A study by the American Council on Education found half of all undergraduates who probably were eligible for federal money during the 1999-2000 academic year didn't receive any for one reason — they didn't apply.

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DALLAS — If you don’t think you’re eligible for financial aid, think again.

A study by the American Council on Education found half of all undergraduates who probably were eligible for federal money during the 1999-2000 academic year didn’t receive any for one reason — they didn’t apply.

That’s about 8 million students who lost out on low-interest loans and free money.

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“It’s a tragedy that students do not explore their options,” said Jacqueline King, director of ACE’s Center for Policy Analysis. “The only way you are going to know if you are eligible for financial aid is if you apply.”

The key is to fill out the Free Application for Federal Student Aid.

It’s the starting point for applying to almost all student financial-assistance programs and determines eligibility for federal financial aid. Many schools also use it as part of their application for nonfederal aid.

The 2005-06 FAFSA is available in paper form from the U.S. Department of Education. It is also available online at www.fafsa.ed.gov.

To be eligible for financial aid for 2005-06, the government must receive a student’s form no later than midnight on June 30, 2005.

But that may be too late.

Most families who filed a FAFSA for the 1999-2000 academic year did so after important deadlines had passed, decreasing their chances of receiving state and institutional aid, King said.

With financial aid nearly everyone can afford higher education, said Martha Holler, spokeswoman for Sallie Mae, the nation’s leading education lender.

“Apply, even if you think you don’t qualify,” she said. “Financial aid comes in many flavors.”

Making it affordable

The financial-aid system is designed to make it possible for nearly everyone to afford higher education.

There are myriad types of education loans, scholarships and state and federal grants available.

“There are students out there who are working to avoid student loans. That’s not a smart strategy,” King said. “If it’s delaying your entry into the job market with your college degree, it could be costing you more.”

Students received more than $122 billion in financial aid for undergraduate and graduate study in 2003-04, according to the “Trends in Student Aid 2004” report issued by the College Board.

“Many think there’s a negative stigma for students who have student loans,” said Ed Doody, president of College Partnership, a college-planning services firm. “No, it’s called a fact of life.”

With tuition on the rise at public and private universities nationwide, it’s best to learn about all the financial-aid options.

To get loans from the government and sometimes even free money from a school, students have to fill out the FAFSA.

The form, which has to be filled out every school year, is comprehensive. It asks for information about the student’s family income and income taxes, assets, family size, the number of family members attending college and more.

“It seems complicated, but it really isn’t,” said Maria Ramos, University of Texas at Dallas’ financial-aid director. “It takes 45 minutes on a Saturday morning.”

The FAFSA asks for tax information that’s not due until April 15, so applicants can do their taxes first or fill out the form with an estimate and update it later.

“When you are in the queue early, you will get as much aid as possible, as soon as possible,” Holler said.

That’s because, after financial or other qualifications are met, aid is generally awarded on a first-come, first-served basis.

After the Department of Education receives a student’s FAFSA, the agency creates a Student Aid Report. The SAR helps determine the student’s Expected Family Contribution, which a school uses to calculate financial-aid eligibility.

Once the SAR is complete, schools send a letter to prospective students and families outlining the type and amount of financial aid for which they qualify. This aid may include a combination of grants, work-study, scholarships and loans.

If a student’s financial-aid package includes an education loan, the student is responsible for applying for the loan. Instructions should be provided with the award package.

Federal programs are the single largest source of education loans — students received more than $55.5 billion in loans last academic year. One of the more widely used federal loans is the Stafford loan.

Federal Stafford loans are available to both undergraduate and graduate students. There are two types, subsidized and unsubsidized, and each has different loan limits depending on a student’s year in school.

Based on need

Subsidized loans are based on need. The federal government pays the interest on these loans while the student is in school and during the grace period before repayment begins.

Unsubsidized loans are non-need-based. The borrower is responsible for the interest on these loans as soon as they are taken out.

The Stafford loan interest rate is 2.77 percent during in-school, grace and deferment periods, and 3.37 percent during repayment. The interest rate is variable and may change annually on July 1 but will never exceed 8.25 percent.

Community organizations, labor unions and private charities and foundations often offer scholarships.

Web sites such as www.fastweb.com and www.scholarships.com are good starting places.

“You’ve got to put some effort into it, but the rewards can be tremendous,” said Marc Peterson, financial-aid director at Southern Methodist University.

Another option available to students is grants.

The federal Pell Grant, based on need, is the largest federal grant program — more than 5.1 million students last year received an average of $2,466.

Like scholarships, grants do not have to be repaid. However, unlike most scholarships, students must fill out the FAFSA to receive grants, which are available through the federal government and state agencies.

Even though all forms of student aid are rapidly increasing, the College Board said students are relying more heavily on private loans.

Nonfederal borrowing reached $11.3 billion in 2003-04, up 39 percent from the previous year. Of those loans, $10.6 billion were private, while the remainder were state-sponsored.

Offered through banks and other private lenders, private loans can help bridge any financing gap for college expenses.

Private loan programs should be used as supplemental funding only after all other sources of financial aid have been exhausted, Peterson said.

“To make sure you get funded properly and fully, first fill out that FAFSA and see what you get offered,” he said. “Don’t spend extra money on interest if you don’t have to.”