12/15/2014 1:54 PM
Applying to college can be exciting, but also presents a variety of challenges. For many Marylanders, financing the cost of a college education is the most significant among these. Fortunately, there are great tools available online to help students understand and plan for the cost of college. Here are some basic tips for navigating the sea of financial decisions associated with higher education and avoiding the student loan debt sticker shock that many recent graduates face.
Understand the Total Cost of Attendance
Affordability is a key consideration in deciding what college to attend and what degree to pursue. However, the total cost of attendance can be a very tricky figure to nail down. A common misconception is that tuition alone is the cost of attendance. Generally, the total cost of attendance is defined as the sum of the school’s full tuition, room and board for the academic year (sometimes called the living expense), books, and all administrative fees. The total cost of attendance can vary widely based on in-state or out-of-state status, the geographic location of the school, and the living situation of the student. The U.S. Department of Education has created a college shopping sheet so that you can compare each school, which is available at http://collegecost.ed.gov/shopping_sheet.pdf.
Break Down the Financial Aid Package
To apply for financial aid, a student completes the Free Application for Federal Student Aid (FAFSA). Based on this information, the school will generate a financial aid package for the student, which may include a mix of grants, scholarships, loans, and work-study.
Grants and scholarships reduce the cost of college. However, some scholarships require a student to maintain a certain grade point average (GPA). Always find out if a grant or scholarship has any academic requirements. Additionally, be sure to understand how many years the grant or scholarship covers and if there is a renewal process. Student loans, on the other hand, must be repaid with interest. Make sure that you review each aid offer carefully. Keep in mind that you are not required to accept every type of aid in the financial aid package, or the entire amount offered.
The Consumer Financial Protection Bureau has created a comprehensive online resource on financing college education, which is available at http://www.consumerfinance.gov/paying-for-college/.
Private v. Federal Student Loans
There are many types of student loans. Most broadly, loans can be categorized as either private or federal. Federal loans are funded by the government. Private loans are non-federally funded loans, made by private institutions such as a schools or banks. Federal student loans come with numerous benefits, including deferred payment during school, low fixed interest rates, favorable repayment options, and opportunities for loan forgiveness. Private loans are not required to offer any of these benefits, so it is generally recommended that borrowers exhaust federal loan options before turning to loans from private companies. For an overview of the differences between federal loans and private loans, visit https://studentaid.ed.gov/types/loans/federal-vs-private.
It can be difficult to understand whether the school is offering a private loan or a federal loan. Both types of loans may appear in a financial aid package. Generally, federal loans will be classified by their program name (e.g., Stafford, Graduate PLUS, Perkins, William D. Ford Direct Loan). Ask questions and read all the materials provided to you by the financial aid office. The U.S. Department of Education has set up an information center, which you can call at 1-800-4-FED-AID (1-800-730-8913) if you need further information.
Compare the Interest Rates
Federal Direct Loans are classified as either subsidized or unsubsidized. This distinction is related to the interest that accrues on the loan while the student is in school. The government pays for that interest with a subsidized loan, so the balance remains the same while the student is in school. The government does not do this with unsubsidized loans. Many students have to take out a mix of loans at different interest rates. Always compare the interest rates of those loans. It is generally best to take the loans that offer the lowest interest rates. Check out the links above for more information and comparison tools.
Research, Research, Research
Paying for education is a significant financial obligation. Thus, an accurate cost/benefit analysis is critical. Every student should have a rough estimate of what their job prospects are in their chosen field and what range of compensation they should expect. Financial aid experts recommend that a student’s educational debt should be no more than 10% of their annual income for the first year of employment. While gathering this information may seem daunting, there are some great tools to help. You can find some of them here http://www.washingtonpost.com/wp-srv/special/business/student-loan-debt-calculator/ here http://www.bls.gov/k12/students.htm and here http://www.careerinfonet.org/.