In a tough economy, college applications typically increase. However, the current financial crisis might have consequences for how students - and their parents - pay for that education. A recent Sallie Mae/Gallup study shows that families typically use a complex funding mix: parents provide 48 percent of the funds, students kick in another 33 percent, and 15 percent comes from gift aid, like scholarships and grants. The average family covers nearly 40 percent of the costs by borrowing, so it pays to do your homework.
Early in the college planning process, parents and students should talk about what each can reasonably afford to pay. The good news is that earning a college degree positively affects lifetime earnings. It doesn’t matter how it was earned. Students should explore all options for completing a college education, but keep financial factors in mind.
And while a college degree does generally lead to higher lifetime earnings, some careers do have limited earning potential. Pay shouldn’t be the only factor when choosing a career, but earnings could be an issue if the education will be largely financed with loans. Most student loans require repayment to start within just a few months of graduation. Students who graduate in low-paying fields with larger college loans can quickly find themselves overwhelmed.
Knowing what your family will be expected to contribute toward college expenses can be determined by completing the Free Application for Federal Student Aid (FAFSA). Every family, regardless of income, should fill it out. The FAFSA is key to unlocking all kinds of aid, including scholarships and grants, which don’t need to be repaid. Visit www.fafsa.ed.gov early to know what information you will need. The form becomes available on January 1 of each year.
After Federal Student Aid has processed the form, a Student Aid Report (SAR) which indicates the expected family contribution (EFC) will be sent to you and to any colleges you requested. Shortly thereafter, schools to which your student has applied will provide their financial aid offers.
After you receive this information, it will be time for some decisions: which school to attend and whether or not you will need loans.
College loan sources can be federal, state or private. Federal loans and some state programs offer a number of advantages, including easier repayment terms, lower interest rates and deferment options should your student choose to go back to school. The FAFSA serves as the application form for federal loans, which include subsidized and unsubsidized Stafford loans, and PLUS loans for parents. The amount of these awards will be provided by each school.
Private student loans are an alternative, but they generally have higher interest rates and less flexible repayment terms, while requiring a credit check and possibly a co-signor to share the burden if the student defaults. Private lending resources have tightened up recently. Since late 2007 many lenders have stopped making private student loans, forcing many students to seek other sources. Some have even stopped making federal loans altogether.
Make financing part of your family’s college preparation. Research the options that will provide the best solution for your situation. The Federal Department of Education has great online resources at www.federalstudentaid.ed.gov. If your student isn’t ready for college yet, then FAFSA4caster (www.fafsa4caster.ed.gov) can help you learn about the financial aid process and get an early estimate of your eligibility for federal student aid. Also, be sure to check out www.actparent.org for checklists and ideas to help your student prepare for college.
In the end, the time and money invested in a college education are worth it. But families need to work together to find the best way to reach that goal. Having tough discussions early on will prevent heartache and result in a happier student.
Rose Rennekamp is the vice president of communications for ACT. She is a mom and has a master’s of education in guidance and counseling. For more college and career-planning information, visit www.act.org or e-mail Rose at