FINANCES – October 2011

Start your student loan search now

If you’ve got a high school senior, your household is probably knee-deep in senior-year activities – and expenses. Not to elevate your stress level, but this is probably a good time for you and your kid to start investigating how you’re going to finance college next fall. Seriously.

Loan application deadlines are right around the corner and you’ve got many decisions to make and documents to fill out.

Your first step is start filling out the Free Application for Federal Student Aid (FAFSA) form. The FAFSA is required by virtually all colleges, universities and career schools for federal student aid, as well as for most aid from states and colleges. Although you can’t yet finalize 2011 income-related information, once you start the process you can log-in anytime to update your file.

Get a FAFSA from your school’s guidance counselor or financial aid office, at www.fafsa.ed.gov, or by calling 1-800-4-FED-AID. The FAFSA filing deadline for federal loans for the 2011-2012 school year isn’t until June 30, 2012, but many state and individual school deadlines fall months earlier.

Many types of aid are available to help cover costs at four-year colleges and universities, community colleges, and trade, career or technical schools, including:

• Hundreds of thousands of free scholarships are awarded each year. Visit www.finaid.org/scholarships for details.
• Federal Pell Grants are needs-based grants given to low-income students to pursue post-secondary education. The maximum annual Pell Grant amount is $5,500. They need not be repaid.
• Federal Supplemental Education Opportunity Grants for up to $4,000 a year are awarded to undergraduates with exceptional financial need.
• The Federal Work-Study Program provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.
• Direct Stafford Loans are low-interest federal loans that have no origination fee and come in two varieties: “Subsidized,” which are needs-based and the government pays the yearly interest while students are enrolled; “Unsubsidized,” which are not needs-based and students are responsible for interest that accrues while enrolled.
• Low-interest Federal Perkins Loans are for students who demonstrate exceptional financial need. They are subsidized and have no origination or default fees.
• Private education loans are offered by banks and other lenders to bridge the gap between government loans and actual education costs. They aren’t government-guaranteed or subsidized and typically carry higher interest rates, although you can borrow greater amounts. Details and rates vary widely.
• Some colleges sponsor their own loans, often with lower interest rates than federal loans. Check each college’s aid materials to see if they are available.
• Federal Direct PLUS loans (Parent Loan for Undergraduate Students) allow parents to borrow for their children’s college expenses. Interest rates are fixed (although higher than Stafford loans) and there is an origination fee.
• Private parent loans are offered by banks and other lenders, usually at higher interest rates than PLUS loans. They may also have an origination fee.
• Some colleges also offer their own loans to parents, usually at rates below PLUS loans. Check each college’s aid materials to see if they’re available.

Check out www.federalstudentaid.ed.gov and www.finaid.org for complete explanations of the different types of grants/loans, calculators and many other tools. Bottom line: Better start boning up on college financing now to avoid panic next winter.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney