Smart College Financing

Smart College Financing

by Stephen Lau

College education is extremely expensive in the United States. Learn smart college financing to manage your student loans the smart way.

To pay for your college education, you could be looking at a total sum of $50,000 to $200,000, depending on the institutes you go to and the types of education you pursue.

Whether you are a parent or college-bound student, be cost-minded in college financing!

How to pay for college education

If you are a student and your parents do not pay for your tuition, you have no option other than obtaining college loans.

If you are a parent and would like to support your child's college education, you can obtain college tuition financing through the following:

· Your home equity

· Your income

· Your savings and investments

· Government grants and scholarships (no need to repay)

· Private grants and scholarships (no need to repay).

Join the Qualified Tuition Program (QTP), also known as the 529 Plan (composed of mutual funds managed by a corporation), with

· Tax-deferred accumulation of fund

· Favorable tax on qualified withdrawals.

Smart money management requires you ask perspective fund managers about the following:

· The maximum amount you can contribute

· The fees you will have to pay

· The line of credit available to you

· The penalties, if any, for withdrawals and disbursements.

Types of college tuition loans

There are different types of college tuition loans:

· Government-secured student loans with lower interest rates and lower fees

· Private student loans from banks and lenders with higher interest rates and higher fees

· Loan-forgiveness programs in which the college tuition loans will be automatically paid off if the borrower serves in the military, teaches, or does volunteer work.

Getting the right student loans

Go to FAFSA (Free Application For Federal Student Aid) and apply for student loans.

Documents required include the following:

· Income tax returns (Form 1040, 1040A, or 1040EZ)

· Untaxed income (Social Security benefits, child support, pension, welfare, subsistence allowances, veteran benefits)

· Current bank statements and mortgage payments

· Dental and medical expenses not covered by insurance

· Investment records (stocks, bonds, Certificates of Deposit etc.)

· Business and/or farm records

· Social Security number(s).

Submit your FAFSA application immediately after January 1; you need not wait for your IRS filing (accurate estimates are acceptable).

Smart tips for loans and scholarships approval

· Pay off consumer debt (credit cards and auto loan balance).

· Save money in the parent's name, not the student's name.

· Spend the student's income and assets first, before spending the parent's.

· Minimize capital gain within that time frame of application.

· The more family members in school simultaneously, the more funding will be available. Consider going back to school with your child at the same time (a smart education pursuit).

· Do not use retirement funds for college financing.

Stafford Loans

Stafford Loans are federal loans with low interest rates and deferred payment options.

· The Federal Family Education Loan Program (FFELP) guarantees loans provided by private lenders (banks and credit unions) with lower interest rates and better loan terms. Approval is not contingent on credit rating.

· The Federal Direct Student Loan Program (FDSLP) provides federal loans administered by participating lending schools.

Stafford Loans are both subsidized and unsubsidized.

· In subsidized Stafford Loans, the interest is paid by the federal government while the student is in school.

· In unsubsidized Stafford Loans, the student pays the interest, which can be deferred after graduation.

Perkins Loans

Perkins Loans are federal loans for both graduates and undergraduates. They are the best student loans for college financing with the following features:

· Subsidized by the government (interest free while in school)

· Guaranteed low interest rates

· A grace period before repayment

· A repayment period of up to 10 years

· Limited loan amount (a drawback).

Federal Parent Loans

The Federal Parent Loan for Undergraduate Students (PLUS) is available to the parent to finance the child's undergraduate education with the following features:

· Unsubsidized by the government (payment of both interest and
fees)

· Primary borrower: the parent

· The parent responsible for loan repayment

· A 10-year repayment term available

· Unlimited loan amount.

Go to Fed Money to get information about the fed loan application process, the eligibility requirements, and the criteria for different types of federal loans.

Go to The Smart Student Guide to Financial Aid to get a calculator to find out the cost of student loans.

Private Education Loans

Private education loans, provided by financial institutions (banks, credit unions), are generally used to cover any shortfall in college financing, with the following features:

· Loans not guaranteed by the federal government (higher interest rates and fees)

· Approval contingent on the borrower’s credit score and history (co-signing if not qualified)

For smart college financing, use home equity loan or cash-out refinancing instead of private education loans.

Smart tips on managing student loans

Plan to repay your loans: participate in internships instrumental in securing a well-paid job upon graduation.

Develop a payment plan to mange your spending and monthly bills.

Types of grants and scholarships

Grants and scholarships are the best type of college financing because they need not be repaid.

Grants are awarded based on financial need.

Federal Pell Grants

Federal Pell Grants are awarded to only undergraduate students, based on financial need. The amount awarded is contingent on:

· The Expected Family Contribution (EPC)

· The cost of tuition

· Full-time or part-time attendance, or full-year attendance.

Federal Supplemental Educational Opportunity Grants (FSEOG)

Federal Supplemental Educational Opportunity Grants are awarded to undergraduates - preferably those who also receive Federal Pell Grants.

Apply early (immediately after January 1).

State Grants

State grants are specific to different states. Check your state for more information.

Scholarships are always based on academic merit. However, there are scholarships for minorities or those without incomes. Remember, scholarships are not handed out freely: they are awarded to those who seek out the scholarships and apply for them.

Go to Fast Scholarships Search to get first-hand information on worldwide scholarships. Other useful resources for scholarships for college financing include College Scholarships and Scholarship Grant Guide and Fast Web.

Hope Scholarship Credit

College tuition and fees may be defrayed as a tax credit.

The National Merit Scholarship Corporation

The National Merit Scholarship is offered to high school seniors with excellent academic scores.

Copyright© by Stephen Lau

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