The cost of getting smarter keeps getting higher, with tuition spikes and other educational costs far outpacing inflation. If you're like many students, figuring out how to pay for school is as important as choosing your field of study.
If you need help paying for tuition, room, board and fees, you're not alone. According to the National Center for Education Statistics, 38 percent of students at public schools and 33 percent at private institutions receive federal grants (and that's not even counting private student loans).
Before you take out a student loan, though, be sure you understand how they work and explore all your options, including scholarships and other sources of financial assistance.
Federal and private loans
Loans subsidized by the federal government including Stafford, Perkins, and PLUS loans enable students to use the funds interest-free until they leave school. To apply, you'll need to fill out a Free Application For Federal Student Aid (FAFSA). "Tell your kid to stick with federal loans if he possibly can," writes Beth Kobliner in How to Make Your Kid a Money Genius."They are a good deal, since they tend to have low rates that are locked in, or fixed, for the life of the loan." It's almost always better to avoid private loans, she adds, since they have much higher interest rates "and strict repayment rules."
Many states offer special loan programs administered by the State Department of Education. Each state sets its own rules. If you complete the FAFSA you might automatically be considered for state loans, under some state plans. You might also have to complete a separate form.
Banks and lending institutions lend their own money to students and parents. Private loans are often used to cover financing gaps when other types of financial aid fall short. Because these loans are typically offered at a higher and sometimes fluctuating interest rate, try to exhaust all other options before turning to private lenders. Few high school graduates have substantial credit histories, so many private loans require parents (or grandparents) to co-sign a loan -- something that could put them at risk.
Some colleges and universities also lend money to help students cover costs. Schools manage these loan programs on their own, so students interested in this type of funding should speak directly with the office of financial aid to determine interest rates, repayment options and lending limits.
Because different loans have different repayment plans, it's important for you to fully understand your loan options before signing on the dotted line. Picking the right student loans on the front end can save years of headaches when it's time to repay them. With a standard repayment program, students pay a fixed amount of at least $50 per month. The loan is repaid within 10 years. Another option is a graduated repayment where the payment increases every two years until the loan is repaid. Students can also apply for an income-based repayment program.
Scholarships and grants
Loans aren't the only option. Scholarships and grants are available to all sorts of promising students, not just valedictorians and star athletes. Loans must be repaid, but scholarships and grants are essentially gifts. Organizations, philanthropies and schools are looking for diverse students across a wide spectrum of interests and potential, including ethnic minority students, LGBTQ students, students demonstrating a commitment to community service, and students entering caring professions such as social work, nursing or healthcare.
It takes preparation to win a scholarship. "Start looking early and apply early," advises Hailey Reynolds, a recent college graduate who took advantage of a state-based scholarship in Tennessee. "A lot of scholarships are on a rolling basis, meaning students who get their applications in may receive all the awards if they are qualified."
Employer reimbursement and work-study
If you have a job, your employer might cover part of your tuition. The National Center for Education Statistics recently found that 8.3 percent of undergraduate and 21.9 percent of postgraduates took advantage of employer programs, totaling nearly $9 billion in education subsidies. Check the employee handbook and talk with the human resources department to find out if the employer offers tuition reimbursement. Be sure to ask about minimum grade point averages or other conditions for being fully reimbursed for tuition.
A campus work-study job is another popular option. Such jobs are available at more than 3,400 campuses across the country, according to the U.S. Department of Education. Students find out if they are eligible for this type of financial aid when filling out the FAFSA, and their eligibility status must be renewed with a new FAFSA each academic year. Those who qualify usually are assigned campus-based jobs, including positions in the campus library, bookstore, student center, cafeteria, sports center or residence halls. Some universities also have partnerships with off-campus organizations as a way of providing public service.
Online colleges typically do not have work-study programs, but you may save a lot in commuting and dormitory costs. Be sure to do some comparison shopping, as costs vary significantly. The nonprofit Western Governors University, for example, typically offers some of the lowest fees available. A fully accredited online university, it offers degrees in teaching, IT, health and nursing and other business specialties.
Loan forgiveness programs
Each branch of the military, including the National Guard and the Coast Guard, offers student loan forgiveness programs ranging from $10,000 to $65,000 in total loan debt relief. There is also the National Defense Student Loan Discharge Program, which offers loan forgiveness arrangements to students who completed a one-year deployment to a hostile or active war zone.
With the need for teachers rising each year, a number of loan forgiveness programs for future teachers were created to attract new teachers. Teach Grants provide up to $4,000 annually for students completing bachelor's, master's or teaching credential programs, provided they plan to teach in schools in need of teachers. Federal Perkins loans qualify for loan forgiveness if the teacher plans to work in a low-income community, teach special education or undertake a subject with a shortage of teachers, such as math, science or foreign language. The Stafford plan allows teachers to receive up to $17,500 in loan forgiveness, but they'll need to agree to stay at a low-income school for five consecutive years.
Programs like AmeriCorps, Vista and the Peace Corps are all examples of public service loan forgiveness programs. In exchange for working in a government-funded community service setting, the government will forgive portions of student debt.
Nurses and certain other healthcare professionals can receive up to 100 percent loan forgiveness for Perkins loans after five years in the profession. The National Health Service Corps program allows up to $50,000 in loan forgiveness if graduates complete a two-year service commitment, while the NURSE Corps offers 60 percent forgiveness to those willing to work in a facility experiencing a critical shortage of nursing staff.
Paying off your loan
If finances are an issue, it's important to choose an affordable college. One way or another, loans have to be repaid. That's especially true for student loans, which cannot be canceled through personal bankruptcy. So, make sure you budget and borrow wisely. It's one thing to complete entrance and exit counseling for student loans but it's another to face monthly payments. Recent graduates often struggle to find a balance between landing their first entry-level job, budgeting their finances and making ends meet. Picking a realistic time span for paying off loans is crucial, as this will determine monthly payments. Financial counselors can also help recent graduates review their monthly income and create a balanced budget.
If you run into difficulties, seriously consider opting for loan deferment rather than defaulting on payments. It's true that interest will keep accruing while the loan is "on hold" through deferment, but that will hurt your credit score much less than simply failing to pay. Defaulting on a loan can have serious effects on your credit score, especially for students whose credit histories are short.
College may be more expensive than ever, but with careful financial planning and the right assistance, it can still be within reach.
Free Application for Federal Student Aid (FAFSA on the Web). https://fafsa.ed.gov/
Guide to Student Loans. New York Times. http://www.nytimes.com/ref/timestopics/topics_studentloans.html
National Center for Education Statistics. https://nces.ed.gov/programs/coe/indicator_cuc.asp
U.S. Department of Education. https://www2.ed.gov/programs/fws/index.html?exp=0