Personal Finance 101: College Education Planning—What Kinds of Money Are Available
This article is part of an original series, Personal Finance 101: College Education Planning. Be sure to check out other posts from this series on iGrad:
Many people get confused by the multitude of different loans that are available to them. In my opinion, the massive federal deficit we are in now will only shrink the available amount of loans for students in the future. It is important to understand how these loans work so you can set up a borrowing plan for the money you’ll need during your college years.
Now, you need to remember that there is a major difference between a grant and a loan. A grant is something that generally does not have to be repaid, whereas a loan is something that does require repayment. Since there are half a dozen different types of grants and loans, do your own due diligence to determine how much money you can get. Here are some highlights of the major types of grants, loans, and places where you may be able to find additional available money.
Federal Pell Grant
A Federal Pell Grant, unlike a loan, does not have to be repaid. Pell Grants are usually only awarded to undergraduate students who have not earned a bachelor’s or a professional degree. (In some cases, however, a student enrolled in a post-baccalaureate teacher certification program might receive a Pell Grant.) Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and nonfederal sources might be added.
How Much Can I Get?
The maximum Pell Grant award for the 2012-13 award years (July 1, 2012 to June 30, 2013) is $5,550. The amount you get, though, will depend not only on your financial need, but also on your costs of attendance, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less.
Any Pell Grant eligible student whose parent or guardian died as a result of military service in Iraq or Afghanistan after Sept.11, 2001 will receive the maximum annual award. You must be under 24 years old or enrolled at least part-time in college at the time of your parent's or guardian's death (www.studentaid.ed.gov).
There are other different types of grants available, but this is probably the most well-known type of grant.
What Kinds of Federal Student Loans are Available?
Stafford loans are for undergraduate and graduate students. There are two types of Stafford loans: Subsidized and Unsubsidized.
Subsidized Stafford loans provide low interest rates and are available to students who demonstrate financial need based on income and other information provided on the FAFSA. A credit check is not required to receive these loans. As of July 1, 2012, the federal government does not pay the interest on these loans during what used to be called the 'grace period'; the feds will, thankfully, continue to pay the interest on new loans while the undergraduates are still in school. Graduate students are not eligible for subsidized loans.
Unsubsidized Stafford loans provide low interest rates and are available to all students, regardless of financial need (although the FAFSA still must be filed). A credit check is not required to receive these loans. The student is responsible for the interest, which may be paid while the student is in school, or accrued and then added to the principal balance when the student enters repayment, which occurs six months after the student is no longer enrolled in school at least half-time.
PLUS loans are low interest loans that parents can obtain to help pay the cost of education for their children. In addition, graduate students may obtain PLUS loans to help pay for their own education. PLUS loans require a credit check and, in some instances, an eligible cosigner. Repayment of PLUS loans begins following the final disbursement for the year. Graduate students and parents of dependent students may be able to defer repayment of their PLUS loans until after the student is no longer enrolled in school at least half-time, although interest will continue to accrue.
Consolidation loans allow student or parent borrowers to combine multiple federal student loans into one loan with one monthly payment. A federal consolidation loan cannot include private loans, however, some private lenders may offer consolidation loans. Borrowers should be aware that they will lose their federal borrower benefits if they consolidate their federal student loan into a private consolidation loan. Borrowers should always exhaust federal student loan options first before considering a private consolidation loan.
As I mentioned earlier in the article, you are doing yourself a great favor by recognizing that these loans can only shrink as the federal government continues to cut costs over the next 10 years. You should expect that state-level funding will go down as well, given the deficits that many states are running, and that the federal government—in my estimation—will push more to the states in the upcoming decade.
Searching for Scholarships
The last part of securing loans is learning about the different organizations, societies, clubs, and charities that have their own scholarships or need-based programs. Many times, these loans or rewards go unrecognized because parents don’t take the time to do the research to find the money.
There may be scholarships available at the company you work for today. Many of the Fortune 500 companies have scholarships for employees deemed as deserving of the award—check with your benefits or HR department. You could also get a scholarship based on individual character qualities, for example, minority and gender scholarships—there is even a scholarship for those who write ‘lefty’. I like this one because I write left handed. You should use your local library, high school, and the internet to scour the market place for these scholarships. Some of these never even get applied for because people just don’t know they are available.
From the time you begin making assumptions about what college will cost in the initial planning stages, to the day you file your FAFSA forms, charting the course to paying for your college education can be a daunting task. Many students and parents get their information second hand from their peers or from a resource at their high school, rather than professionally laying out a plan with people who know how to develop the best strategies for saving and getting money. Time goes by quickly, so use these college planning articles to begin strategizing today.
Ted Jenkin is a founder and co-CEO of oXYGen Financial, Inc. After a distinguished tenure with American Express, Ted sought to focus his expertise on continuing education and the financial needs of students and recent grads. One of the foremost knowledgeable professionals in his field, Ted specializes in offering excellent financial advice and planning to Gen X and Y clients. For more information and a free consultation, visit oXYGen Financial.
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