College acceptance letters are arriving, and your child will soon have to make a decision. But solid academic programs and a great location aren’t the only things to think about. Cost is a big factor. And the right financial aid package can make a big difference.
Financial aid can take several forms — grants, scholarships, various types of loans, and work-study opportunities. Because grants and scholarships don’t have to be repaid, they basically represent gifts, or “free” money. Subsidized loans, such as Perkins loans and subsidized Stafford loans, are awarded based on financial need. They are generally more desirable than unsubsidized loans because they carry more favorable interest and repayment terms.
Which Offer Is Best?
You can compare financial aid offers by separating each one into three parts: the net cost of attending the school (total cost minus scholarships, grants, and work-study); need-based debt (such as subsidized federal student loans); and out-of-pocket expenses (family contribution and non-need-based loans). The package that provides the most aid from grants and scholarships and leaves your child with the least debt is typically the best offer.
Consider All Costs
The real cost of attending any college goes beyond tuition, fees, and room and board. It also includes books, transportation, and personal expenses. Make sure the school has included these costs in its estimate of the total cost of attendance. If not, add the missing amount to your out-of-pocket costs when you evaluate the aid packages.
Keep in mind that changes in family income, your child’s college grades, and other factors may affect the amount of financial aid your child receives in future years.
Is Financial Aid Taxable?
How financial aid is treated for tax purposes generally depends on the type of aid received.
- Gift aid, such as scholarships, fellowships, and grants based on financial need or academic merit, is generally not taxable as long as the recipient is a degree candidate, the funds are either designated for tuition and related expenses or are unrestricted, and the amount doesn’t exceed tuition and related expenses. Any excess is considered taxable income to the student.
- Earnings from college work-study programs or teaching fellowships count as taxable compensation.
Having taxable income doesn’t necessarily mean your child will owe money to the IRS. Your student’s standard deduction may be enough to shelter any earned income from taxes.
About Alegria & Company, P.S.
We want to be your partner in success. Helping you with your financial needs is the perfect opportunity to do so. Our team of four partners and twenty-five professional staff located in two offices in Yakima and Prosser are well placed to serve clients from Yakima through the Lower Valley, the Columbia Basin and throughout the Pacific Northwest.