Investigating student loans
If your teens are contemplating college, you may have already started thinking about student loans. There's a lot of research involved, so, if a student loan is something you need to investigate, why not make it a joint project with your teens, since it's for their benefit?
According to the U.S. Department of Education, the Free Application for Federal Student Aid (FAFSA) form is used by virtually all two- and four-year colleges, universities and career schools for the awarding of federal student aid and most state and college aid. You can get an application from your school's guidance counselor or financial aid office, at www.fafsa.ed.gov, or by calling 1-800-4-FED-AID.
Among the many types of ways to pay for education expenses, including grants and loans, are:
- Campus-based aid: Includes Federal Supplemental Education Opportunity Grants, Federal Work-Study and Federal Perkins Loan programs, which are government-funded and awarded to students with the greatest economic need.
- Subsidized Stafford loans: Low-interest, need-based loans, where the government pays yearly interest while students are enrolled.
- Unsubsidized Stafford loans: Federal student loans not based on financial need. Students are responsible for interest that accrues while they are in school.
- Federal PLUS (Parent Loan for Undergraduate Students) loans: Federal loans for parents. Interest rates are fixed — although higher than federal student loans.
- Private loans: Offered by banks and other financial institutions for both students and parents. They aren’t federally guaranteed or subsidized, and typically carry higher interest rates. Their main advantage is that you can borrow more than with federal loans. Loan terms and rates vary widely by lenders.
- College-sponsored loans: 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.
- College-sponsored parent loans. Some colleges offer their own parent loans, usually at rates below PLUS loans. Check each college's aid materials to see if available.
Homework assignment for your teens: Have them search the FAFSA Web site for information about financial aid, filling out the application, interest rates, loan repayment, avoiding scams and much more. Other good resources include the U.S. Department of Education (www.ed.gov) and www.finaid.org.
Homework assignment for you: Learn about available tax advantages, including:
- 529 Qualified State Tuition plan, where you save money for education expenses but don't pay federal (and in many cases, state) income tax on interest earned. Go to the U.S. Securities and Exchange Commission (www.sec.gov/investor/pubs/intro529.htm) or www.Savingforcollege.com to learn how 529 Plans work.
- Coverdell Education Savings Accounts are another way to save money for education where the earnings will grow tax-free until withdrawn. Check out the IRS Web site, (www.irs.gov/taxtopics/tc310.html), for more information.