Practical Student Financial Aid Tips During a Recession
Continue Saving for College
- Continue Investing in 529 College Savings Plans. It may hurt to watch your savings erode as the stock market plummets, but if you pull out now you’ll just be locking in the losses and miss out on the eventual recovery. Think of it as buying bargains, which is the way you’ll look at it after the stock market recovers.
- Use an Age-based Asset Allocation Strategy. This adjusts the mix of investments from aggressive to conservative as college approaches, reducing the risk of loss after you’ve accumulated a lot of money in the college savings plan.
Apply for Student Financial Aid
- Submit the Free Application for Federal Student Aid (FAFSA). It’s free and is the first step toward money from the government and many colleges. Submit it online at www.fafsa.ed.gov.
- Search for Scholarships at Free Web Sites like FastWeb.com. The more money you get in scholarships and grants, the less you will need to borrow. FastWeb.com provides a free scholarship matching service that will automatically email you information about new awards that match your background.
- Don’t overlook the education tax benefits. Congress expanded the Hope Scholarship tax credit to $2,500 for 2009 and 2010. It is now available for four years instead of two, the income phase-outs are now much higher, and the tax credit is partially refundable for the first time. The Hope Scholarship can save you a little money on your taxes based on amounts you paid for college tuition and fees and course materials during the year.
- Minimize Debt. Do not borrow more than your expected starting salary for your entire education. Live like a student while you are in school so you don’t have to live like a student after you graduate.
- Borrow Federal First. Federal loans are cheaper, more available, and have better repayment terms than private student loans. The interest rates on federal education loans are fixed, while the interest rates on private student loans are variable. Unsubsidized Stafford and PLUS Loans do not depend on financial need. You don’t have to be poor to qualify for these low-cost loans.
Private Student Loans
- Shop Around for a Lender. There are still many lenders offering private student loans, but interest rates and fees can vary significantly.
- Apply for Private Student Loans with a Creditworthy Cosigner. Applying with a cosigner not only increases your chances of getting the loan, but also results in a lower cost loan as the interest rates and fees are based on the higher of the two credit scores.
- Pay At Least the Interest During the In-School Period. This avoids capitalization – a form of negative amortization where interest is added to the loan balance – and may yield a lower interest rate or fees on the loan.
Reprinted with the permission of FinAid. © 2008 by FinAid Page, LLC. All rights reserved.
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