School and Money Matters
Let’s face it, college is expensive. So when choosing a college or university, you want to make sure that you’re making the right decision and that it'll be worth it. Most students think about the size of their college (population and class sizes), degree majors, extracurricular activities, location, etc. Rightfully so, those are important factors to put into consideration to succeed and be comfortable while attending. But here are some things to think about if you want to get the best bang for your buck.
Community College vs 4-year University
In-State vs Out-of-State
Career Services Program
It's important to consider these options because many students don't think about these kinds of things. This will ensure that you get the most out of what you are paying for and stay ahead of your student loan debt.
Understanding An Award Letter & How to Pay
Once you start hearing back from college applications, it's also important to understand your award letters. This letter will often include your financial aid package detailing the costs of attending college. Identifying how many grants you're offered, loans you qualify for, and how much you might have to pay out-of-pocket are things to consider. So, let’s go through some key options for paying for college.
Federal and Private Student Loans
After taking all of this into account, you're left with the estimated out-of-pocket cost. This is the difference between the cost of attendance and all the financial aid you choose to accept. You have the option of paying a lump sum, enrolling in a monthly payment plan, or taking out a private loan to cover the rest of the expenses.
What is the FAFSA?
The Free Application for Student Aid, or FAFSA, is a form that both prospective and current student have to fill out every year to determine what type of financial aid they're eligible for. All you need are basic information about you and your family, plus you and your family’s tax information from the prior year or two. After filling out the application, you'll receive a number for your Expected Family Contribution. Keep in mind that this is not the final amount you'll have to pay out-of-pocket! This only gives a baseline of how much financial aid you're eligible for, whether it be federal grants, loans, or work-study. But, it's your award letter that'll give you the actual amounts.
The FAFSA is now open on October 1st prior to the new school year. If you're applying for aid for the school year 2018-2019, then the application is live on October 1, 2017. According to the FAFSA website, you can apply until June 30 before the school year starts (June 30, 2018 in our example) and you can make corrections until September 15 in the same year. However, some states and schools require you to finish your application before the actual FAFSA deadline. So, make sure to find out when those deadlines are so you don't miss out on financial aid!
Take Out the Least Amount of Loans as Possible
When it comes to student loans, you want to take out the least amount that you possibly can. This is because of INTEREST! Your loan amount will grow while you're in school and have to face a larger loan than you originally borrowed. One of the most common way to lessen the amount of loans you have to borrow is to apply to outside scholarships. There are scholarships for almost anything: being an athlete, having good grades, having a specific interest, being part of a specific club, being a specific ethnicity, living at a certain place, and more. You just have to take the initiative looking for what's out there, making sure your school will accept the scholarship if you get it, and applying for the scholarship.
Another way you can lessen the loan amount you have to borrow is by finding out if your school or job offers tuition reimbursement. Some companies, like UPS or Chipotle, offer thousands of dollars in tuition assistance to their employees. The reason being, it can be a nice incentive for employees to work at their company longer – not a bad trade-off! However, there are requirements to be eligible for this program and not everyone offers tuition reimbursement. So, make sure to find out if your school or company does because it can really help you out.
Besides scholarship and tuition reimbursement programs, you can also try to make extra money in and out of school – a side hustle! There are many ways to make an extra buck, you just have to find the ones that work well for you. If you live or go to school near a busy city, you can look into being an Uber or Lyft driver. There will be no shortage of customers and you can work on your own time. If you're an artist or photographer, there are websites online where people will pay for your work or request a certain type of art piece or picture for money. If you have a talent for finding value, you can buy items in garage sales and flip them online for a profit. There are also freelancing websites online, think about what skills you have that other people could use and get paid for it! Some examples are basic accounting, proofreading, video editing, resume reviewing, and much more. Just be creative and find what works best for you, hustle!
Terms to Know as You Start Applying for Loans
Expected Family Contribution
Your expected family contribution is determined by the government and the school you're going to or wish to go to. After filling out the FAFSA, which includes putting in your family’s tax returns, the school and government will determine how much you can get in student aid. Your expected family contribution will be deducted from the cost of school, the remainder being what you can get in aid money. For example, if your tuition costs $30,000/yr. and the school decide that your family contribution is only $5,000, you could get $25,000 in financial aid for everything. The higher the expected family contribution, the more you'll have to pay yourself.
Principal Loan and Capitalization
The principal is the original amount of the loan you'll take out. It's the amount taken out before any interest or additional fees. Capitalization is the addition of the interest onto your principal loan. Over time, interest builds and adds onto your original loan. Capitalization of your loan is what often creates those monster loans you hear about. If you're dealing with unsubsidized student loans or private loans, interest will build and be added to your principal. That is why it's important to make monthly payments on your principal as well as additional payments, so you can stay on top of any interest that might build up. ChangEd puts your spare change aside to go towards principal payments, keeping you ahead of the game.
Whether it's a federal government loan or a private loan, interest plays a huge role in your student loan. Everything seems to be going fine and then you remember the interest. Before talking about specific interest rates, you'll need to know just exactly how interest works.
Your interest rate will accumulate either daily or monthly. For most loans, this will be a daily charge of interest. Your required payment to your loan will always be the same each month, but before your payment reaches your principal, it will go towards the interest. After the interest is paid, then the remaining amount you paid will go towards the principal. You'll want to know how your interest will be calculated. Follow the formula: Interest Rate x Current Principal / 365. For example; I have an interest rate of 5.05% and a current loan balance of 25,000. Do the math: 0.0505 x 25,000 / 365 = 3.45. This means that a total of $3.45 will be added to your loan EACH DAY, making it $25,003.45 after one day. That's a cup of your fancy coffee you always like to get. That seems small now but over time that can turn into thousands of dollars if you don't make regular payments!
Now we can get to rates for different types of loans. The interest rate for federal loans are fixed, meaning that they are set for the duration of your loan. Unsubsidized and subsidized loans are set at 4.45% for undergraduates (sadly, it'll be rising to 5.05% for the 2018-2019 school year) and 6.00% for graduates. PLUS loans are currently at 7.00%. The case for private loans is different as they vary based on the lender. These interest rates are based on credit score, job history, and income. The rates can be as low as 3.00% but can get higher than 18.00%. Sadly, student loan interest rates are only on the rise, so look into every option you can. Refinancing is a viable option for some, but if you're in school with very little income you'll have to wait until you get a good paying job. Beware of falling behind on your payments, this may lead to default which is no good. Be sure to contact your lender as they want to put you on the path to success to pay your loans on time. Good payment history brings a good credit history which turns into following all of your financial dreams after school. This means more days at the beach sooner because you took a few actionable steps now.
You'll need a cosigner for most private student loans, if you're looking at a federal student loan then a cosigner won’t be necessary. The cosigner is someone who is creditworthy and is basically taking responsibility for the borrower if payments become an issue. A cosigner can be anyone who is willing to take responsibility for you and your loan, most of the time it's a family member that cosigns. Sorry, you can't ask your dorm roommate. With a cosigner, you have a better chance to qualify for a private student loan as well as getting lower interest rates, because they often have a better credit score than the borrower. Most college students don't have much credit history and very little income, and lenders won't offer a loan to someone that doesn't have a credit history. Cosigners require a lot of trust as lenders look to cosigners to getting payments in on time. If you don't, it reflects poorly on the cosigner. You don’t want to ruin a relationship because of student loans!