Scrambling for Financial Aid? Avoid These Common Mistakes

BOSTON, August 15 - PRNewswire

Tuition costs are skyrocketing, interest rates are rising and there’s one month until the 2006-2007 academic year. College students and parents are scrambling to find loans that best fill the “gap” - the amount of money needed for college costs not covered through financial aid and personal savings. Shockingly, the size of the gap is projected to reach $35.7 billion this year.

“‘Back to School’ means more than dorm furniture and supplies – it includes determining the best way to pay for college, “ said Kevin Walker, co-founder and CEO of SimpleTuition, Inc. (www.simpletuition.com), a company helping parents and students easily compare education financing choices. “As students and parents determine how to best finance remaining costs, many do so with little time or knowledge on how to find and compare the loans to best fit their needs.”

Parents report feeling overwhelmed with the amount of information on financing options. Loans come with different terms and benefits, and borrowers find it difficult to compare on an ‘apples-to-apples’ basis. With the clock ticking, students and parents to rush into loan decisions, which leads to mistakes and “buyer’s remorse”.

With the average undergraduate student loan debt approaching $19,000, most families can no longer cover their costs with just one loan (like mortgages or car loans) and, thanks to limits on federal loans, often end up with three to four loans each year. By graduation, students have upwards of 10 different loans.

A few things to remember when reviewing college loan options:

Get Creative About Sources for Direct Payment

Even if you’ve been saving since your child was an infant, it is usually not enough to cover the costs of four years of college – a frustrating realization for many. But you may be surprised to find additional resources - think about the savings by having a child away from home and revisit assumptions about college-related expenses (used books, off-campus living). Even a thousand dollars in now can save substantially later.

Remember: All Loans Are Not Presented Equally

Each loan comes with different options including fees, repayment lengths, total loan amount, consolidation options, credit requirements and eligibility, and lenders promote each differently in a quest to get your attention. Be sure to review all the terms and benefits to ensure you’re choosing the best loan for the long haul.

Avoid Buyer’s Remorse: Start Early

Many parents put off decisions until the last minute. Then, in a panic, they rush and pick the lender that their friend used, go with a big brand or local bank, charge their credit cards, dip into their 401(k) and even take out home equity loans. Start early and be diligent in researching loans from multiple sources.

Evaluate Financing Options Carefully

Optimize lower-cost loans (Stafford and Perkins) before adding private loans, which tend to cost more. Remember the “four year cost” of borrowing, choices made for freshman year are likely to be a reality in subsequent years. A rule of thumb: multiply freshman year borrowing by five for the aggregated impact of college borrowing. Balance the borrowing between parent and student. Parents may be reluctant to add to their debt, but even a small amount of additional borrowing can save the future graduate substantially.