of the funds and some repayment provisions. If you get a FFEL, your funds will come from a bank, credit union, or other participating lender. If you get a Direct Loan, the money comes directly from the federal government.

You are eligible to borrow under these loan programs if you are enrolled at least half time and have financial need remaining after your Estimated Family Contribution, Pell Grant eligibility, and aid from other sources are subtracted from your annual cost of attendance. Depending on your need, you may be eligible for a subsidized loan in which the government pays the interest that accrues while you are enrolled at least half time. If you cannot demonstrate sufficient financial need according to government criteria, you may still be able to borrow, but your Stafford loan will be unsubsidized. This means that interest will accrue on the loan while you are still in school unless you arrange to pay it during this period.

In both types of Stafford loans, repayment of the principal as well as future interest begins six months after you are last enrolled on at least a half-time basis. Undergraduates may borrow a maximum of $6,625 to $10,500 per year. Graduate students may borrow up to $18,500 per year up to a maximum of $138,500, which includes any undergraduate loans you may still have. The interest rate varies annually and is set each July. Right now it is capped at 8.25 percent.

Perkins Loan Program. Another source of federal funds is the Perkins Loan program. The Perkins Loan is available to both undergraduate and graduate students who demonstrate exceptional financial need, whether enrolled full-time or part-time, and it is administered by each individual college or university. In some cases, schools reserve Perkins Loans for undergraduates. If you are an undergraduate eligible for a Perkins Loan, you may be able to borrow up to $4,000 per year with a $20,000 maximum. An eligible graduate student may be able to borrow up to $6,000 per year with a $40,000 maximum including undergraduate and graduate Perkins borrowing.

At present, the interest rate is 5 percent, and no interest accrues while you are enrolled in school at least half-time. You must start repaying the loan nine months after you are last enrolled on a half-time basis. This loan is the best deal offered by the government.

REPAYING YOUR FEDERAL LOANS

After you graduate, leave school, or drop below half-time status, you will have a grace period of either six or nine months before loan payments start. During the grace period, you will be sent information about payment plans and your first payment due date. You can repay the loan over a maximum of 10 years with a $50 minimum monthly payment, with a graduated plan in which the payments start out low and gradually increase, or with a plan that bases your payments on your income level.

You can also consolidate all your outstanding federal loans into one loan. Having one loan to repay will minimize the chances of administrative error and allow you to write one check per month rather than several.

If you have trouble repaying your federal loans, you may qualify for a deferment or forbearance on your loan. During a deferment, payments are suspended, and if the loan is subsidized, interest does not accrue. During forbearance, payments are postponed or reduced. Repayment assistance may be available if you serve in the military.

STATE AID PROGRAMS

Some states offer financial aid to state residents that attend school in-state, some offer aid to state residents that attend school in-state or elsewhere, and some offer aid to students that attend school in their state regardless of their residency status. Some states, like California, New York, Michigan, Oklahoma, and Texas, have large aid programs. Other states may have little or nothing to offer. Contact your state scholarship office directly to find out what's available and whether you are eligible to apply. Telephone numbers are listed in the Appendix.

PRIVATE SOURCES OF FINANCIAL AID

In addition to the federal government, other organizations provide financial aid to students. These include your school, national and local organizations, private lenders, employers, internships, and cooperative education programs.

THE COLLEGE OR UNIVERSITY

Second only to the federal government in the amount of financial aid disbursed yearly are colleges and universities. Many of these institutions award both need-based and merit-based aid to deserving students. To find out more about the types of aid that the school you are interested in disburses, contact the financial aid office.

NATIONAL AND LOCAL ORGANIZATIONS

Foundations, nonprofit organizations, churches, service and fraternal organizations, professional associations, corporations, unions, and many other national and local organizations award grants to students of higher education. Many of these awards go to students who fit a certain profile, but many of them are open to anyone who applies. The drawback of this type of aid is that you have to locate it and apply on your own.

PRIVATE LENDERS

Many students borrow from private lenders, whether through alternative loan programs, home equity loans, or other types of loans.

Alternative Loan Programs. In addition to the federal loan programs, there are many private alternative loan programs designed to help students. Most private loan programs disburse funds based on your creditworthiness rather than your financial need. Some loan programs target all types of students; others are designed specifically for graduate or professional students. In addition, you can use other types of private loans not specifically designed for education to help finance your degree. For more information, check with your bank and your school's financial aid office.

