Financial aid advice for college students

Financial aid adviceAs you’ve assuredly heard on the news these days, the cost of college is on the rise. Colleges are rising over the $50,000 mark for tuition and fees, and horror stories about mismanaged student loans are receiving a lot of coverage as well. As with all things, the media likes to misrepresent the cost of college: a very small percentage of schools are actually above the $50k mark. But that doesn’t mean college isn’t a significant expense, no matter what the cost of attendance is.

That said, it is very important for you to be fully aware of all the options you have to control costs. For many, failure to understand how student loans work can lead to significant unanticipated costs.

A college degree can result in a career path that increases your lifetime earnings by as much as $1.5 million. So, loans become more attractive when viewed as an investment. Typically, a student who makes full use of student loans graduates from college with about $20-22,000 in student loan debt. Compare that level of debt against the likely lifetime earnings and you can see why it is an investment. To make sure that you don’t take on an insurmountable amount of debt, is always wise to be very smart when dealing with student loans.

Myths about Student Loans

All of my financial aid will be student loans.

Most students who qualify for large amounts of financial aid will find that only a small portion of aid will be in the form of loans. There will also be grants (free money) and federal work-study (a job on campus). A reasonable generalization for most colleges is: the larger the financial need, the smaller the percentage of loans in the aid award. And in those instances where there is insufficient financial aid and/or when you have used up all of your eligibility for federal loans, consider using the tools on SimpleTuition to identify private lenders who may have programs that will work for you.

My credit won’t allow me to borrow.

Students who are eligible for need-based federal student loans will not have to be credit-worthy. They will automatically qualify for the loans on the basis of financial need and not the ability to pay back the loan.

I won’t be able to pay back the loans unless I get a job right away.

Not true. There are many payback options including forbearance (delayed payback); graduated payback plans tied to your earning power at the time; and the ability to extend the terms of the loan to 30 years so that the monthly payments are more manageable. The lender of need-based loans, which under the recent legislation will be completely run by the federal government, rarely goes after delinquent borrowers provided the borrower maintains contact and keeps the lender updated on the borrower’s financial status at any time.

Some Insider Tips

Study hard and get in and out of college in regulation time.

Added time does two things. It will result in more, needless borrowing, and the loss of income. The latter is called opportunity costs, which refers to the money you won’t be making on the job because you are still in college. So if you take an extra year at college, that will not only cost you more in terms of tuition and fees, part of which will likely be paid for by a student loan, but also the loss of the annual salary that you would have made as an employed college graduate.

Try to get outside scholarships.

If you are successful, request that scholarships be used to replace the student loan in your financial aid award. In that way, you may have to borrow less money over the four years.

Get help from your employer.

Upon graduation and employment, request that your employer consider helping pay back your student loans. After all, the employer is a prime beneficiary of your new knowledge and if they design the payback plan smartly, the employer can realize some tax advantages.

Student loans (and maybe tests!) are probably the least fun part of going to college, but if they are looked upon as an investment, and if you work to make it a good one, student loans will become nothing more than a nuisance in future years. The upside for you will far outweigh the downside.

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Financial Aid Basics