Paying for College
Concerns about how to pay for college often begin well before it is time to start filling out college applications. Especially in this challenging economy, students and parents need help covering tuition costs.
Applications for federal student aid increased more than 20 percent for the 2009-10 school year, according to the National Association of Student Financial Aid Administrators. But experts offer reassurance that there are sufficient sources of aid available to make college affordable if families take the time to research and understand their options.
Financial Aid 101
Financial help can be offered through a variety of resources, including scholarships, grants, work study, and government-backed loans. Most aid is typically a combination of these sources known as a financial aid package.
To qualify for financial aid, students must submit a Free Application for Federal Student Aid (FAFSA) each year. Financial information from the FAFSA is used to calculate the amount of total education costs a family is expected to cover and the remaining amount of need for which the applicant qualifies. Information gathered from this form also is used to access various state and institutional aid — grants or loans awarded directly from the college or university.
Students will receive financial aid award letters explaining their aid package and detailing loan terms around the same time as admission letters. Students and parents considering federal loans can choose between the Federal Family Education Loan Program (FFEL) with government-backed private lenders, or the William D. Ford Direct Loan Program (Direct Loans) for which the federal government is the lender. Both programs have interest rates set by Congress and similar repayment options.
Each school sets its own timetable for submission of FAFSA applications, and with increased demand for student aid, it is important to file applications as soon as possible, according to Julie Rice Mallette, director of the office of scholarships and financial aid at North Carolina State University. Mallette advises beginning the aid process as soon as you have your estimated tax information in January. "You can always correct it later when your returns have been filed," she says.
Phil Asbury, deputy director of scholarships and student aid at the University of North Carolina at Chapel Hill also adds that timing for financial aid applications is critical. "A student applying late may see their grant funding decrease by half," he says.
Lessen the Financial Sting
Many schools have access to institutional grants that allow them to sharply decrease or completely eliminate educational costs for students most in need of financial aid. "At Duke, we will meet 100 percent of remaining need for students admitted to the university," says Alison Rabil, assistant vice provost and director of financial aid. "We don't want anyone admitted not to come because of tuition cost. Schools that can't cover remaining need can make good suggestions for how to cover those costs."
According to Rabil, most colleges and universities will waive application fees for students in need, but you have to ask. "Don't limit your options until you understand the real cost of the school to you," says Rabil. "Apply where you want to go and turn them down after you figure out if you can afford it."
Parents and graduate students also can qualify for PLUS Loans as part of the financial aid package. These low-interest federal loans can be used to pay for college costs and related expenses. Interest accrues over the life of the loan, but payments can be deferred until six months after graduation. Borrowers who choose to defer are given the option of paying interest as it accrues to avoid adding that debt to their loan.
Many schools also partner with tuition management companies to allow families to spread tuition costs out over the duration of the school year without interest accruing. Especially in today's economic environment, Mallette says, "having ten consecutive months to pay $1,500 is easier for parents to manage than all in one lump sum in August."
The Last Resort: Private Loans
Families looking into private loans will find stricter credit criteria and co-signer policies in response to today's economic environment. Aid experts agree that private education loans should be considered a last resort because of their variable interest rates and stringent repayment schedule. "Private loans are like a long-term credit card," says Rabil. "Rates can go up and don't usually go down."
However, Ben Kittner, market research and public relations manager at College Foundation Inc. emphasizes the difference between private lenders and private loans. Private lenders can offer either federal loans with rates that are set by Congress and fixed for the life of the loan or private loans that have variable rates set by that lending institution.
Unlike private loans, federal loans can be deferred — upon request — in the event of job loss or financial hardship with no impact on credit scores.
Loan Repayment Options
Standard repayment plans plus a new option (*) include:
– Fixed Payment: Federal education loans are typically repaid through monthly fixed payments over a predetermined loan period. But recent changes from the federal government add some repayment flexibility.
– Income-Based Repayment (IBR)*: Became available July 1, 2009 "…to assist borrowers who have high student debt levels relative to their income and who are having difficulty making their payments," according to Kittner. The law offers reduced borrowers' fees for some types of loans and provides the (IBR) option for borrowers whose standard loan repayments exceed their discretionary income by at least 15 percent, according to USA Funds.
– Income-Sensitive Repayment: Offered for Direct Loans, which are loans accessed directly from the Department of Education. Available since 1994, this program sets payments based on a percentage of an individual's earnings. "Income contingent repayment opens up the option to work in the public sector or pursue other avenues of employment without having to go bust," says Rabil.
– A Graduated Repayment Schedule: Geared toward borrowers whose salaries are expected to see noticeable increases over the life of the loan. This schedule requires starting payments below standard levels and regularly increases those payment amounts.
Kittner advises students to carefully consider alternate repayment options before making that request. "These modified repayment plans tend to be more expensive than normal repayment plans."
Do Your Homework
North Carolina residents can access valuable information and application tools through the College Foundation of North Carolina at www.CFNC.org. CFNC is a free service that helps students through the entire college experience, including planning, applying, and paying for higher education.
Making the right financial aid decisions can save you years of interest and thousands of dollars, but the process is complicated. Borrowers should get in contact with financial aid offices when first considering schools. Doing your homework and utilizing student aid resources will help you take advantage of your best options.
Mary Parry is a Triangle-area freelance writer.