‘How on Earth Are We Go­ing to Pay for Col­lege?!?’

If this ques­tion is killing you, lis­ten up—we tapped three top fi­nan­cial aid pros for the an­swers you need.

Family Circle - - ON DUTY - By Leslie Pep­per

What kinds of loans are avail­able to pay for col­lege?

The Di­rect Sub­si­dized Loan (some­times known as a Stafford Loan) al­lows stu­dents to bor­row up to $5,500 their fresh­man year, $6,500 their sopho­more year and $7,500 each their ju­nior and se­nior years. If a stu­dent qual­i­fies based on fi­nan­cial need, part of the loan can be sub­si­dized, mean­ing that the U.S. De­part­ment of Ed­u­ca­tion pays any in­ter­est that ac­crues while the stu­dent is in school and for the six-month post­grad­u­a­tion grace pe­riod. The Di­rect PLUS Loan for par­ents al­lows them to bor­row up to the col­lege’s cost of at­ten­dance mi­nus any other fi­nan­cial aid re­ceived. Al­most ev­ery­one qual­i­fies for these two loans, and fixed in­ter­est rates for 2018-19 are 5% and 7.6%, re­spec­tively. Pri­vate loans, of­fered by banks and other fi­nan­cial in­sti­tu­tions, have both fixed and vari­able in­ter­est rates. El­i­gi­bil­ity and in­ter­est rates de­pend on your credit score.

Is send­ing our kid to a pub­lic state school our only op­tion if we can’t af­ford pri­vate tu­ition?

That’s a com­mon mis­con­cep­tion among par­ents. De­pend­ing on your fi­nan­cial cir­cum­stances, a pri­vate school might be as af­ford­able as (or even more so than!) a pub­lic one. How can that be? Be­cause pub­lic schools typ­i­cally don’t have much in­sti­tu­tional need­based fi­nan­cial aid to award—they mostly just cer­tify your el­i­gi­bil­ity to tap into other money avail­able, such as fed­eral loans and state aid. Pri­vate schools may have good en­dow­ments (ba­si­cally pools of do­nated money that have been in­vested over time to pro­vide in­come to the school) that help them of­fer more at­trac­tive fi­nan­cial aid pack­ages and schol­ar­ships that bring the over­all cost down.

What’s a rea­son­able amount of un­der­grad loan debt for stu­dents and par­ents?

Good rules of thumb: Stu­dents’ to­tal loan debt at grad­u­a­tion should not ex­ceed a rea­son­ably an­tic­i­pated start­ing an­nual salary in their field. For par­ents, the to­tal cu­mu­la­tive debt for all kids should be less than par­ents’ an­nual in­come.

Would it be smart to have my kid de­clare her­self legally in­de­pen­dent, so she can qual­ify for more fed­eral aid?

It’s ac­tu­ally quite dif­fi­cult to qual­ify as an in­de­pen­dent stu­dent for fi­nan­cial aid pur­poses. Un­less your child meets very spe­cific cri­te­ria, such as she has a le­gal de­pen­dent other than a spouse or child or is a vet­eran or ward of the court, you as a par­ent will have to fur­nish your in­for­ma­tion on the fi­nan­cial aid forms.

I’ve heard that ap­ply­ing for fi­nan­cial aid is a night­mare. Where do we even start?

Take a deep breath and start with the Free Ap­pli­ca­tion for Fed­eral Stu­dent Aid (FAFSA), be­cause many states and col­leges use the same in­for­ma­tion to de­ter­mine el­i­gi­bil­ity for state and school aid. You’ll need fed­eral in­come tax re­turns, W-2s, bank state­ments and any other records of money earned or ac­counts in your name. In ad­di­tion to the FAFSA, many in­sti­tu­tions use an­other (sig­nif­i­cantly more de­tailed) form called the CSS Pro­file to de­ter­mine el­i­gi­bil­ity in mak­ing their own (non­fed­eral) in­sti­tu­tional aid of­fers. There’s a small fee to fill it out, but fam­i­lies be­low a cer­tain in­come thresh­old may qual­ify for a waiver. Also be aware that cer­tain schools may have their own fi­nan­cial aid form.

If my teen is awarded an out­side schol­ar­ship, will that lower the amount of fi­nan­cial aid she gets?

That de­pends on the school’s pol­icy. By def­i­ni­tion, an out­side schol­ar­ship is money from a source that isn’t the gov­ern­ment or the school. The ma­jor­ity (80%) of schools ap­ply out­side schol­ar­ships to un­met need first, then loans, which is fa­vor­able. The re­main­ing schools will re­duce their grants first.

We’ve man­aged to sock away money for col­lege, but we also have quite a bit of credit card debt. Should we put those sav­ings to­ward pay­ing down our card bal­ance to show less money in the bank, so we can qual­ify for more aid?

It’s al­most al­ways good to pay down a credit card be­cause it’s an ex­pen­sive form of debt. The as­set re­duc­tion needs to oc­cur be­fore the FAFSA is sub­mit­ted. Plus, yes, less money in the bank can im­prove your el­i­gi­bil­ity for fi­nan­cial aid.

Can my daugh­ter ap­ply for a loan com­pletely on her own, hav­ing noth­ing to do with me?

