Paying for college in hard times
A layoff, divorce or accident can
wreak havoc on a family's financial life. But it need not upend
a son or daughter's college career.
"The main thing is not to panic," says Kalman
A. Chany, author of Paying
for College Without Going Broke. "Don't
assume they have to pull a kid out of school."
Whatever the financial crisis, you can keep
a child's college education on track. But it does take some doing.
It's best to move quickly.
Call for help
The first step is contacting the university's financial aid department.
Let them know what's going on. As difficult as this call may be,
don't put it off.
"The sooner the financial aid office finds
out, the better they'll be able to deal with it," says Jack Joyce,
a spokesman for the College Board.
Colleges and universities get these kinds of calls
from parents every semester. Many schools have emergency
loans and grants available.
It's important to realize that the financial aid office
is going to do whatever it can to help keep your son or daughter
"Once you get accepted to a college, they don't
want to lose you … just lay out what the problem is," says Ray Loewe,
president of College Money, a Marlton, N.J., financial planning
firm specializing in helping parents pay for college.
A drop in family income may make a student eligible
for additional financial aid. Parents may be eligible for additional
loans as well.
The school may be willing to push back payment deadlines
for a couple of months.
How much a school can help depends on the school and
the specifics of a family's financial situation.
Turn in your homework
It's best to put details in writing. Be as specific as possible
when explaining changes in income and financial resources.
"What we really need is a quantifiable dollar amount,"
Shunk says. "Be as specific as you can with what has changed with
regards to income. What's the difference in income between what
you used to make and what you're making now."
Some schools may ask you to complete a reduced-income
form and provide additional documentation before handing out additional
financial aid. Provide the school with whatever it needs as soon
as you can.
Before the student started school, you probably filed
a FAFSA form, which stands for Free
Application for Federal Student Aid. All families must file
this form for a son or daughter to be eligible for federal and state
When adjusting aid, many financial aid counselors
will compare the financial data listed on a family's most recent
FAFSA form with new information submitted by the family.
The FAFSA provides the school with a snapshot of the
family's financial situation at the end of the most recently completed
tax year. Most FAFSA forms are filed in January or February.
A student's financial aid package for the fall 2004
and spring 2005 terms is based on year-2003 financial information
filed in early 2004.
An awful lot can happen to a family's finances between
the time a FAFSA form is filed and when the tuition bill is due.
And that's why it's so important to alert the school to financial
"There's such a limited amount of information
provided on the FAFSA if the student or family doesn't bring extenuating
circumstances to the attention of the financial aid office, they'll
never know," Joyce says.
Some financial aid departments may have little additional
aid money available. Students or parents or both may have to borrow
more money to keep a college dream alive.
Reduced rates ease burden
The good news? The interest rate on Stafford loans -- the largest,
federal student loan program in the country -- has never been lower.
In-school borrowers of Stafford loans will pay an
interest rate of 3.37 percent, the lowest rate in the 37-year history
of the student loan program, through June 30, 2005.
A student may be eligible for a subsidized or unsubsidized
With an unsubsidized loan, the borrower is responsible
for the interest from the date the loan is disbursed. Many students
take out unsubsidized Stafford loans to help pay for their family's
share of their college expenses.
Some students may be eligible for subsidized Stafford
loans. These loans are based on need, and the federal government
pays the interest on the loans while students are in school. Subsidized
Stafford loans are basic components of many financial aid packages.
Interest rates on federal education loans for parents
are low as well. Parents may borrow up to the full cost of a student's
education minus any financial aid with a Parent Loan for Undergraduate
Students (PLUS). PLUS loans have an interest rate of 4.17 percent
through June 30, 2005.
Families must pass a credit check to qualify for a
PLUS loan. Monthly payments begin within 60 days of the loan disbursement.
Cash-strapped families may want to consider combining
a PLUS loan with an installment plan.
An installment plan lets you pay for a son or daughter's
tuition with several payments over the course of a school year.
Most plans are interest-free.
Many plans allow monthly payments. Others allow up
to three payments each semester. Some colleges offer their own payment
plans. Others use outside agencies. Be sure to ask.
An online calculator on the Academic Management Services
Web site called TuitionPay
can help a family determine how much of an education bill to pay
with an installment plan and how much to pay with a loan.
When it comes to borrowing, it's best to explore federal
loans first. Federal loans tend to have lower interest rates and
more flexible repayment policies. Families who need to borrow should
be sure to exhaust all federal loan options before turning to private
The options include Perkins,
Stafford and PLUS loans, each of which have different terms,
conditions and borrowing limits.