Paying for College If you are heading to college, consider your financial options before signing up for a loan.
by Pamela Yip
Despite the troubles in the private student loan market, other sources of funds are available. You just have to know where to look.
Here are some tips:
- Talk to your school's financial aid office. Staff there can help you find another lender if your lender stops making education loans.
- Fill out the Free Application for Federal Student Aid form, also known as FAFSA.
This document is the starting point for applying to almost all student financial assistance programs and determines eligibility for federal financial aid. Many schools also use it as part of the application for nonfederal aid.
- Seek federally guaranteed loans first before going to the private market.
"Federal loans are cheaper, more available and have better repayment terms than private student loans," said Mark Kantrowitz, a student loan expert who runs FinAid.org.
"The interest rates on federal loans are fixed rates and will not increase like variable rate private student loans."
- If you must borrow from private lenders, find a credit worthy co-signer.
"Lenders use the higher of the two credit scores not only for determining eligibility, but also for setting the interest rate and fees," Kantrowitz said.
"The higher the credit score, the less expensive the loan."
- Shop around for a private loan, but don't go hog wild because too many lender inquiries on your credit report may hurt your credit.
"Applying to three or four lenders is just about the right number," said Harrison Wadsworth III, special counsel to the Consumer Bankers Association.
- Consider peer-to-peer lending, also known as "social lending," which enables individuals to borrow and lend money through social networking on the Internet.
- Ask the school about tuition payment plans.
"These plans let you stretch out the college bill over nine or 12 months for a small one-time fee instead of having to pay the bill all at once," Kantrowitz said.
- Ask whether a school has other programs to help you through a funding drought.
Texas A&M University, for example, has an emergency tuition/fee loan program that enables students to pay those bills while they search for financial aid, said Joe Pettibon, financial aid director. The student repays the emergency loan when he or she finds financial aid.
- Search for scholarships and grants. Every dollar you win in scholarships and grants is a dollar you don't need to borrow.
