College costs are going through the roof. With 1998 costs running about $31,000 for private institutions and $14,000 for public colleges, parents have reason to worry about how they'll foot the bill. Faced with such costs, few parents--and students--have much choice other than taking out a loan. "Some 45 percent of undergraduates and half of all graduate students finance their education with student loans," says Robin Leonard, co-author of Take Control of Your Student Loans (http://www.nolo.com/).
"Taking out loans to cover college costs is better for parents than tapping into retirement savings," says Leonard. And fortunately, a variety of need-based aid is available, including loans at very low interest rates as well as outright grants. You can help defray the costs of higher education by helping your college-bound child take advantage of grants, loans from the government (http://www.ed.gov/finaid.html) and private lenders, and work-study programs.
Before you and your student decide which sources to tap, you'll first have to determine how much you can pay and how much you need to borrow. Need-based loans are granted based on the cost of attendance minus the student and parents' ability to pay. That expected family contribution is primarily determined by the student and parents' income and assets.
"Unfortunately, what the government thinks you can pay and what you think you can afford can be miles apart," says J. Edward Dalton, president of College Financial Service in Virginia Beach, VA. Need-based loans are typically subsidized by the government and don't charge interest until after graduation. Unsubsidized loans, on the other hand, are not granted based on need and accrue interest immediately.
How to Apply for Aid
To apply for federal grants or loans, you and your child must fill out the Free Application for Federal Student Aid (http://www.fafsa.ed.gov/) after January 1 of the year college will begin. After the form has been processed, the college will review the results and will inform you of your loan eligibility.
Sources of Aid Abound
The vast majority of student loans are held by just four organizations: the government, the Student Loan Marketing Association (Sallie Mae) in Washington, D.C., New York-based Citicorp, and New England Education Loan Marketing Co. (Nellie Mae) in Washington, D.C. As well as initiating loans, Sallie Mae (http://www.salliemae.com/) and Nellie Mae (http://www.nelliemae.com/) purchase loans from government and private lenders, enabling them to replenish their funds and make more student loans. Nellie Mae also does a big business in making private loans to graduate students.
Here's a rundown of the financial aid options available:
Don't forget about scholarships, particularly if your child doesn't qualify for
need-based aid. There are many merit-based scholarships out there that don't
take need into account. A good source of information about scholarships is
Peterson's annual directory, Scholarships, Grants, and Prizes.
"There's no reason why a kid can't go to college," says Dalton. "You can get the money one way or another. Your child may have student loans to pay off after graduation, but they can get the money they need to earn their college degree."
Sherri Eng is a business journalist based in the San Francisco Bay Area. She has written stories on career and workplace issues, small business, and banking since 1992.