Home Equity Loans. For students who own their own homes, a home equity loan or line of credit can be an attractive financing alternative to private loan programs. Some of these loans are offered at low rates and allow you to defer payment of the principal for years. In addition, if you use the loan to pay for educational expenses, the interest on the loan is tax deductible.

Credit Cards. Whatever you do, do not use your credit cards to borrow money for school on a long-term basis. The interest rates and finance charges will be high, and the balance will grow astronomically. Credit cards are useful to pay tuition and fees if you (1) can pay the balance in full, (2) expect a student loan to come through shortly, (3) expect your employer to reimburse your costs. Otherwise, avoid them.

INTERNSHIPS AND COOPERATIVE EDUCATION PROGRAMS

In addition to the federal work-study program, there are other employment opportunities that may help you finance your education. Internships with organizations outside the university can provide money as well as practical experience in your field. As an intern, you are usually paid by the outside organization, and you may or may not get credit for the work you do. Although they have been common in the professional programs, such as design and business, for years, lately internships have been growing in popularity in academic programs as well.

In cooperative education programs, you usually alternate periods of full-time work in your field with periods of full-time study. You are paid for the work you do, and you may or may not get academic credit for it as well.

Internship and cooperative education programs may be administered in your department or by a separate office, so you will have to ask to find out.

EMPLOYER REIMBURSEMENT

If you work full-time and attend school part-time, you may be reimbursed for part or all of your tuition by your employer. Many employers require that you receive a minimum grade in order to qualify for reimbursement. Keep in mind, however, that your employer will withhold taxes and other deductions when it reimburses you, and you will have to make up the difference. Check with your employer before you enroll; some employers reimburse tuition only for job-related courses. Others will not reimburse employees for distance learning courses.

Some large corporations that consider job-related certificate and degrees as forms of employee training may underwrite the entire cost of a program. For example, AT&T pays Denise Petrosino's tuition directly to the University of Phoenix Online. "As long as I maintain a B average, I have 100 percent coverage," explains Petrosino, who is earning a master's degree in organizational management.

LOCATING INFORMATION ABOUT FINANCIAL AID

Finding information about financial aid can be a challenge. There is no one central clearinghouse for information about financial aid for undergraduate and graduate study. You are going to have to check a number of different sources to get the full picture on possible sources of aid that is available for you. We'll discuss a few of them here, but for a list of financial aid resources, see the Appendix.

THE GOVERNMENT

The best source of information on federal aid for students is the U.S. government itself. The federal aid programs are administered by the U.S. Department of Education. You can contact them through their Web site, by telephone, or by mail. (See the Appendix for specifics.) Remember, however, that not all colleges and universities participate in each federal program, so if a particular federal aid program interests you, you will have to contact your school's financial aid office to make sure it's available.

If you are a graduate student, you should note that many agencies of the federal government offer fellowships to graduate students in related fields. Contact the agencies that are relevant to your field of study for further information.

For information on state aid, contact your state agency of higher education (see the Appendix).

THE COLLEGE OR UNIVERSITY

At a small college, the financial aid office is usually the source of all financial aid information. However, at a university, there is more than one office involved with student aid, and thus more than one source of information about it. Each university has a different administrative structure, so you will have to figure out the offices you will most likely need to contact. These may include:

• The financial aid office. The university-wide financial aid office is generally the best source of information about federal and private loan programs as well as university-based grants and federal work-study assistance. They may also be able to steer you to other sources of information.
• The college or school's administrative office. The next place to check is the administrative office of the college or school to which you are applying. For example, you may be applying for a master's degree in special education. This department may be under the jurisdiction of the College of Education. That office may or may not administer grants to the students of the college. Call to find out.
• The office of the graduate school. If you are a graduate student, it pays to check this administrative office; it may or may not have funding to award. If it does, the fellowships or grants are likely to be awarded on a university-wide, competitive basis.
• The specific program or department to which you are applying. Often a program brochure describes the types of aid that the department awards its students. If you cannot find this information in the materials you have, then call the program and ask. You'll be able to find out about program aid from this source.

It's important to check with all these offices to see what's available. It's also important to be proactive and call the financial aid office as well as other offices to find out your chances of receiving aid.

