The cost of going to college has been increasing much faster than the rate of inflation. To attend a small, private college costs $20,000 a year minimum. And if your son or daughter just got an acceptance package from Harvard, you’re looking at $40K by the time you factor in pizzas in the dorm room. You got that kind of money lying around? Not many people do.
You want the best for your child. It’s natural. And that means you want those kids to go to the best schools they can – even if it breaks the bank. Welcome to the world of financial aid, government grants and student loans.
Over 68% of all college students receive some form of financial aid. Scholarships are always nice. They don’t have to be paid back. Work-study is good. Your child works in the cafeteria, library or somewhere else on campus to earn walking-around money.
Tuition and living (a dorm room) are the two priciest items you’re looking at for the next four years (unless you’ve got a few more future graduates coming through the pipeline). Start by talking to the financial aid people at your child’s school of choice to see if there’s any scholarship money, grant money or other cash available through the school itself. You may get lucky.
Or, maybe not. In either case, chances are you’ll be talking to a private lender to borrow cash for those tuition bills. Ask the financial aid officer to whom you speak for recommendations on lenders. These professionals may be able to point you in the right direction.
Shop around. You’ll find the best deals on government-insured loans. These are loans backed by the federal government. That means if the borrower defaults on the loan, the taxpayers pick up the tab. (You pay one way or another, that’s a fact.) Government-backed loans are easy to get, rates are set but different lenders can set additional terms – earlier payback start date, no rearranging existing loans to attend grad school – there are differences.
You also may find that government-backed loans are unavailable through your local bank. Congress does limit the amount of risk it places on the backs of taxpayers. In this case, go for a collateralized loan to receive the lowest possible rate. A line of credit on your home is the best way to go. That way, the money is available when you need it but you don’t pay interest on that money until you actually use it. Saves a ton on interest charges.
Always read the fine print, especially if you’re taking a collateralized loan. Your house is at stake and some unscrupulous lenders are more interested in repossessing your home than getting your kids through school. Buried in the boilerplate, somewhere, is clause 12.3, sub-section C that states that if you’re late with a single loan payment, the lender can begin foreclosure proceedings to get your home. Not good.
However, you don’t have to worry about these unethical practices if you go with your local hometown back, talking to good ol’ Bob about a government-backed loan for your freshmen offspring.
Elizabeth Warren attempting to explain why Student should pay less interest on loans.