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Your stomach is in knots. Your palms are so sweaty you can’t
hold your pencil. It’s the first time all semester that
you haven’t done your calculus homework. And you’re
convinced the teacher is going to call on you next.
Many students (and parents) experience that same feeling
of dread when they think about paying for college. They worry
that they haven’t done their financial planning homework.
They fear being caught unprepared when it’s time to pay.
If you fit into this category, first take a deep breath .
. . then take a minute or two to read this page. Even if you
and your parents haven’t been saving for college since
before you were born, it’s not too late for some wise
payment planning. Here’s a three-step plan to follow
during your senior year.
Step One: Apply for financial aid!
Once you’re ready to submit your college applications,
find out which financial aid forms are required by the schools
you choose, typically the FAFSA (Free Application for Federal
Student Aid) and the college’s own aid application. Fill
those forms out carefully and return them before the published
deadlines. This will accomplish two things: • It will make
you eligible for aid, including federally-backed student loans,
and • it will tell you your ‘expected family contribution,’
or EFC, which is determined by a federal formula. The aid ‘packages’
you receive in the spring may cover your entire EFC or just
some of it. If the latter, you and your family have ‘unmet
need,’ the portion of college costs your family must pay.
If more than one college admits you, compare aid ‘packages;’
the most favorable ‘packages’ are those that offer
more in grants and less in loans. Copies of the FAFSA are available
in your school guidance office (or online at www.fafsa.ed.gov/);
you need to file the form as soon as possible after January
1 of the year you’ll be attending college.
Step Two: Tap existing savings and current income
If you and your family have set aside at least some money for
college—through investment funds, zero coupon bonds, or
other savings—these are the funds to turn to first when
planning to pay your family’s share of college costs. Now
you (and your parents) need to look closely at your family’s
monthly budget. Determine how much you can afford to pay from
current income . . . and stretch that amount to the limit. Maximize
your payments and minimize your debt—that’s the formula
for a smart payment strategy.
Did you know that many schools offer tuition payment plans,
which allow you to divide your college bill into 10 or 12
monthly installments without having to pay any interest costs?
Your payments become part of your monthly budget, just like
your rent or car payments. If it’s possible to use a
payment plan and make your payments using a combination of
current income and savings, you can save thousands of dollars
in interest fees. The less you have to repay after graduation,
the more you’ll have to spend on items that are important
to you as you start your career. Often, such payment plans
are administered not by colleges but by companies who work
on behalf of colleges and families. One such company is Academic
Management Services; you can get information about such plans
and about student loan options by calling (800) 635-0120.
Step Three: Borrow, if necessary
After combining financial aid, current income, and savings,
your family may still come up short and need to borrow. Student
loans should be your first recourse because they offer the most
favorable rates and repayment plans. The Federal Unsubsidized
Stafford Loan, part of the Federal Family Education Loan Program,
is a widely used student loan, and it’s available to families
at all income levels.
Your parents may also want to consider a Federal PLUS loan.
This is a low-interest loan available to credit worthy families,
also regardless of income. PLUS loans may be used to fund
up to the full cost of education, minus the amount you receive
in financial aid from the college.
Follow these three steps and you and your family are on
the way to an A+ in Managing Tuition Payments 101. Now, how
about finishing the rest of your homework?
William
A. Hastings is President and CEO of Academic Management Services.
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