THE INTERNET

The Internet is an excellent source of information about all types of financial aid. One of the best places to start your Internet search for financial aid is the Financial Aid Information Page at www.finaid.org. This site has a great deal of information about the different types of financial aid and provides links to other relevant sites as well. It provides a good overview of the financial aid situation. In addition, the site offers several calculators that enable you to estimate many useful figures, including your Estimated Family Contribution, projected costs of attendance, and future student loan payments. There are also a number of searchable databases of national scholarships and fellowships on the Internet. One searchable database of financial aid resources can be found on Peterson's Web site (www.petersons.com/resources/finance.html) listing 1.6 million sources of private aid totaling nearly $4 billion. Another scholarship database is Fast Web at www.fastweb.com. On each of these sites, you'll need to answer a questionnaire about your educational background, field of study, and personal characteristics. When you are done, the database is searched to match your data with eligibility requirements of several hundred thousand fellowships and scholarships. You are then given a list of possible fellowships and scholarships to pursue on your own. There is no cost for either of these services.

There are a few things you should beware of when using Internet search services. First, a searchable database is only as good as its index, so you may find yourself getting some odd matches. In addition, most searchable databases of scholarships and fellowships are designed primarily for undergraduates, so the number of potential matches for a graduate student is far fewer than the several hundred thousand sources of aid that a database may contain. Finally, some of these Internet search services charge a fee. Given the amount of free information that's available, both on the Internet and in libraries, it's not necessary to pay for this type of research.

PRINT DIRECTORIES

Although the searchable databases on the Internet are easy to use, it's still a good idea to check print directories of national scholarships, grants, and fellowships. These directories have indexes that make locating potential sources of funds easy. Scholarships, grants, and fellowships are indexed by field of study as well as by type of student. So, for example, you can search for all funding related to the study of Latin America or electrical engineering. Or you can search for funding that is targeted to Hispanic students, disabled students, or adult students. It's a good idea just to browse, too, in case something catches your eye.

There are quite a few directories that you can consult. For undergraduates, Peterson's Scholarships, Grants, & Prizes 2005 lists many private sources of aid, and Peterson's College Money Handbook 2005 covers college and university sources of financial aid. For graduate students, the Annual Register of Grant Support: A Directory of Funding Sources, published by the National Register Publishing Company, is a comprehensive guide to awards from the government, foundations, and business and professional organizations.

APPLYING FOR FINANCIAL AID

Depending on your personal situation and the requirements of the school, you may have to submit just one or a number of applications for financial aid. If you apply for need-based aid, university merit aid, national scholarships and fellowships, or private loan programs, you will have several application forms to deal with. However many applications you must submit, start the process early.

DEADLINES

"I cannot overemphasize the importance of applying early," says Emerelle McNair, director of scholarships and financial aid at Southern Polytechnic State University in Georgia. "Most awards are made in spring for the following academic year." Be sure you've picked the correct deadlines from your program application information packet. Students applying for financial aid often have an earlier deadline for the entire application. If you look for sources of aid outside the program and university, such as national scholarships and fellowships, then it is even more important to start your research early—a full year or more before you plan to enroll.

Remember, it can easily take months to fill out applications and assemble all the supporting data for a financial aid request. You may need to submit income tax forms, untaxed income verification, asset verification, and documents that support any special circumstances you are claiming. For private scholarship applications, you may need to write an essay and provide letters of recommendation. So give yourself plenty of time to submit the initial application. Later, if you are asked to provide additional information or supporting documents, do so as quickly as possible.

THE FAFSA

The Free Application for Federal Student Aid (FAFSA) is the only form you will need to apply for most federal need-based aid programs and state aid programs as well. FAFSA is used by both undergraduate and graduate students. The FAFSA form is issued annually by the Department of Education at the end of each calendar year (see www.fafsa.ed.gov), and it is available both in paper and on line. You use it to report financial data from the previous year in order to be considered for aid in the school year that starts the following fall. It's much easier to fill out the FAFSA if you have already done your federal income tax forms for the year, but since most schools require you to file the FAFSA in January or February, that may be difficult. If your federal income tax return is not done, use estimates so you can file the FAFSA on time. You can amend it later if necessary. Because the FAFSA is designed for undergraduate students who are dependent on their parents, if you are a working adult student you may find you are having difficulty interpreting some of the questions or that the questions do not cover all your circumstances. If there is information about your financial situation that is not elicited by the FAFSA but that you feel is germane to your application, then explain the circumstances in a separate letter to the financial aid office of the schools to which you apply. Suppose, for example, that you have been working full-time for a few years but you are planning to quit your job and attend school full-time. You would complete the FAFSA using the previous year's full-time income figures, but this would not be an accurate reflection of your financial situation during the following school year because your income will drop precipitously. In such a case, you would notify the financial aid office so that it can make a professional judgment as to whether or not your need should be revised upward.

