January 27, 2020

consumer news

FEDERAL DEPOSIT INSURANCE CORPORATION

As you start the New Year, you may want to

start planning ahead for big expenses, like 

college. Figuring out how to manage college 

costs may seem overwhelming, but proper 

planning can ease the stress. Here are some

options available to assist with saving and

paying for college.

Free Application for Federal Student 

Aid (FAFSA)

The FAFSA is the form the federal

government, states, colleges and other 

organizations use to award financial aid. 

Submitting it is your key to accessing

grants, scholarships, work-study programs

and federal student loans. Some states and

schools have limited funds, so you should

apply early. Also, the FAFSA must be

submitted each year the student is in college.

FAFSA deadlines vary depending on the 

state you live in, visit https://studentaid.

ed.gov/sa/fafsa to find when your state’s 

deadline is. 

Thinking About Upcoming 

College Expenses? 

Sorting through the options for financial 

aid to pay for college can be complicated. 

Financial aid offices at different schools may 

use different terminology to describe the 

grants, scholarships, work-study programs, 

and loans that you could be offered. Make 

sure you do your homework to understand 

which funds you will need to repay after you 

graduate and which funds you will not need 

to repay.

Grants and Scholarships

Grants and scholarships are financial aid that 

does not have to be repaid. Grants are often 

based on need, while scholarships are usually 

based on merit. Grants and scholarships can 

come from the federal government, state 

governments, colleges or career schools, 

or a private or nonprofit organization. It is 

important to understand the requirements 

of scholarships or grants that you accept. 

For instance, some scholarships and grants 

require you to maintain a certain grade point 

average or academic standing. Make sure 

you know what the requirements are and 

that you are able to meet them. PHOTO: GETTY IMAGES

Federal Work–Study

Federal Work-Study provides part-time jobs 

for undergraduate and graduate students 

with financial need, allowing them to earn 

money to help pay education expenses. The 

program encourages community service 

work and work related to the student’s 

course of study.

Here’s a quick overview of Federal Work–

Study:

• It provides part-time employment while

you are enrolled in school.

• It’s available to undergraduate, graduate,

and professional students with financial

need.

• It’s available to full-time or part-time

students.

• It’s administered by schools participating

in the Federal Work-Study Program.

Check with your school’s financial

aid office to find out if your school

participates.

Student Loans

A loan is money you borrow and must 

pay back with interest. If you decide to 

take out a loan, make sure you understand 

who is funding the loan and the terms and 

conditions of the loan. 

Student loans can come from the federal 

government, private sources such as a 

bank or financial institution, or other 

organizations. 

The U.S. Department of Education’s federal 

student loan program is the William D. Ford 

Federal Direct Loan (Direct Loan) Program. 

Under this program, the U.S. Department of 

Education is your lender. 
There are four types of Direct Loans 

available:

• Direct Subsidized Loans are loans made 

to eligible undergraduate students who 

demonstrate financial need to help cover 

the costs of higher education. 

• Direct Unsubsidized Loans are loans 

made to eligible undergraduate, graduate, 

and professional students, but eligibility 

is not based on financial need. 

• Direct PLUS Loans are loans made to 

graduate or professional students and 

parents of dependent undergraduate 

students to help pay for education 

expenses not covered by other financial 

aid. Eligibility is not based on financial 

need, but a credit check is required. 

• Direct Consolidation Loans allow you 

to combine all of your eligible federal 

student loans into a single loan with a 

single loan servicer.

For more information about Direct 

Loans, please visit the U.S. Department of 

Education’s webpage at https://studentaid.

gov/understand-aid/types/loans.

Savings Bonds 

Savings bonds can be another way to save 

for college over time. The savings bond 

education tax exclusion permits qualified 

taxpayers to exclude from their gross income 

all or part of the interest paid upon the 

redemption of certain eligible bonds. In 

order to obtain this tax benefit, the bonds 

must be issued after 1989 and both the 

principal and interest from the bonds must 

be used to pay for qualified higher education 

expenses at an eligible institution.

Qualified educational expenses include:

• Tuition and fees (such as lab fees and 

other required course expenses).

• Expenses that benefit you, your spouse, 

or a dependent for whom you claim 

an exemption.

For more help or information, go to www.fdic.gov or 

call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342). 

Please send your story ideas or comments to Consumer Affairs 

at consumeraffairsmailbox@fdic.gov

• Expenses paid for any course required 

as part of a degree or certificate-granting 

program.

• Expenses paid for sports, games, or 

hobbies qualify only if part of a degree 

or certificate program.

It’s important to note that the costs of 

books or room and board are not qualified 

expenses.

The bonds that are considered eligible 

for education tax exclusion are Series EE 

and Series I. An EE savings bond is a U.S. 

Treasury security. It earns interest for up to 

30 years. EE bonds issued after May 2005 

earn a fixed rate of interest. When you buy 

the bond, you know the rate of interest 

it will earn. You may only buy them in 

electronic form, via TreasuryDirect at 

https://www.treasurydirect.gov/indiv/indiv.

htm. A Series I savings bond is a security that 

earns interest for up to 30 years based on 

both a fixed rate and a rate that is adjusted 

twice a year for inflation. You may buy them 

in electronic form, via TreasuryDirect, or in 

paper form using your federal income tax 

refund. For more information about savings 

bonds, please visit the Treasury webpage at 

https://www.treasurydirect.gov/tdhome.htm.

Qualified Tuition Plan

A Qualified Tuition Plan, also known as a 

529 Plan, is a plan established by a state or 

school, which allows you to either prepay 

or save to pay education-related expenses. 

Savings in a 529 Plan grow free from federal 

income tax, and withdrawals remain tax-free 

when used for qualified higher education 

expenses. The earlier you start contributing 

to the 529 Plan, the more time you will have 

for the balance to grow. 

There are two types of 529 Plans:

Prepaid Tuition Plans: These plans allow 

participants to pre-purchase future tuition 

at a predetermined rate today. Typically, an 

account owner will purchase somewhere 

between one and four years of tuition 

for a young child, and when that child 

reaches college age, the plan pays out based 

on tuition rates at that time. Investment 

performance is often based upon tuition 

inflation. Prepaid plans may be administered 

by states or higher education institutions.

College Savings Plans: College savings plans 

are different in that your account earnings 

are based upon the market performance of 

the underlying investments, which typically 

consist of mutual funds. Savings plans may 

only be administered by states. Most 529 

savings plans offer a variety of age-based 

investment options where the underlying 

investments become more conservative as 

the beneficiary gets closer to college age. In 

addition, many savings plans offer a FDIC 

or NCUA-insured money market, certificate 

of deposit, or guaranteed option designed 

to protect an investor’s principal while 

providing for investment growth.

Learn more about Qualified Tuition Plans 

at https://www.irs.gov/taxtopics/tc313.

For more information about federal 

student aid, visit www.StudentAid.gov or 

call the Federal Student Aid Information 

Center at 1-800-4-FED-AID (1-800-433-

3243; TTY for the deaf or hard of hearing: 

1-800-730-8913).