Okay, so you have small tykes and perhaps their college years seem forever away. It is never too early to start planning for how to pay for your kiddo’s college education. Maybe your kids are in middle or high school and you need information about how to pay for higher education. Here are some things to consider when paying for college.
FAFSA
Start by filling out the Free Application for Federal Student Aid (FAFSA) to find out what financial aid options are available. The Department of Education starts accepting FAFSA applications on January 1st of each year for the next academic school year. After the FAFSA is complete, the student will receive a Student Aid Report (SAR). Federal financial aid is needs-based. Cost of attendance minus expected family contribution equals the student’s financial need. Dependent vs. independent student status will also be taken into considerations when determining needs. Federal aid can be in the form of grants, scholarships, and loans. If you need to borrow money for college, consider the following loan information.
Loans
Direct- Subsidized is based on financial need and the government pays interest while the student is in school or during deferment; unsubsidized is not based on financial need and the borrow pays interest, but can add it to the loan. Grace period = 6 months.
Perkins- Based on financial need, borrowing from the college, and interest accrues when payment begins. Grace period = 9 months.
PLUS loan- Parent takes out loan and is based on credit-worthiness. Grace period = none (first payment will be due 60 days after the entire loan has been disbursed).
Private loan- Interest rates are usually variable. The lender decides the borrowing limit. There may be fees attached to the loan. The student may need to have a creditworthy co-signer.
A Master Promissory Note (MPN) is signed when taking out a loan. Tip for an unsubsidized student loan: pay the interest while student is still in school. Research has been done on student work while in college. There is evidence to show that students who work 10-15 hours per week stay in college at higher rates compared to those who do not work. If a student does not finish college, they may still need to pay back loans and grants.
Financial aid can come from a variety of sources. See if your student qualifies for a Hope Credit (not a scholarship) or the Lifetime Learning Credit. If liquidating investments to pay for college, there may be tax ramifications. Confer with a tax attorney or expert for more information.