While the national conversation around the importance of continuing education past high school gains much attention, so to does the issues surrounding paying for it. Regardless of politics, the fact remains that paying for college stands as one of the biggest challenges for students and their families.
Getting a head-start on putting together a financial plan is always a good idea for any prospective student. Here are some tips for families to consider now to ensure that they limit the amount of student loan debt accrued while still in school:
Borrow only the amount you need
Many borrowers make the mistake of taking out more loans than necessary. To avoid doing this, create a budget to determine how much loan money will be needed and avoid using loan money to pay for unnecessary expenses, such as trips to the movie theater or expensive dinners.
Consider a part-time job
If a student’s academic schedule allows, they should consider finding a part-time job on campus to help supplement the cost of unexpected expenses. Be sure to check with the financial aid office to see if students qualify for work study, which gives the opportunity to work on campus.
Compare award letters
Once a student receives their financial aid award letter, compare loan offers by reading the fine print. If federal loans are not enough to cover the cost of education and a student is considering private loan offers, be sure to shop around for the best interest rates and repayment options.
Take college credit while in high school
Taking AP, dual credit or college credit courses while in high school can give students a head start on achieving your intended major. Find out the general education requirements at the college a student plans to attend and take courses that will fulfill those requirements. Doing this can help students graduate from college early, which means borrowing less in student loans.
Consider paying loan interest while still in school
Students who start making interest payments on their student loans while still in college will reduce the total amount they have to repay after graduation. Interest payments are usually manageable. By paying off interest as they go, students can keep outstanding interest from capitalizing on any balances. Allowing interest to capitalize increases loan balances essentially requiring students to pay interest on the interest that has been accrued!
Apply for scholarships
Scholarships can pay for portions or all of a student’s education during an academic year. But students can’t earn scholarships if they don’t apply! Find scholarships specific to a school or department by talking to a representative from the school’s financial aid office or department chair. In addition, the following sites are just a few places to check for scholarships:
- Fast Web – www.FastWeb.com
- Big Future by the College Board – https://bigfuture.collegeboard.org
- Sallie Mae Scholarship Search – www.salliemae.com/scholarships
- Scholarship America – https://scholarshipamerica.org/
Choose a school that fits into the family budget
Review the financial aid packages from the colleges where students applied and consider how much needs to be borrowed in order to attend each. Keep the goal in mind and select a college where loan debt can be kept at a reasonable level against future income potential.
Get more tips in Iowa College Aid’s “Path to College.”
They’ve waited. They’ve watched the mail for weeks. Finally, the letter arrived: Students are getting notice that they’ve been accepted to the school of their dreams! But after the moment of excitement and congratulations wears off , the realization sets in: it’s going to cost money to go to school.
Even if a family has prepared for years, saving money, investing in 529 plans and being on top of completing their student’s FAFSA, now is a crucial time to pay attention to information from schools and have a clear understanding of the financial aid award letter.
Financial aid award letters are sent to students in the weeks after receiving their acceptance letter to a school and reflects the cost of attendance as well as the financial options available to families to help pay for their student’s education. As the letters state, a student’s place in the schools incoming class cannot be reserved until a deposit is received based on the financial award letter. But families should take the time to understand their award letter before submitting any form of deposit, as these deposits are not refundable if a student decides not to attend a particular school.
Currently, there is no standard format for schools to report the financial aid being offered to a student. So families should use these tips to better understand what is being offered and make a smart comparison between what different schools will cost. The school with the lowest tuition fees might not always be the best financial choice thanks to financial aid awards. Knowing how to read the financial aid award letter can make all the difference.
- Find “free money”
Many schools offer students institutional scholarships or grants. These types of funding can be seen as “free money” because students and families don’t have to repay this money after graduation. Make sure to look for words such as “scholarship” or “grant” in the name of the financial award. These awards are often given to students based on the information in the Student Aid Report created when completing the FAFSA, based on income or family responsibility. Families may miss these awards because they do not technically apply for them separately.
- Consider loans and work study options separately
To help show families how they can meet the cost of attendance at their school, award letters will also include options that require repayable loans or other options that require further action by the student, such as work study programs. Since there is no standard format for separating these options from other “free money,” families need to recognize that any loans taken out, be they private or federal Stafford loans, will require repayment by either the student or parent (depending on the loan) after graduation. This is not funds being offered by the school, but money that will require repayment.
- Know the difference between “direct” and “indirect” costs.
Attending college features a variety of costs, but not all of them will necessarily be covered the financial aid offered in the award letter. The “cost of attendance” on a financial aid award letter applies to direct school costs, such as tuition, room and board. Indirect costs, such as books for classes or travel to and from school are not considered in an award letter. These costs are those that the student and family will have to bear personally.
- Determine if awards are for one year or more.
