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 will be here before you know it and there are many decisions to make and documents to fill out ahead of time to avoid costly last-minute mistakes. Plus, competition for grants and scholarships remains fierce in the face of ever-escalating tuition, fee and textbook costs -- and early applicants sometimes have an advantage.
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 individual colleges. Although you can't finalize 2011 income-related information just yet, once you start the process you can log-in anytime to update your file.
Get a FAFSA from your child's school's guidance counselor or financial aid office, at the Federal Student Aid website, 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. Plus, you may be required to complete additional forms. (Find your state's deadline here.)
- Hundreds of thousands of free scholarships are awarded each year for everything from academic achievement, to athletic ability, to random characteristics (like being left-handed or having the last name "Zolp.") Visit the FinAid Scholarship site 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 are grants for up to $4,000 a year for undergraduates with exceptional financial need.
- Federal Work-Study provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.
- Federal Perkins Loans are low-interest loans for students who demonstrate exceptional financial need. They are "subsidized," meaning the government pays yearly interest while students are enrolled. They have no origination or default fees.
- Direct Stafford Loans are low-interest federal government 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 (Note: As a result of debt ceiling legislation passed on Aug. 2, 2011, interest on subsidized Stafford loans for graduate and professional degree program students taken out on or after July 1, 2012, will no longer be subsidized.); and "Unsubsidized," which are not needs-based and students are responsible for interest that accrues while enrolled in school.
- 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.
- College-sponsored loans are offered by some colleges. Interest rates may be lower than federal student 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.
Besides housing the FAFSA application, the Federal Student Aid site features many helpful tools, such as the FAFSA4caster, which helps estimate your eligibility for federal student aid, discussions about Student Loan Repayment Responsibilities, Scholarship Scams to avoid, and much more. Another excellent resource is FinAid.org, a nonprofit source of student financial aid information and tools, including calculators that can help you determine the Expected Family Contribution required to apply for government grants and loans, Loan Payment Calculations and more.
Underlying all this is the serious discussion your family needs to have on how much loan debt is appropriate for students -- and parents to take on, knowing that such loans are nearly impossible to be discharged, even in bankruptcy. I'll tackle that subject in a future column. In the meantime, better start studying up on college financing now to avoid panic next winter.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.