Last article we talked about FAFSA forms, federal student loans, and the process of when you should be filing for financial aid. Many people get confused from the multitude of different loans that are available to them. In my opinion, the massive federal deficit we are in now will only shrink the available amount of loans for students in the future. It is important to understand how these loans work so you can set up the very best program for money that will need to be borrowed during your children's college years.
It is important to remember that this is a major difference between a grant and a loan. A grant is something that does not have to be repaid whereas a loan is something that does have to be repaid. Since there are a half dozen different types of grants and loans, do your own due diligence on how much free money you can get. Here are some highlights around the major types of grants, loans, and where you may be able to find additional available money.
Federal Pell Grant
A Federal Pell Grant, unlike a loan, does not have to be repaid. Pell Grants are awarded usually only to undergraduate students who have not earned a bachelor's or a professional degree. (In some cases, however, a student enrolled in a post-baccalaureate teacher certification program might receive a Pell Grant.) Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and nonfederal sources might be added.
How much can I get?
The maximum Pell Grant award for the 2011-12 award years (July 1, 2011 to June 30, 2012) is $5,550. The amount you get, though, will depend not only on your financial need, but also on your costs to attend school, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less. You must be under 24 years old or enrolled at least part-time in college at the time of your parent's or guardian's death. (www.studentaid.ed.gov). There are other different types of grants available, but this is probably the most well known type of grant.
Student loans come in many different shapes and sizes, but here are four major ones to review which can be seen on www.studentaid.ed.gov.
What kinds of federal student loans are available?
Stafford loans are for undergraduate and graduate students. There are two types of Stafford loans: Subsidized and Unsubsidized.
- Subsidized Stafford loans provide low interest rates and are available to students who demonstrate financial need based on income and other information provided on the FAFSA. A credit check is not required to receive these loans. The federal government pays the interest on these loans until six months after the student is no longer enrolled in school at least half-time.
- Unsubsidized Stafford loans provide low interest rates and are available to all students regardless of financial need (although the FAFSA still must be filed). A credit check is not required to receive these loans. The student is responsible for the interest, which may be paid while the student is in school or accrued and then added to the principal balance when the student enters repayment, which occurs six months after the student is no longer enrolled in school at least half-time.
Plus loans are low interest loans that parents can obtain to help pay the cost of education for their children. In addition, graduate students may obtain PLUS loans to help pay for their own education. PLUS loans require a credit check and, in some instances, an eligible cosigner. Repayment of PLUS loans begins following the final disbursement for the year. Graduate students and parents of dependent students may be able to defer repayment of their PLUS loans until after the student is no longer enrolled in school at least half-time, although interest will continue to accrue.
Consolidation loans allow student or parent borrowers to combine multiple federal student loans into one loan with one monthly payment. A federal consolidation loan cannot include private loans. However, some private lenders may offer consolidation loans. Borrowers should be aware that they will lose their federal borrower benefits if they consolidate their federal student loan into a private consolidation loan. Borrowers should always exhaust federal student loan options first before considering a private consolidation loan.
As I mentioned earlier in the article, I think you would do yourself a great favor by recognizing that these loans can only shrink as the federal government needs to cut costs over the next 10 years. You should expect that state level funding will go down as well given the deficits that many states are running and that the federal government in my estimation will push more to the states in the upcoming decade.
The last part of getting loans is to be aware about what organizations, societies, clubs, and charities have their own scholarship or need based programs. Many times, these loans or rewards go unrecognized because parents don't take the time to do the research to find the money.
There may be scholarships available at the company you work for today. Many of the Fortune 500 companies have scholarship for employees who are deserving of this award. Check with your benefits or HR department. You could also get a scholarship based upon who you are as a person. There are minority scholarships, gender scholarships, and there is even a scholarship for those you write 'lefty'. I like this one because I write left handed. You should use your local library, high school, and the internet to scour the market place for these scholarships. Some of these never even get applied for because people just don't know they are available.
From the time you begin making a set of assumptions about what college will cost at the beginning of the planning stages to the day you file your FAFSA forms, charting the course to paying for your kids college education can be a daunting task. Many parents get their information second hand from other parents or their high school rather than professionally lay out a plan with people who know how to develop the best strategies for saving and getting money. Time goes by quickly, so take these four college planning articles and begin strategizing today.
Request a FREE college planning consultation at www.oxygenfinancial.net. If you would like our firm to help you!
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
Phone 1.800.355.9318 or 770.777.0427
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