College tuition and fees have gone through the roof as government funding has dried up. This comes at a particularly bad time as college-saving accounts have toppled. At the same time, supplemental work for students has dried up as older American’s, laid-off from career-track jobs, willingly accept minimum-wage jobs just to bring in some cash.
College endowments also continue to shrink, making it more difficult for colleges to offer grants and scholarships. In response, our federal government has broadened loan programs for students by offering more loans, more money and better rates while increasing tax breaks for parents. An expanded tuition credit for households with up to $160,000 in adjusted gross income could trim as much as $2,500 from your tax bill. Still, the economic downturn means many families need to rethink how and how much they’ll need to borrow.
Here are six public and private types of college financial aid:
1. Free Application for Federal Student Aid (FAFSA)
Your first step is to fill out the FAFSA form colleges usually require before awarding aid, from merit scholarships to need-based grants and loans. The Department of Education begins accepting the application Jan. 1 of each year. Applicants who have filled out a FAFSA in previous years are able to fill out a renewal FAFSA, but information on taxes and savings, for example, must be updated annually. The form includes numerous questions regarding the student’s finances, as well as those of his or her family, if the student is a dependent. The answers are entered into a formula that determines the Expected Family Contribution (EFC).
2. Federal Perkins Loan Program
Low-interest Perkins loans of up to $4,000 a year goes to students with the greatest financial need. Perkins Loans carry a fixed interest rate of five percent for the duration of the 10-year repayment period. Borrowers begin repayment in the tenth month after graduation, falling below half-time student status, or withdrawing from college. Interest doesn’t begin accruing until the borrower begins to repay the loan. The Perkins Program should balloon to $6 billion a year, from $1 billion, under President Barack Obama’s proposed 2010 budget.
3. Stafford Loans
Stafford Loans are the most common need-based student loans and almost always have better terms than private bank loans. These loans may be subsidized, in which case the government pays the interest while the student is in school, or unsubsidized. Twelve percent of students from families with adjusted gross incomes over $100,000 received subsidized Staffords in 2008/09 and the interest rate will decline from 5.6 percent to 3.4 percent by the 2011-12 academic year.
Unsubsidized Stafford loans, which any student can receive, are getting more generous, too. You can add $2,000 to the former limits of $3,500 for freshman year, $4,500 for sophomore year and $5,500 thereafter. Loan terms will remain at 6.8 percent; your college can provide a list of lenders.
4. PLUS Loan Program
PLUS loans allow you to borrow for the full cost of a dependent child’s college education, minus any financial aid. For the 2009/10 school year, the interest rate is 7.9 percent for loans that come directly from the government and 8.5 percent for those in which a financial institution is the intermediary. The fees run from three percent to four percent of the loan.
5. Scholarships
Students needn’t always have a 4.0 GPA to qualify for scholarships, although it certainly does help. The Department of Education provides a searchable database for college scholarships based on degree area and location.
6. Private Loans
Leave private loans until last. Before the credit crunch, you could cosign a private student loan with a credit score as low as 620. Now, banks require credit scores of 680 to 700, or even 730.