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Determining How To Pay For A College Education Isn’t Rocket Science. Or Is It?

books with a mouseIf your child is a high school junior this year and intends to go to college, you’re about to embark on what could be your most confusing year ever, which is determining where you child will go to school and how you’re going to pay for his or her college education.

The FAFSA

If you will need financial aid, the whole process begins with filling out the FAFSA or Free Application for Federal Student Aid. This is such a complicated document that many parents actually break down and hire a professional to help them complete it. For example, here is some of the information or documents you will need to complete your FAFSA.

• Your Social Security number (it’s important that you enter it correctly on the FAFSA!)
• Your parents’ Social Security numbers if you are a dependent student
• Your driver’s license number if you have one
• Your Alien Registration Number if you are not a U.S. citizen
• Federal tax information or tax returns including IRS W-2 information, for you (and your spouse, if you are married), and for your parents if you are a dependent student:
• IRS 1040, 1040A, 1040EZ
• Foreign tax return and/or
• Tax return for Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federal States of Micronesia, or Palau
• Records of your untaxed income, such as child support received, interest income, and veterans non-education benefits, for you, and for your parents if you are a dependent student
• Information on cash; savings and checking account balances; investments, including stocks and bonds and real estate but not including the home in which you live; and business and farm assets for you, and for your parents if you are a dependent student

Where you will need to submit the FAFSA

Here comes the dicey part. You need to submit the FAFSA to that school or schools your child would like to attend while your child may not have yet chosen them. And while the FAFSA must be submitted to the US Department of Education by June 30 of next year, most colleges require that you submit it much earlier. So if your child has not yet selected a school or schools it’s time to get started on this.

Here’s a short video courtesy of National Debt Relief with some good tips about filling out the FAFSA to get the most financial aid.

Guesstimating the costs

After your child has chosen some schools, you to next sit down and to try and figure out how much each school will cost. Be sure to take into consideration not just tuition and room and board but other factors such as cell phone costs, books, entertainment, travel and anything else that would be related to his or her education. You will probably have to just guesstimate these costs at this point.

Check out the Consumer Financial Protection Bureau website

To get some extra help, the Consumer Financial Protection Bureau website has a section called “Paying for College” where you can plug-in numbers from various schools three at a time and then compare their first-year costs.

What’s next?

Once your child has chosen a school or schools, you will need to submit application forms and FAFSAs to each one of them. In some cases you may also have to fill out and submit a CSS/Financial Aid PROFILE Form. And if your child is intent on attending a really elite private school, you may have to fill out it’s own specific financial aid form.

In the meantime if you can afford it you and your child should be visiting the schools. When you do, check out the dorm rooms, the dining rooms or cafeterias, some of the classrooms and have a chat with someone in the school’s financial aid office.

The acceptance and award letters

The school or schools that accept your child will send you a letter of acceptance and an award letter. The award letter is where you will first see exactly what that higher education is going to cost. The reason for this is because it will be based on your “need,” which is the difference between what the school costs and what you will be required to pay. To put this another way, each school will calculate how much financial aid your child is eligible for and then subtract this from its “gross” cost. As an example of this, suppose the school charges $20,000 a year for room and board, tuition, books and incidentals. If it determines that your child is eligible for $10,000 in student aid, your need would be $10,000. You could think of this as the true price of a car versus its sticker price.

A simpler document

Many schools have now adopted what’s called the Financial Aid Shopping Sheet. If your child is considering one or more schools that use this Sheet, things will be much simpler. It’s a streamlined, easier-to-read template that will show what financial aid your child will receive along with details as to the school’s graduation rates, percentage of loan defaults and other important data.

What financial aid might your child receive?College student thinking while holding credit card

This will all be spelled out in your award letter but the kind of financial aid usually offered is scholarships, grants, work-study programs, loans and grants in aid. Of these five options, the best are grants and scholarships because they are basically free money. Your child would not have to do anything to earn the money nor would he or she have to pay it back.

Read the award letter carefully

It’s important that you read very carefully the award letters you receive. It might seem at first blush that it’s time co celebrate because of all of the financial aid your child will be receiving. However, a careful reading might reveal that a majority of that aid is in the form of a loan. We understand that your child may have to take out loans in order to finance his or her education but, of course, it’s much better if you can avoid this. Students today are graduating with an average of nearly $30,000 in student loan debts, which can haunt them for years.

Avoiding student loan debt

Of course, the best thing for your child would be to avoid student loan debt. Unfortunately, given the cost of some colleges, this is much easier said than done. One way to do this is to have a heart-to-heart talk with your child regarding schools that he or she would like to attend versus those that you could finance without having to go into debt. It used to be that attending an elite Ivy League school was worth the investment because it all but assured a very lucrative career. However, this is no longer as true as it was just a few years ago. For that matter, many parents today are sending their children first to two-year community colleges where they can get the basic courses out of the way before going on to more prestigious schools for their junior and senior years.

The two types of federal student loans

If there is just no way your child can get a college education without borrowing the money, you should know about the types of loans available. The ones your child could get would be a Federal Direct Loan or a Perkins loan. The major difference between the two is that the Federal Direct Loan comes from the US government, while a Perkins loan comes from your child’s college or university. Federal Direct Loans can be either subsidized or unsubsidized. The difference between the two is that subsidized loans are based on need – meaning that you and your child must be able to demonstrate a financial need. On the other hand, unsubsidized loans don’t require that you prove a need. But all Perkins loans do require this. It’s also important to understand the difference between subsidized and unsubsidized loans. Subsidized loans are those that don’t require your child to pay any interest while in school at least halftime. But unsubsidized loans do require that your child pay interest while in school.

The final choice

As you can see, there are many factors that go into making that final choice or the school that your child will attend. However, if you take your time, do your homework and sort through the various alternatives available, you should be able to make a final choice that will fit with both your child’s career plans and your ability to help finance his or her education.

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