Most fed­eral stu­dent loans do not re­quire the stu­dent to have a cosigner or a good credit his­tory. How­ever, many pri­vate stu­dent loans for un­der­grads re­quire a cred­it­wor­thy cosigner.

Should we tap our home eq­uity line of credit (HELOC) to pay for col­lege?

It’s a risky move and gen­er­ally ill-ad­vised for many rea­sons. If you de­fault on a HELOC, you could lose your house. If you de­fault on a stu­dent loan, well, at least the bank can’t re­pos­sess your ed­u­ca­tion. And a HELOC is a vari­able rate loan, so while the in­ter­est rate may be low now, the­o­ret­i­cally it could rise in the fu­ture and make the loan harder to pay back. Fi­nally, with the Tax Cuts and Jobs Act of 2017, the in­ter­est on some home eq­uity loans is no longer tax-de­ductible.

How do schools cal­cu­late the dol­lar amount that a fam­ily is ex­pected to put to­ward their col­lege costs? And if the num­ber is com­pletely out of whack with what we are able to cover, do we have any real re­course?

In­di­vid­ual schools don’t ac­tu­ally cal­cu­late the amount you’ll be tapped to chip in, called your Ex­pected Fam­ily Con­tri­bu­tion (Efc)—that fig­ure is cal­cu­lated af­ter you’ve com­pleted the FAFSA, based on a com­pli­cated for­mula es­tab­lished by Con­gress. There’s rarely a way to change that num­ber. How­ever, be­fore you panic, bear in mind that you won’t truly know what you’d pay for any given col­lege un­til af­ter you’ve of­fi­cially ap­plied for fi­nan­cial aid and re­ceived an aid award no­tice. The EFC is only one piece of that puz­zle.

Based on all I’ve heard, I highly doubt we’ll qual­ify for any fi­nan­cial aid. Should we fill out the forms any­way?

Ab­so­lutely! First of all, you’ll never know if you qual­ify un­til you sub­mit the nec­es­sary forms. Se­cond, you can get fed­eral loans only if you sub­mit the FAFSA. Third, many states and col­leges need the FAFSA in or­der for your child to re­ceive aid and schol­ar­ships for aca­demic, artis­tic or ath­letic ac­com­plish­ments. Go on, fill out the forms.

What’s a net price cal­cu­la­tor, and is it ac­cu­rate?

It’s an on­line tool to help de­ter­mine the ap­prox­i­mate cost for your child to at­tend a par­tic­u­lar school, af­ter tak­ing grants and schol­ar­ships into ac­count. Ev­ery col­lege and uni­ver­sity has one—some are more ro­bust than oth­ers. Many ask about stan­dard­ized test scores and class rank, which gives you an even bet­ter pic­ture of the school’s cost. Gen­er­ally, the more de­tailed the ques­tions, the more ac­cu­rate the ap­prox­i­mated cost of at­ten­dance will be.

My kid starts col­lege soon. Any point in open­ing up a 529 plan?

Yes, there is. Many states of­fer tax ben­e­fits for the con­tri­bu­tions, and as long as you with­draw for qual­i­fied higher ed­u­ca­tion ex­penses— in­clud­ing grad­u­ate and pro­fes­sional pro­grams— earn­ings are not sub­ject to fed­eral in­come tax and, in many cases, state in­come tax. A win-win.

Does ap­ply­ing for fi­nan­cial aid hurt my kid’s chance of be­ing ac­cepted by his dream school?

It shouldn’t. Many ad­mis­sions de­part­ments op­er­ate on a “need­blind” ba­sis, which means they don’t con­sider fi­nances when de­cid­ing whether or not to ad­mit the stu­dent. That’s the good news. The po­ten­tially notso-good news: Not ev­ery school that of­fers your child a spot will be able to come up with an aid pack­age that makes at­tend­ing the school a re­al­is­tic op­tion if you have a lot of need, espe­cially if you’re ac­tively look­ing to min­i­mize re­liance on loans. Keep that in mind if such a sce­nario would lead to a lot of heart­break in your house.

What if my kid’s first-choice school doesn’t of­fer us enough fi­nan­cial aid?

Ide­ally the school is com­mit­ted to meet­ing all of a stu­dent’s demon­strated need, so start with a phone call to the fi­nan­cial aid of­fice. Ask to speak with some­one who can go over your award let­ter with you in de­tail and ex­plain the pro­ce­dure for an ap­peal. In most cases a fi­nan­cial aid of­fi­cer can tack on some type of loan that wasn’t in­cluded in the ini­tial pack­age. If you’ve re­ceived higher aid of­fers from sim­i­lar-cal­iber schools, you may be able to lever­age them for a bet­ter pack­age from the first-choice school by (very po­litely!) ask­ing if there’s any­thing they can do to in­crease the amount of their award. If your fam­ily’s cir­cum­stances have changed for the worse since your FAFSA fil­ing, pro­vide sup­port­ing doc­u­men­ta­tion that in­cludes dol­lar amounts to prove the down­turn. Above all, be hon­est. If the fi­nan­cial aid of­fi­cer thinks you’re look­ing to put one over on her, she’s less likely to try to help you out. And it bears re­peat­ing: Be po­lite!

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