Paying for College

Tips on Paying for College

Welcome to the world of Stafford, Federal Direct Stafford, PLUS, Federal Direct PLUS, SLS, Perkins, NDSL, HEAL, HPSL, LDS, NSL, Federal Consolidation and Federal Direct Consolidation loans.

These are just some of the terms that apply to the way you or your child will wind up paying for college.

As usual tuition costs are raising faster than the rate of inflation. According to the College Board, four-year private college tuition is $20,082 a year (up 6 percent from last year), while four-year public college tuition is $5,132 a year (up 10.5 percent from last year) and two-year public community or junior college tuition $2,076 (up 8.7 percent from last year).

There are many ways to go about saving and paying for college, starting with tax subsidized savings plans and moving on to government loans and grants, private loans, military and/or community service.

College is certainly worth it. According to U.S. Census Bureau statistics, those with a bachelor's degree earn over 70 percent more on average than those with only a high school diploma. Over a lifetime, the gap in earning potential between a high school diploma and a B.A. (or higher) is more than $1,000,000. It certainly appears that the pain of paying for college is worth undergoing.

College tuition need not cost $100,000 or more. Those paying $25,000 a year in tuition are the exception, not the rule. According to College Board figures, about 50 percent of students attending four-year colleges pay less than $6,000 for tuition and fees per year. This number goes to 75% for students attending public four-year colleges. Only about 5 percent of all students attend colleges where tuition and fees total $24,000 or higher per year.

There is a right and a wrong way to save for college. Many people feel that if they save too much, their child will receive reduced federal aid. This is because of the Expected Family Contribution (EFC), which is how much the government figures you can contribute to your child's tuition.

But if parents save in their names, not the child’s, the reduction in financial aid is not substantial. Only 5.6% of parental assets are included in aid formulas, while 35% of the child’s assets are included.

If parents do save, they are less likely to need to borrow to cover tuition or room and board, which is the main purpose of financial aid for students.

Tax-advantaged 529 College Savings Plans are extremely helpful in this regard. Those accounts are regarded as parental assets under federal aid rules.

The more expensive the college your child attends, the more likely you are to get financial help and the greater the amount you'll probably receive, particularly if you're paying for college for more than one child at the same time.

[Some very expensive colleges, like Havard, have come up with a plan that charges tuition based on a percentage of the parent's earings. So, if you make $50,000 a year, tuition would be capped at $5,000 and if you make $100,000 a year, at $10,000.]

Overall, 76% of students at private colleges qualified for assistance receiving a total aid package of loans worth $11,600. Grants averaged $7,000. 62% of students at public schools received financial aid, with a typical aid package of $6,200.

Total aid available for students has been growing rapidly, along with tuition costs. So, even if you don’t have much saved yet, the chances are good you will get at least some financial assistance.

The best source for complete information about student loans is available at SallieMae.com. This company was created by Congress in 1972 as a government-sponsored enterprise. It privatized itself and is now totally private.

It is the nation’s leading provider of education funding. The company primarily provides federally guaranteed student loans originated under the Federal Family Education Loan Program.

Sallie Mae currently owns or manages student loans for more than 7 million borrowers, and employs nearly 10,000 individuals at offices nationwide.

Sallie Mae also runs a site College Answer that helps a prospective college student and his family plan for college and for financing. The site contains numerous calculators to help with financial planning for college.

If you have someone in the third or fourth year of high school, sign up. It’s a free service.

This series of articles will look ways of paying for college. Among the topics will be Federally subsidized and private student loans; grants; scholarships; military and community service; college savings plans; and loan repayments.

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