By Lissette Camacho Morales. When it comes to financing college, families don’t know what they don’t know. As far as the federal government is concerned that’s no excuse for nonpayment. In this post, you’ll learn what you need to know to cut the cost of college before, during and after college.
What You Need to Know About Financing College Before School
Know Your EFC
Families should find out their expected family contribution (EFC) by as early as their child’s freshman year of high school. So remember to click here to watch my videos on expected family contributions.
Know Your Financial Aid Deadlines, Rights, and Responsibilities
So if you want to enjoy a better chance of maximizing free aid, don’t wait until the last-minute to send your financial aid application(s). That’s because aid is often awarded on a first come, first served basis. Even when aid doesn’t run out, time surely does. The truth is, it is entirely possible to apply on time and still not get awarded in time for the start of school just because there isn’t enough time to process all the applications received. So remember to apply early and follow-up often to check on the status of your financial aid application(s). Fortunately, good record keeping will also help you get unstuck if, and when, there’s a hiccup in your financial aid award process. Apply early and follow-up often to check on the status of your financial aid application. Click To Tweet
Know What You Need to Study to Find Work You’ll Love
Take career assessments to help you choose classes, majors, and careers that match your interests and personality. Obviously, you’ll save time and money by not switching from major to major as many students do. To learn more about career assessments check out my recent post: A Sure Fire Way to Choose a Career Path You’ll Love.
Know How to Choose A Good College Fit
Choose the school that offers the course of study you want to pursue where you are most likely to graduate in four years with the least amount of debt. To understand what I mean about the importance of a school’s four-year graduation rate, check out my recent post: How to Finish in Four in Five Easy Steps.
Know Your Anticipated Starting Salary After You Graduate
Unfortunately, just because your #BFF, who works as an engineer, has no problem repaying student debt doesn’t give you the right to assume that the same will be true for you graduating with a major in psychology. That’s because engineers typically enjoy the highest starting salary of all undergraduate majors while psychology majors earn a lot less. So remember this simple rule of thumb to help guard against taking on too much debt when financing college. Don’t borrow more than your anticipated starting salary after you graduate. Click To Tweet Don’t borrow more than your anticipated starting salary after you graduate. That’s because if you borrow more than twice your starting salary, you are likely to struggle to make the payments.
Know Your Loan Options
Research loan options before you sign on the dotted line. Obviously, not all student loans are created equal. That’s because private student loan borrowers enjoy far fewer payment options than student loan borrowers with federal loans.Remember, not all student loans are created equal. Click To Tweet
What You Need to Know About Financing College During School
Savings can really add up using one or more of the following seven strategies to finance college while in school.
Learn and Earn
Work while in school. Work during summer and winter break as well to save for the school year. Second-year students may even qualify for free room and board as a resident advisor (RA). Best of all, studies show that students that work through college are likely to have higher GPAs. Financing college by working while in school is a win-win both financially and academically.Studies show that students that work through college are likely to have higher GPAs. Click To Tweet
Not interested in becoming an RA? If you prefer, consider living at home to cut the cost of college.
Collect Cheap College Credits
When it comes to saving on tuition, you can’t beat community college pricing. You’ll save a bundle by taking community college classes compared to what you’d pay for the same course at your 4-year public or private school.
Save on Books
Save a lot of money by shopping online for books. You can also save money by renting your books instead of purchasing them. You can even make some cash by selling your used books online. You’re likely to get much more for your used books online than the college bookstore will pay you. My favorite source for buying and selling books is half.com.
Save on Car Insurance
While there are a number of very good reasons for your parents to keep you listed on their policy, they may save on car insurance if you don’t take a car to school. For example, some insurance providers discount premiums if you attend college 75 miles or more away from home. Parents should check with their insurance provider to get adequate coverage for their college student and applicable discounts while you’re away at school.
Save on Out-of-State Tuition
Out-of-state college students may also be able to prove residency in another state to qualify for in-state tuition after their first-year. The difference between in-state and out-of-state tuition rates generally totals more than $15,000. Inquire with the college about how to set up residency. Rules for establishing residency vary greatly so it’s best to ask before you apply.
Save Time and Money with a Free App to Manage Your Finances
Use Mint.com to track your spending. Know where your money goes and learn to stick to a budget.
What You Need to Know About Paying Off Your Loans After Graduation
Know Your Debt Obligations
Know your debt obligations, when student loan payments begin and if you qualify for deferment or consolidation.
Don’t let high default rates mislead you into thinking that defaulting on student loans is no big deal. Remember, it can take years to build up a good credit rating again once you default. Without good credit, you may not be able to get credit cards, a mortgage, or a car loan. While in default, you are likely to find it difficult–if not impossible–to qualify for more loans.
That said, here are some strategies to consider if you find yourself in any one of these borrower’s worst case scenarios.
Worst Case Scenario(s) for Financing College
Borrowers Whose Total Debt Exceeds Their Annual Income
If you owe more than you make in a year, you’re probably going to need an income-driven repayment plan. An income-based repayment plan is not an ideal option. That’s because it’s likely to increase your debt by lowering your monthly payment and extending the life of the loan. Even so, it’s better than defaulting on the loan.
Dealing With High Interest Private Loans
When financing college with a mix of both federal loans and private loans, you can use an income-based repayment plan strategically. Here’s how it works:
- Use an income-driven plan to lower payments on federal loans so that you can devote more money toward paying off the private loans, which have high interest rates.
- Once you pay off high interest private loans, switch back to a federal loan repayment plan with a shorter term to save on interest.
Beware Taxes on Forgiven Debt
As Mark Kantrowitz, publisher of Cappex.com, explains, “While federal repayment programs offer debt forgiveness after 20 or 25 years of repayment, borrowers may not be aware that they will be taxed on the forgiven debt.”
Apply for a temporary deferment or something called forbearance if you have economic hardship. Deferment includes suspension of principal and interest payments for a specified time. Forbearance can include temporary suspension of payments, a time extension to make payment–even a temporary reduction in the amount of monthly installments.
As long as you tell lenders ahead of time, many lenders will draw up new repayment plans, or accept a missed payment. If you have more than one lender, be sure to keep all of your lenders informed.
Prepay Federally Guaranteed Education Loans Without Penalty
Best Case Scenario(s) for Financing College
Prepayment is the smartest loan strategy ever. Prepayment is the smartest loan strategy ever. Click To Tweet Use extra funds to prepay student debt. Prepay loans with the highest interest rates first. You’ll pay off the loan much faster and save yourself a bunch of interest.
The Next Best Thing
What if you are living paycheck to paycheck and don’t have extra funds to prepay student debt? Consider using one or more of these creative solutions most often used to prepay mortgage debt without any more out-of-pocket cost. Consult your lender about how to set up any one of these prepayment plans, that is, assuming you are not subject to prepayment penalties.
Divide your monthly payment into two equal payments.
- Prepay (the first half of the monthly amount due) two weeks before the due date.
- Send in the second half of the monthly amount due by the due date.
- By (pre)paying your principal amount two weeks before the due date, you can pay down your debt faster and save on interest without requiring extra funds.
- For example, instead of paying $300 when due on the 15th of every month, you can (pre)pay $150 on the 1st of every month to be applied to the principal and pay the remaining balance of $150 on the 15th.
- Remember to specify that your prepayment be applied to the principal.
- Check with your lender and your bank to see if you can automate the transactions.
Use your income tax refund to prepay student debt.
- Remember to specify that your prepayment be applied to the principal.
Review your payment plan to make sure you are on target to pay off your debt in 10 years most.
Even if these creative solutions don’t apply in your situation, you may still be able to commit to a plan to pay off your debt in 10 years. As the saying goes, “failing to plan is planning to fail.” So remember to plan.
Consolidate Student Loans to Lower Interest Rates and Save Money
Here are 6 questions to consider from Kalman Chany’s book, Paying for College Without Going Broke:
- How will the interest rate be calculated?
- Are you better off excluding some loans from consolidation to get a better rate and/or to prevent the loss of some benefits with some of your loans?
- Will consolidating your loans give you a better or a worse interest rate?
- Can you consolidate your loans(s) more than once?
- Do you have to consolidate your loans with a private lender? Do you have to consolidate your loans directly with the government? If you have a choice between the two, which consolidation plan is the best deal for you?
- If you are consolidating unsubsidized and subsidized loans together, will this affect your ability to have the government pay the interest on your subsidized loans should you go back to school?
Consider a Job that Offers Partial or Full Federal Loan Forgiveness
Jobs that may help with financing college include:
- Social Work
- Public Service
- Child Care
- Medical Professionals
At every stage in the process of financing college–before, during and after college–there are doable steps your family can take to increase college savings and avoid unnecessary debt.
Unless you qualify for Public Service Loan Forgiveness, you should use the repayment program that allows you to make the highest monthly payment you can afford.The federal government is expected to make $127 billion in profits from student borrowers in… Click To Tweet
Federal student debt is big business.The federal government is expected to make around $127 billion in profits from student borrowers in the next ten years. An uneducated borrower is the federal government’s best customer as they are more likely to cripple themselves with unnecessary debt.
What is your plan for financing college?
Share your thoughts in the comment box below.
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Related Posts and Videos.
- The Biggest Financial Aid Mistake You Don’t Want To Make
- How to Finish in Four in Five Easy Steps
- A Sure Fire Way to Choose a Career Path You’ll Love
- For more information on income-driven repayment options and requirements for federal student loans read Companies Answer the Call on Student Debt.
- Want to learn more about the profound impact student debt is having on young Americans? Click here to read the full 72 page ASA report.
- Paying for College Without Going Broke by Kalman Chany