Student loan ABCs: CPAs can help negotiate the gauntlet of funding a student's education.

• Author: Peterson, Martha
• Position: PERSONALFINANCE

As trusted financial advisers, CPAs are in a position where clients, friends and family will ask about college financing--or, more specifically, about student loans. But which one do you recommend? Or what combination of loans is best? Options are increasing as demand rises. In California alone, annual federal student loan volume increased 59 percent to $4.5 billion between 1994 and 2004, and continues to grow.

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Following is some information to help CPAs understand the financial aid process so they can guide their clients toward the most affordable financing options.

THE FINANCIAL AID PROCESS

To start the process of applying for federal, as well as most state and school financial aid, students need to complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after Jan. 1 to maximize eligibility for certain types of grant aid. The FAFSA determines the student's Expected Family Contribution (EFC) by collecting both the student and parent/legal guardian financial data.

The Financial Aid Package (FAP) incorporates information from the FAFSA and is the key piece in the financial aid puzzle. Once a student is accepted to a school, the school will provide an FAP composed of grants, scholarships, work-study and loans. Students need to compare the packages offered by schools when choosing which school to attend.

FAPs are assembled annually and must be re-applied for each year that financial aid is sought. Primarily determined by need, financial aid packages are calculated by subtracting the EFC and other non-federal aid from the school's Cost of Attendance (Figure 1), which, according to the U.S. Department of Education (DOE), "includes tuition and fees; room and board (or an allowance for housing and food); an allowance for books, supplies, transportation, loan fees, and dependent care (if applicable); disability related expenses, and some miscellaneous expenses as well as the cost of a computer and a one time cost of the first professional license or credential," among other expenses.

Figure 1

CostofAttendance

-Expected Family Contribution

-Other non-federal aid

=Student's Financial Need

If the student's EFC is less than their COA, they may be eligible for need-based financial aid. If the EFC is more than the COA and the student does not qualify for need-based aid, they still qualify for federal student loans. Their school will list the types and amounts of aid for which they are eligible in the FAP.

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