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Financial aid for students: Common misconceptions

Financial aid myths and misconceptions lead many families to miss out on aid. Here’s what you need to know.

Video Transcript

- Many families fail to get all the financial aid for which they're eligible simply because of myths. Here are the most common misconceptions.

Number one, I don't qualify for financial aid because I make too much money-- false. 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. While family income and assets are factors, so are family living expenses, future retirement needs, and the current cost to educate family members.

Number two, you must complete your income tax return before applying for financial aid. Not true. You'll 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's OK to file an estimated financial aid form. You'll have an opportunity to amend it later. If you don't prepare your own income tax returns, many tax professionals will be happy to help you prepare an estimate for financial aid applications.

Number three, financial aid is a loan that must be repaid. Nope-- most need-based aid is in the form of parent or student 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's 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.

Need-based aid may include grants and scholarships, which is money that doesn't need to be repaid. However, the student may be required to maintain a certain GPA. 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. For those inclined to serve in the military upon graduation, there are substantial financial benefits to enlisting and having the government subsidize their education. Stay financially fit, friends.