Paying for College

A quick video with some great tips about how to deal with that student loan and your new found freedom.

College is expensive.  There is no way around the rising cost of college, other than maximizing the free money and financial aid possibilities that exist for you.  It is amazing how many students aren’t willing to put in the time to get their share of this money.  A recent study showed that one year at a public university consumes 25% of the average median household income in the USA.  For those looking to attend a Private University, that number soars to 57%.

So how do you get started?  Well the first thing you should do is read this list.  The second step is to talk to your high school guidance counselor and the college or university’s financial aid office.  Make sure you have done your homework before you go so you are ready to ask the important questions.  The third thing you absolutely MUST do is fill out the FAFSA or Free Application for Federal Student Aid.  Taking the half hour that this application requires automatically qualifies you to receive federal loans and grants.

So now on to the tips.  They are broken down into three easy categories.

1.  FREE MONEY - We all love free money, here’s how you get it.

The following is tips to get money that you DON’T have to pay back.  Keep in mind, a lot of scholarships and grants require a little effort and apply to certain individuals, but that just means that there are fewer people who are likely to apply for it.  Take advantage of as much as you can.

Scholarships and Fellowships - There are more than one million scholarships hand out each year.  They are based on certain skills or in many cases on individuals of certain races, nationalities, religious affiliations, location, and even relation to a cancer victim.  Obviously, many of these will not be accessible to most of you, but with a little patience and research you just may find one that you are eligible for.  A great site for searching for scholarships is Fastweb.  Remember, this is free money so take the time to research it.

Federal Pell Grant - This is a federal assistance grant that is awarded to lower income students who haven’t yet received a bachelor’s degree.  Awards range from $400 to $4,000 based on need, and remember that this is free money.  As long as your family income is below $50,000, it is worth applying for.

Academic Competitiveness Grant - This grant is awarded to first-year college students who graduated after 1/1/06 and second year college students who graduated after 1/1/05.  It is tied in to the Pell Grant and recipients receive an additional $750 for freshman and up to $1300 if you are a sophomore.

National SMART Grant - (National Science and Mathematics Access to Retain Talent)  This grant is available for third and fourth year students who maintain a 3.0 GPA and are majoring in life science, physical science, computer science, mathematics, engineering, or a foreign language.  This grant can get you up to $4000 per year.

2.  Scholarships for Nerds - All of a sudden, being a nerd, geek, dork isn’t such a bad thing.  Use the gifts you’ve been given and get some free money for college.

Google for Girls - (Anita Borg Scholarship) $10,000 for senior women in the field of computer science, computer engineering or a related technical degree.

Apple Scholar - Winner gets a MacBook, iPod Nano, and $2,000.  This scholarship is available to high school seniors who show excellence in technology and use that in an innovative way.

Microsoft Scholarships - $500,000 up for grabs each year to undergrads.

3.  Loans - These need to be paid back, but federal loans offer a great rate and relatively easy repayment.  Here are the basics on loans.  Proceed with caution and know what you are signing up for.

Stafford Loan - This loan is offered by private lender (FFELP) or directly by the government (FDSLP).  They are offered as subsidized loans which means that you pay no interest while you are in school, or unsubsidized which means you pay interest while you are in school.  The limits of these loans are up as of last year to $3500 for freshman, $4500 for sophomore, and $5500 for each remaining year.  These loans have a fixed rate of 6.8% and that rate is dropping over the next few years.

Perkins Loan - This is a campus based loan that is made by the school you attend.  It has a fixed 5% interest rate.  The amount available depends completely on the school you go to and can be as much as $4,000 per year up to a maximum of $20,000.

Plus Loan - (Federal Parent Loan for Undergraduate Students) This loan is offered to supplement the financial aid package a student receives and is taken out by the parents of the student.  It has a fixed 8.5% rate this year.

Private Student Loan - These loans are offered as an alternative to the federal loans available and should be used for the extra costs associated with college.  They are credit based loans and require a co-signer in most cases.  They carry the same repayment schedule as most federal loans and allow the student to defer repayment until after graduation, but like an unsubsidized Stafford Loan, the interest will accrue while you are in school.

4.  Other Ways  to Get Money for College - Above are the most common ways to pay for college.  The following are some alternatives that require a little more dedication and perhaps rethinking how you want to attend school, but they are good options for those of you who just can’t get the money any other way.

Military Service - The GI Bill and various other incentive programs exist to help those who wish to put in a few years in the military.  There is also the ROTC program which helps you work your way through college.

Federal Work Study - The FWS Program allows students to work on campus for a small stipend to help pay for college.  It is usually a part time job around the college and pays a little extra to help you afford your life in college.

529 College Savings Plan - This is a pre-tax deduction which allows parents to save for their child’s education.  Not really an option unless your parents thought ahead, but what a nice perk if they did.  The other bonus of these plans is that they aren’t taken into account when the financial aid office is figuring out a student’s financial aid eligibility.

Community Service - There are numerous programs such as AmeriCorps, PeaceCorps, Teach for America, and the National Health Service Corps which offer tuition money for those willing to volunteer a few years of their life for a great cause.  The bonus is that you get to travel the world and have some amazing life experiences.

College isn’t cheap, but the more effort you put in before you head off to school, the better you will be when you graduate.  Take the time, do the research, exhaust every possibility, and then you can go and enjoy your four years in college.  Good Luck.

The Wall Street Journal wrote a great piece entitled “Avoiding College’s Plastic Hangover” last week. I felt that it deserved a write-up on here because it addresses some really simple concepts that could potentially save graduates from piling extra debt on top of what they already have in the way of student loans. It has become next to impossible to fund four years of college without taking on some kind of student loan debt, and many would say that is not the worst thing that can happen. Student loan debt is often considered “good debt” because it usually has low fixed rates which if paid on time is likely to help your credit score instead of ruining it. Credit card debt, on the other hand, is what is considered to be “bad debt”. Rates are high, fees and penalties can be overwhelming, and they are just so easy to use that many times the spending gets out of control.

Here is a synopsis of the advice they give:

Don’t be lured in by free t-shirts.
Credit card providers will do everything in their power to hook the student into getting a credit card. Many attach a free gift or special offer and while that t-shirt of frisbee might look nice now, it isn’t worth the headache that a credit card will ultimately bring you. The most important thing to consider when applying for a card is the terms and conditions, not the free stuff.

Piggyback on a parent’s card.
This is a good idea on many levels. First, your parents will most likely have much better rates because they have a long history of established credit. Second, having your card tied in to your parents account gives them the opportunity to see how you are using your card. While that might not seem like a great idea, you will think twice before spending $200.00 at the local watering hole if you know your parents will see your bill.

Know your credit limits.
Usually credit limits are low when you get you first card. This is a good thing. It keeps your debt manageable, and allows you to start to build your credit score at an early age. Whatever you do, don’t go over your limit or you will pay some hefty penalties. Keep track of your spending.

Remember, promotional rates are temporary.
Just about every credit card offers a promotional rate for a fixed period of time to attract new customers. Do your homework and find out exactly how long, and then make sure you know what the APR will be set at after the promotional rate has expired.

Watch out for penalties and unnecessary fees.
The biggest pitfall with a credit card other than spending too much, is to have unnecessary fees added onto to your balance. These fees are most commonly associated with late or missed payments. In most cases, any missed payment results in a penalty plus a resetting of the APR to the highest possible rate.

My last piece of advice is to keep one card only. The more you have, the more likely you are to use them and confuse them. Keep it simple and good luck.

Ray Martin of the Early Show on CBS shares some tips on how to cope with the difficulty of getting student loans. He has some good advice and shares it with you on this short video.

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