Paying for higher education can feel overwhelming, but with some planning and a little research, you can save a lot of money.
Gail daMota
President, Education Finance Council
It is never too early or too late to start saving for college, and even small contributions can help reduce borrowing. Contrary to popular belief, savings have minimal impact on financial aid eligibility, and the benefit far outweighs any reduction in aid. One investment tool is 529 college saving plans, which allow your savings to grow tax-free and have recently become more flexible.
To begin applying for financial aid, always complete the Free Application for Federal Student Aid (FAFSA), even if you think you will not qualify for need-based aid. Many states and schools use FAFSA data to determine scholarship and grant eligibility, which you should exhaust first. Free online scholarship search tools and local scholarships available in your community will help you find awards based on a wide range of factors, not just need or grades.
The lowdown on loans
If you have to borrow, first apply for federal Direct student loans because these loans offer a low interest rate and borrower-friendly benefits.
If you still need additional funding, compare private education loans and the federal Parent PLUS loan. Parent PLUS loans are often presented alongside federal Direct student loans on financial aid offers, but they are more expensive and have fewer benefits than federal student loans and many private loans. When comparing private loans, evaluate multiple lenders, including nonprofit and state-based lenders that offer very competitive rates. Focus on the interest rate offered to you (not advertised rates), any additional fees, and repayment options.
When considering student loans — federal and private — only borrow what you need — borrowing less can save you thousands of dollars over the life of the loans.
Stay informed about options
Financial aid offers can be difficult to compare due to inconsistent terminology and varying ways the costs and aid are presented. A college’s sticker price is often different from the actual cost you will pay after financial aid and tuition discounts are applied, so comparing award letters is very important. If you need help deciphering your financial aid offers, free support is available through nonprofit and state-based organizations. For example, Vermont Student Assistance Corporation developed a free, user-friendly app called Award AdvisorTM that translates award letters to make comparing financial aid offers easy. This helps students and families to accurately compare the real cost of attending different schools.
The bottom line is this: Start planning early, save, complete the FAFSA, maximize grants and scholarships, then borrow — federal student loans first, private loans or Parent PLUS loans last. Compare costs and financial aid offers carefully, and only borrow what you truly need.
