What You Need to Know About Financial Aid
High school students thinking about a college education are faced with making many difficult decisions from where to attend, what to study and what they can afford. With college costs on the rise, the ability to pay is a growing concern for students and families. A recent Fidelity study finds that 70% of the class of 2013 graduated with an average debt load of $35,200. As a result, student debt is now $1.3 trillion, more than even credit card debt in America.
According to a study by FINRA, millennials are increasingly concerned about their debt load and exhibit low levels of financial literacy. Before they entered college, many millennials did not anticipate the debt load they would have upon graduation. 52% of the class of 2013 admits that if they had known how much debt they would have in student loans, they would have researched more scholarships or grants, and 48% say they would have started to save earlier.
With a new crop of high school graduates planning to attend college and recent college graduates ready to enter the workforce, it’s important for them to be financially literate about student loans, financial aid, scholarships and debt!
Here are key issues you and your millennial should be financially literate about as they navigate the financial aid process.
Research scholarships and grants before student loans –
Scholarship and grants are free money! Do a little research to find out if there are smaller scholarships available if you have trouble attaining larger ones. Even winning a few smaller scholarships can add up and save you more money! There are scholarships for almost everything, from baking to athletics, so don’t count yourself out of receiving one! See what type of scholarships the schools you are looking to attend offer and apply for as many as possible! My favorite scholarship search sites are Fastweb.com, Collegeboard.com, and Scholarshipmonkey.com.
Early bird gets the worm (or the money)! –
Filling out a FASFA form can be complicated, but it’s important to remember that you have a greater chance of getting a better financial aid package the earlier you submit it because there is more money to go around at the start of financial aid season. Try to file as soon as you can after January 1. In addition, be sure to send your FASFA form to all the schools you are applying to. Each college you are applying to will be able to see where else you are applying, which may compel them to give you a more competitive package to persuade you to attend their school.
Federal student loans are a better option-
Ideally, student loans should be your last resort. Given how high interest rates and repayment plans are, each dollar you borrow is going to cost you twice as much by the time you pay it back. If you have to take out student loans, opt for federal student loans. Federal student loans offer lower interest rates and more flexible payment plans if you find yourself unemployed or underemployed upon graduating and thus not able to pay. Having said that, if you have to default, the federal government can garnish your wages, social security or tax refund without involving a lawsuit.
Private loans are not as flexible with their repayment plans. If you have a cosigner on your loan and you find yourself unable to pay back your private loans in a timely manner and have a cosigner, your cosigner will be on the hook to pay. Regardless of what type of loans you have remember that defaulting on your loan or even just missing a payment can impact your credit score and make it more difficult for you to get a car loan, house loan or a loan for a graduate degree in the future.
Be careful when reviewing your financial aid package –
When you receive your financial aid package, make sure you look through carefully to understand how much you are actually paying. Consider the net price vs. the net cost of attending each school you are considering. To figure out the net price, subtract the grants you are receiving from the cost of attendance. The net price will tell you what you need to use from savings, income and loans to cover the cost of attending. The net cost can be a misleading figure as it only subtracts the financial aid package (which includes loans) you’re receiving from the cost of attending. Keep in mind that the package you receive your freshman year might be different from what you get for future semesters. Remember that the true cost of college involves paying for food, insurance, books, entertainment, gas, a car or day to day living expenses on or off campus. These costs are not factored into your tuition or loans, so take that into account when calculating the “real” cost of your college education.
A college education is a major investment that can reap a lifetime of personal and professional benefits if you can manage the costs. Explore as many scholarships and grants to decrease costs and if necessary, investigate federal student loans. Be sure to explore all of your financial options before committing to any one program since you may be paying off your loans for quite some time!