After you submit the FAFSA, you will receive a Student Aid Report (SAR), an acknowledgment that includes a summary of the data you have sent them. Check to make sure the information is accurate and that the schools you have chosen to have the data sent to are correctly listed. If there are errors, make corrections right away. The SAR will also show your Expected Family Contribution, the amount you and your spouse (or parents if you are still a dependent) will be expected to contribute. This information is used by each school to calculate your financial need (cost of attendance minus Expected Family Contribution) and to award need-based aid.

SCHOOL'S FINANCIAL AID APPLICATION FORM OR CSS PROFILE

A school may require that you submit a separate financial aid application in addition to the program application and the FAFSA. If you do not see such a form in the program application packet, call the admissions office to find out whether or not you need to obtain it from another office.

Some schools do not have their own financial aid application form. Instead, they require you to submit a standardized form, the College Scholarship Service's (CSS) Financial Aid PROFILE. This form is similar to the FAFSA, but it is used to award university aid.

THE PROGRAM APPLICATION

For many schools, the program application is the main application for university-based aid. Much of the nonfederal university based aid for incoming students is determined by the admissions committee's assessment of the merit of program applications. So a strong program application, submitted on time, will improve your chances of getting aid from the program or university. Since you cannot predict which elements of your application will be weighted most heavily by a given admissions committee, do your best on all of them.

NATIONAL AND PRIVATE SCHOLARSHIP AND FELLOWSHIP APPLICATIONS

If you apply for national and/or private scholarships and fellowships, you will have to submit separate applications for each one to the awarding organizations. Follow instructions carefully, making sure you meet all deadlines. Some scholarship applications can be as elaborate as program applications, with letters of recommendation and essays, so allow yourself a lot of time to complete them.

FOLLOWING UP

Just as you do with your program application, follow up with your financial aid applications as well. If you do not receive the SAR, an acknowledgment that your FAFSA form was received, within a few weeks of filing the FAFSA, check on its status. In addition, call the university offices with which you are dealing to make sure everything is proceeding smoothly.

TAX BENEFITS FOR STUDENTS

Whether or not you receive financial aid, there are many recently enacted tax benefits for adults who want to return to school (as well as for parents who send or plan to send their children to college). In effect, these tax cuts make the first two years of college universally available, and they give many more working adults the financial means to go back to school. About 12.9 million students benefit—5.8 million under the HOPE Scholarship tax credit and 7.1 million under the Lifetime Learning tax credit. Countless others benefit from new rules concerning Individual Retirement Accounts (IRAs) and state tuition savings plans as well as from deductions on student loan interest and employer reimbursements for education expenses.

THE HOPE SCHOLARSHIP TAX CREDIT

The HOPE Scholarship tax credit helps make the first two years of college or career school more affordable. Students whose adjusted gross income falls within certain limits receive a 100 percent tax credit for the first $1,000 of tuition and required fees and a 50 percent credit on the second $1,000. This credit is available for tuition and required fees less grants, scholarships, and other tax-free educational assistance. The credit is phased out for joint filers whose adjusted gross income is between $80,000 and $100,000 and for single filers whose adjusted gross income is between $40,000 and $50,000.

The HOPE Scholarship tax credit can be claimed for students who are in their first two years of college or career school and who are enrolled on at least a half-time basis in a degree or certificate program for any portion of the year. The taxpayer can claim a credit for his own tuition expense or for the expenses of his or her spouse or dependent children.

THE LIFETIME LEARNING TAX CREDIT

The Lifetime Learning tax credit is targeted toward adults who want to go back to school, change careers, or take a course or two to upgrade their skills as well as to college juniors, seniors, and graduate and professional degree students. A family may receive a 20 percent tax credit for the first $5,000 of tuition and required fees paid each year through 2002, and for the first $10,000 thereafter.