Many families fall into the trap of thinking that the financial award letter reflects the costs and awards for all four years of school when, in reality, the letter reflects the cost for one year of school. While many of the loans listed on an award letter will be available to students each year, many of the grants or scholarships listed may require a new application each year or, in some cases, are only available for one year. Determining which of these awards are renewable, or the length of the award, can help families avoid an unpleasant surprise.
- Make sure the award letter is final.
In some cases, an award letter might not reflect the final amount of aid being offered to a student. If any section of the letter uses words such as “estimated,” “tentative” or “pending,” the school may not have all the information from a student’s FAFSA or other document needed to make a final determination of aid. Once this information is provided, it may have an impact on the amount of aid that the student is finally offered.
Understanding the financial award letter that students receive can lead to some difficult decisions about where a student should go to school. By making the best effort to compare award letters from all schools that have accepted a student, families can make an informed choice of which school fits best with a student’s goals while creating a financial plan that will avoid any bad surprises or unexpected debt down the road.
Financial Aid Awareness Month is dedicated to helping families and students of all ages better understand the options available to them as they look to fund their educational goals and dreams. Iowa College Aid has dedicated a page to discussing some of the common issues facing those looking for financial aid.
Our staff of financial aid experts have also helped out this month, with advice on how to overcome financial aid issues (see last week’s post). This week they address two of the common myths that students have about applying for grants and scholarships and how to debunk them.
Myth #1: We make too much/my parents make too much – I won’t get anything
Family income is definitely a factor when it comes to handing out financial aid. The best kind of financial aid is always the “free” kind – the scholarships and grants that are given freely with no expectation of being paid back later. And often it’s this “free” money that has a “financial need” component to it. Many scholarship and grant providers want to give their awards to students who show some kind of financial need, and when a student’s/family’s income is high, usually the financial need is low.
Not all scholarships and grants are need-based, however. If your student is motivated, they can seek out scholarship and grant opportunities that are based on skills, abilities and interests, grades, musical, athletic or dramatic talent, essay-writing, or a number of other merit-based achievements. The key is looking for them. You know the saying, “you can’t win if you don’t play”? That same philosophy applies to scholarship competitions. Investing some time online searching for “scholarships for high school juniors” or “scholarships for journalism majors” or, if writing essays isn’t a strength for your student, “no essay scholarships” might provide some avenues of funding.
Myth #2: My parents aren’t helping me pay for college so I can’t get financial aid.
Students who are financially independent from their parents can often access additional student loan funds, but a parent’s unwillingness to pay for college doesn’t make you financially independent from them.
The primary circumstances that cause a student to be financially independent are:
- Orphan/ward of court/foster care/emancipated minor/legal guardianship/homeless status
- Veteran of the Armed Forces of the United States
- Graduate or professional student
- Student’s marriage
- Student provides support to dependents
Detailed information about these circumstances can be found on the federal Department of Education website https://studentaid.ed.gov/sa/fafsa/filling-out/dependency
If a student has no contact with their parents, or if the student doesn’t reside with their parents because of an abusive or neglectful situation, the student can approach the financial aid office at their college for special instructions on how to complete the parent section of the FAFSA or to determine if there’s a need for a dependency override.
This week’s blogger is Clara Reynen, a sophomore at Burlington High School. On Thursday, April 24, 2014, Clara and her fellow classmates were honored with a certification ceremony after completing the Iowa Financial Literacy Program. During the ceremony Clara gave a speech about her experience with the program to her peers and other attendees. Clara’s message can be read below.
Graduating high school without a basic grasp of financial literacy is like jumping into a pool without knowing how to swim. I think we all know that neither is a secure or safe idea.
Before taking the Iowa Financial Literacy Program through Everfi, I only had a slight inkling of what the real world of money would entail, and that terrified me. I knew that I would have to pay for college, but I didn’t how I would even approach the subject. I hoped to live in a house someday, but I had never considered renting anything other than an apartment. As I looked to the future the thought of owning a credit card and using it responsibly made me want to crawl into my bed and watch Netflix for a day or two.
When I started the Iowa Financial Literacy Program, I expected to read paragraph after paragraph of boring and outdated information about how to file taxes and find the smart way out of college debt. Instead, I was presented with bright visuals and current information that allowed me to learn all about how to be smart in the future. I learned that there is such thing as good debt, which completely surprised me — student loans secure a better future and a higher salary, and if I act responsibly, I can earn money in the end. The program has taught me how to be comfortable with money and how to make smart financial decisions. I’m no longer scared of the future. I know that regardless of where I go to school, what I major in, where I live and what I end up doing with my life, I can be a successful role model for those around me.
I would like to thank all our wonderful teachers for making the time to allow us to learn about something so crucial and important, something that will only allow us to further our education. Midwest One Bank has also been incredibly generous, sponsoring the program and sending in bank employees to talk to us on almost a weekly basis. Lastly, I want to encourage all of my classmates to remember everything that the Iowa Financial Literacy Program through Everfi has taught us, so that the Class of 2016 can be a prosperous one.