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College Financing Options

College Financing Options

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Published by mathenyr
Here are some easy-to-understand explanations of the common ways to finance your college education and some common myths about financial aid.
Here are some easy-to-understand explanations of the common ways to finance your college education and some common myths about financial aid.

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Published by: mathenyr on Dec 08, 2009
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 Your College Financing Options
There are a variety of financing options available for families who are concerned about their ability tomeet their family share of costs. These alternative sources of aid, most often in the form of loans, canhelp families cover financial aid gaps, or unmet need in a financial aid package.
Scholarships and Grants
While both scholarships and grants allow students to pay for their tuition without having to pay the moneyback, there are a number of key differences between the two:A grant is money that is given by a non-profit organization that will generally be tax exempt. One of thebest examples of this organization is the government. However, corporations or foundations may alsoprovide grants to students as well. Grants vary widely in their requirements, amounts, and expectations. Ithas been estimated that there are billions of dollars available in grant money.Like grants, scholarships are money that is given by governments and foundations. It is used as a way of financing students’ education. It may pay a part of their education, or it may pay the entire cost of astudent's tuition. Scholarships will require students to meet certain requirements, both before and after they've obtained it. Most of these scholarships will require students to have a minimum GPA, and theymay also require them to take a certain number of credit hours within the first 12 months of their schooling. While some scholarships are based on race and gender, others are based on the field thestudent is majoring in. The key difference between scholarships and grants is that scholarships tend tohave more rigid requirements for selection, and they are specifically geared towards those who areentering college.
Home Equity Loans
If your parents are homeowners, it's likely that they can borrow against their home. Your parents may beeligible to borrow a percentage of their equity, which is the difference between the market value of their house and how much is owed on the mortgage. This money can be used to pay for education costs. Therate is comparable to other borrowing options.An advantage of a home equity loan is that the interest paid may be deductible on your parents' federaltax return. A disadvantage is that they may have to pay a fee for this type of loan.
Tuition Tax Credits
A tax credit is an amount of money you can subtract from your federal tax bill. It is a dollar-for-dollar reduction of the amount you owe. If you have family members in college, and your income doesn't exceedcertain limits, you may apply for a tax credit.
Student Loans
Federal Perkins Loans
are awarded by colleges to students with the highest need, using limitedpools of money provided by the government and by prior borrowers in the form of repayments. Theinterest rate is very low—5 percent—and you don't make any loan payments while inschool.Undergraduates can borrow up to $5,500 a year, totaling not more than $27,500 overall.
Federal subsidized Stafford Loans
are also need-based loans. Beginning on July 1, 2009, the fixedinterest rate will be 5.6 percent. The government pays the yearly interest while you're in school.Undergraduates with the greatest need can borrow up to $3,500 for their freshman year. This limitrises as they progress through school.
Federal unsubsidized Stafford Loans
are sponsored by the government but are not based onfinancial need. The interest rate is fixed at 6.8 percent. As a dependent undergraduate, you can
Visitwww.collegeboard.comfor more information.
borrow up to $5,500 minus the amount of your subsidized Stafford, if you have one. That's for your freshman year; the limit rises as you progress through school. If you're an independent student or if your parents can't borrow a PLUS Loan, the limit rises by $4,000.Unsubsidized Staffords can be used to help pay the family share of costs. You're responsible for paying interest on the loan while in school, unless you, like most students, choose to have the interestadded to the principal during your years at school. This is known as capitalizing the interest. If you dothat, however, you'll be borrowing the amount of the interest as well, and that means you'll end uprepaying more money.
Federal parent PLUS Loans
are sponsored by the government but are not based on need.Generally, parents can borrow up to the total cost of education, minus any aid received. PLUS Loansare the largest source of parent loans.
The interest rate depends on which federal loan program your school participates in. If it participatesin the FFEL Program, the interest rate is fixed at 8.5 percent. If it takes part in the Direct LoanProgram, the interest rate is fixed at 7.9 percent.
Private (alternative) and state
education loans
are generally not subsidized or based on need.Although some colleges lend money to parents, private loans are most often intended for students.Still, a parent is usually a cosigner, since good credit tends to be a requirement. If the studentdefaults on the loan, the parent is responsible for repaying it.
Visitwww.collegeboard.comfor more information.
Financial Aid Myths
Don't Believe Everything You Hear 
Literally billions of dollars in financial aid is available to those who need help paying for college. Yet lots of misinformation clouds the facts about what type of aid is available and who is eligible. Here are somemyths dispelled for parents confronting the process of securing financial aid for their college-bound child.
College Is Just Too Expensive for Our Family
Despite the media hype about rising college prices, a college education is more affordable than mostpeople think, especially when you consider college graduates earn an average of $800,000 more over their careers than high-school graduates. The average yearly tuition and fees at a four-year publicinstitution in 2009-10 is just $7,020. There are some expensive schools, but high tuition is not arequirement for a good education.
There's Not a Lot of Financial Aid Available
In fact, more than $168 billion of student financial aid is available. Most students receive some form of aid. Less of this aid now comes in the form of grants, however; most aid is awarded through low-interestloans or institutional and other grants. Parents should consider carefully the financing packages offered totheir child by each college to determine which makes the most financial sense.
My Income Is Too High to Qualify for Aid
Aid is intended to make a college education available for students from many different financial situations.College financial aid administrators often take into account not only income, but also other familymembers in college, medical expenses, and other factors. Aid is awarded to many families with incomesthey thought would disqualify them.
We Saved for College, So We Won't Qualify for Aid
Saving for college is always a good idea. Since most financial aid comes in the form of loans, the aid youare likely to receive will need to be repaid. Tucking away money could mean you have fewer loans torepay, and it won't mean you're not eligible for aid if you need it. A family's share of college costs iscalculated based mostly on income, not assets such as savings.
My Child Isn't a Straight A Student, So We Won't Get Aid
It's true that many scholarships reward merit, but the vast majority of federal aid is based on financialneed and does not even consider grades.
If We Apply for a Loan, We Have to Take It
Families are not obligated to accept a low-interest loan if it is awarded to them. "In my opinion, everybodyshould apply for financial aid," says Shirley Ort, director of scholarships and student aid at the Universityof North Carolina, Chapel Hill. "Student loans are at all-time low interest rates." She recommendsapplying and comparing the loan awards with other debt instruments and assets to determine the bestfinancial deal.
Working Will Hurt My Child's Academic Success
Students who attempt to juggle full-time work and full-time studies do struggle. But research shows thatstudents who work a moderate amount often do better academically. Securing an on-campus job related
Visitwww.collegeboard.comfor more information.

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