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Financial aid for students: Common misconceptions

Many families fail to get all the financial aid for which they are eligible simply because of myths and misconceptions about financial aid.

These lead a family to believe that they do not qualify for financial aid, or send them searching for some arcane scholarship. They then end up spending time chasing myths rather than focusing on the main sources of financial aid: Uncle Sam, their home state, their college, and their employer.

Misconception: "I don't qualify for financial aid because I make too much money."

This could not be further from the truth.

If you made too much money, you probably wouldn't need, want, or consider financial aid. However, most people do need financial aid to supplement the family budget for higher education.

The fact is that the major factor in determining financial need is the actual cost of education for all family members. While family income and assets are factors, so are family living expenses, future retirement needs, and the current costs to educate family members.

FILE - In this Oct. 24, 2019, file photo students walks in front of Fraser Hall on the University of Kansas campus in Lawrence, Kan. Americans collectively owe nearly $1.5 trillion in student loans, more than twice the total a decade ago. It’s a burden that weighs on millions of adults, shaping their life choices and often stunting their financial growth. (AP Photo/Orlin Wagner, File)
Most people do need financial aid to pay for college. (Photo: AP Photo/Orlin Wagner, File)

Misconception: "You must complete your income tax return before applying for financial aid."

You will need the information from an IRS 1040 form to complete most financial aid forms, so gather that information in December.

However, you may complete a financial aid form based on estimated tax information. Most colleges require the forms to be sent in no sooner than January 1, but by April, most of the grants and scholarships are gone. It is okay to file an "estimated" financial aid form; you will have an opportunity to amend it later.

If you do not prepare your own income tax returns, many tax professionals will be happy to help you prepare an estimate for financial aid applications.

Misconception: “Financial aid is a loan that must be repaid.”

Most need-based aid is in the form of student or parent loans.

But these loans do offer considerable financial advantages over other forms of borrowing. They usually have lower interest rates, and the interest may be deferred while the student is in school. That's free money; and repayment terms are usually more generous than those of other loans.

Some loans may also be "forgiven" if the student performs certain community service jobs upon graduation, such as teaching in a deprived area. Check the college financial aid office to learn more about these favorable provisions.

Need-based aid may include grants and scholarships.

These are free money that does not have to be repaid. But the student may be required to maintain certain academic grade-point levels. Grants and scholarships are awarded on a first-come, first-served basis, so it pays to apply for these early.

Students with financial need may also be able to get guaranteed work on or near the campus through the "work-study" program.

These jobs may not be available to students who do not qualify for need-based aid. Akin to this are the military ROTC and reserves programs.

For those inclined to serve in the military upon graduation, there are substantial financial benefits to signing up and having the government subsidize their education.

Dive Deeper: Education Planning: When to start, what to do, and how to do it

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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