Just like the HOPE Scholarship tax credit, the Lifetime Learning tax credit is available for tuition and required fees less grants, scholarships, and other tax-free educational assistance. The maximum credit is determined on a per-taxpayer (family) basis, regardless of the number of postsecondary students in the family, and it is phased out at the same income levels as the HOPE Scholarship tax credit. Families can claim the Lifetime Learning tax credit for some members of their family and the HOPE Scholarship tax credit for others who qualify in the same year.

INDIVIDUAL RETIREMENT ACCOUNTS

Since January 1, 1998, taxpayers have been able to withdraw funds from an IRA, without penalty, for their own higher education expenses or those of their spouse, child, or even grandchild. However, you do have to pay income taxes on the amount you withdraw.

In addition, for each child under age 18, families may deposit $500 per year into an education IRA in the child's name. Earnings in the education IRA accumulate tax-free, and no taxes are due upon withdrawal if the money is used to pay for postsecondary tuition and required fees (less grants, scholarships, and other tax-free educational assistance), books, equipment, and eligible room and board expenses. Once the child reaches age 30, his or her education IRA must be closed or transferred to a younger member of the family.

A taxpayer's ability to contribute to an education IRA is phased out when the taxpayer is a joint filer with an adjusted gross income between $150,000 and $160,000, or a single filer with an adjusted gross income between $95,000 and $110,000. There are a few restrictions. For example, a student who receives the tax-free distributions from an education IRA may not, in the same year, benefit from the HOPE Scholarship or Lifetime Learning tax credits.

STATE TUITION PLANS

When a family uses a qualified state-sponsored tuition plan to save for college, no tax is due in connection with the plan until the time of withdrawal. Families can now use these plans to save not only for tuition but also for certain room and board expenses for students who attend college on at least a half-time basis. Tuition and required fees paid with withdrawals from a qualified state tuition plan are eligible for the HOPE Scholarship tax credit and Lifetime Learning tax credit.

TAX-DEDUCTIBLE STUDENT LOAN INTEREST

For many graduates, one of the first financial obligations is to repay their student loans. The new student loan interest deduction reduces the burden of the repayment obligation by allowing students or their families to take a tax deduction for interest paid in the first 60 months of repayment on student loans. The deduction is available even if an individual does not itemize other deductions.

The maximum deduction of $2,000 in 2000 rises to $2,500 in 2001 and beyond. It is phased out for joint filers with adjusted gross income between $60,000 and $75,000, and for single filers with adjusted gross income between $40,000 and $55,000.

TAX-DEDUCTIBLE EMPLOYER REIMBURSEMENTS

If you take undergraduate courses and your employer reimburses you for education-related expenses, you may be able to exclude up to $5,250 of employer-provided education benefits from your income. Reimbursement for graduate and professional courses is not eligible for this exclusion and is counted as taxable income.

COMMUNITY SERVICE LOAN FORGIVENESS

This provision excludes from your income any student loan amounts forgiven by nonprofit, tax-exempt charitable, or educational institutions for borrowers who take community-service jobs that address unmet community needs. For example, a recent graduate who takes a low-paying job in a rural school will not owe any additional income tax if in recognition of this service her college or another charity forgives a loan it made to her to help pay her college costs. This provision applies to loans forgiven after August 5, 1997.

FOR ADDITIONAL INFORMATION

The tax issues relating to higher education are discussed in more detail in Internal Revenue Service Publication 970, Tax Benefits for Higher Education. To obtain a copy, visit the Internal Revenue Service Web site at www.irs.gov or call 800-829-3676 (toll-free).

PAYING FOR SCHOOL IS POSSIBLE

You can see that it is possible to find the financial aid that will help you pay for school. You will have to be persistent in your search for funds. You may have to spend time working on financial aid research and applications. You may have to borrow money. And once you enter a program, you may have to simplify your lifestyle in order to cut your expenses.

But if you really want to earn a degree or certificate, you can find the financial help that will make it possible. Be realistic about your needs, leave yourself enough time to complete all the paperwork, and do your homework. Now is a good time to look back on all the reasons why you want to continue your education—to remind yourself why it's worth it.