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Paying for College: 5 Things Every Family Should Know

College is expensive, and it gets pricier every year. A recent report has found that members of the class of 2012 graduated with an average student loan debt of $29,400. That's a lot of money, especially when you consider that students usually accrue debt after families have drained their savings accounts to contribute to tuition. High school seniors receiving a "thick envelope" this month must carefully weigh the pros and cons of attending their dream school, because getting the best financial aid package can save years of student loan repayments.

Here are five things every family should know to maximize their financial aid.

1. Fill out the FAFSA
Administered by the U.S. Department of Education, the Free Application for Federal Student Aid is the first step in applying for government funding and financial aid at most universities. FAFSA is a springboard to nearly $150 billion in federal and state government aid, along with billions more in university funding. It gauges your family's financial situation and determines an "expected family contribution" that will dictate the sticker price of your education. State and university funding is generally allocated on a first come first serve basis, so file your FAFSA as soon as possible. The priority deadline for the 2014-2015 school year has passed, so file your FAFSA as soon as possible, because state and university funding is generally allocated on a "first come, first serve" basis. You can find your state's deadline here.

2. Call the financial aid office
After earning an acceptance letter, you should call the university's financial aid office to inquire about every available funding opportunity, because many scholarships and grants that are available to admits go unadvertised. On the call, you should say, "I plan to apply for every scholarship I'm eligible for. Can you please send more information on these funding opportunities?" A helpful financial aid officer can point you toward a treasure trove of university and private resources. Be sure to note the financial aid officer's name, email, and direct line so you have a consistent point of contact in the financial aid office. A brief application process is usually required for each scholarship, including a resume and financial-need statement describing your planned contribution.

3. Max out on subsidized federal loans
The federal government provided student loans totaling $107 billion in fiscal year 2013, but not all loans are created equal. The Perkins Loan is the most borrower-friendly available; funding is interest-free while the student is enrolled full-time and only 5% thereafter with a 10-year repayment window. Students are eligible for up to $5,500 in Perkins Loans per year and apply through the campus financial aid office.

The subsidized Stafford Loan is the next-best choice for borrowers. Those qualifying can receive $3,500 toward college expenses in their freshman year, along with additional sums in their sophomore and junior years. Once the subsidized loans have been exhausted, students can also apply for unsubsidized Stafford loans. The only difference is that with unsubsidized loans, the 6.8% interest continues to accumulate while you're in school, though payments do not begin until six months after graduation. One can borrow up to $27,000 over four years from the Stafford program by combining subsidized and unsubsidized loans. This was the strategy I used to lighten the load of private university expenses. Only after maxing out the Perkins and Stafford federal loans should students look to private lenders, which generally charge higher interest rates and employ less forgiving repayment policies.

4. Build experience with Work-Study
A federally subsidized job program, Work-Study enables qualifying students to earn a portion of their university expenses, rather than take on additional debt. On many campuses, students can use an online job board to apply for Work-Study employment. It is wise to align your search with your career goals to begin building relevant experience and skills. Qualified applicants may be eligible to serve as, for example, teaching assistants, laboratory researchers, and other professionally enriching positions. Unlike other income sources, Work-Study employment will not diminish eligibility for future financial aid.

5. Appeal your financial aid offer
The most compelling method to appeal your initial offer is to share your financial aid package from a rival school. Remember, you have maximum leverage over a university after you've been accepted but before you submit your enrollment deposit; play this card while you still have it.

I was initially offered scant financial aid from the University of Chicago, but that changed when I emailed the university to show my full scholarship to the U.S. Military Academy at West Point. Almost immediately, $15,000 in grant money was offered to me. Why does this work? Universities want to maximize their "yield," or the percentage of accepted students who matriculate, as that number is factored into their U.S. News & World Report rankings. As such, they are willing to invest more aid dollars if it means luring talented students.

College can be a transformative experience, but don't mortgage the future to pay for it. Use these five tactics to help finance the education of your dreams without breaking the bank.

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Read/Post Comments (12) | Recommend This Article (65)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2014, at 7:47 PM, JohanStrauss wrote:

    6. Tell your precious little darling to get a J-O-B.

  • Report this Comment On March 26, 2014, at 5:36 PM, xetn wrote:

    JohanStrauss:

    Right on! Get a job will provide much needed experience, money and some personal freedom.

    College degrees (unless for professionals such as medical or legal or science) are not what they used to be and many are not providing jobs at levels that allow repayment of school loans.

  • Report this Comment On March 26, 2014, at 5:44 PM, cmalek wrote:

    Yout way of paying for college sounds expensive.

    By the time the acceptance letter is received by the student, it is rather late to be arranging financail aid with a college. You might be in for a rude awakening.

    I have been through the process twice.

    When we visited prospective colleges, we met with a financial aid office rep of each one. They were able to tell us right there and then how much aid (scholarships, grants, work-study) the student will qualify for. Our kids applied only to schools we knew we could afford.

    We tried negotiating, as you suggest in point #4, with our daughter's #1 choice. Did not work out. Their offer was 50% of all costs and they would not budge. So instead she decided (with our encouragement) on a state school. Even without any scholarships or grants, the state school was cheaper than the private college after 50% financial aid. My daughter is now happily enrolled at the state university.

  • Report this Comment On March 26, 2014, at 5:52 PM, jzjinvestor wrote:

    Move your assets into "insurance" products as even 529 plans count as parental assets thus increasing the ETC (expected family contribution) and lowering aid offers. Insurance and retirement assets DO NOT count towards it on the FAFSA.

  • Report this Comment On March 26, 2014, at 6:15 PM, TheDumbMoney wrote:

    jzinvestor, your analysis of 529 plans is not entirely accurate. See here for a nice overview. http://yale.edu/tuba/finaid/parents/the-529-plan.html

    Since 2006, as a general rule only about 5.6% of any 529 balance counts towards your assets when a college is calculating financial aid awards. Also, when you withdraw money from a 529 to pay for freshman year, that withdrawal does not count against you as income, at all, when the sophomore year award is calculated, etc.

    In addition, there is the more well-known benefit that you get to grow the money for up to 18 years or so and pay zero taxes on all of the capital gains when you withdraw it to pay for a kid's education at a qualifying institution (which is basically ever college in the U.S.). That's a pretty sweet benefit, and for that privilege I am more than willing to to have 5.6% of my ultimate balance counted against me when my kids' financial aid awards if any are one day calculated.

    Also, for people you make lots of money, the argument you are making applies not at all, because for them their kids are not going to get financial aid anyway, and so a 529 is an unadulterated advantage.

    Also, you can put all the money you like into 401ks but (I think except for Roth IRAs) you can't withdraw that to pay for college educations without paying a significant penalty. You still have to pay for the college. So if one is putting one's money into retirement vehicles and not funding a 529, then one is either 1) just doing other investments, which will count MORE than a 529 towards your assets, and as to which all capital gains will be taxed; or 2) saving cash and holding it as cash for 18 years (bleck, and also counted towards asset); or 3) just counting on the kid to get financial aid of some sort, while doing nothing actually proactive at all -- a risky proposition, though if it pays off there are nice free-loading benefits.

    In sum, I think overall a 529 plan is a decent option. Not perfect. But pretty decent.

    Best,

    TDM

  • Report this Comment On March 27, 2014, at 1:38 AM, Foolme2x wrote:

    First couple of people leaving comments obviously didn't even read the article ("get a job" is item #4). And the 3rd comment ignores the first item on the list - fill out the FAFSA early. You need to do that in the first weeks of senior year in high school, if not before.

    This is one of the best articles I've seen on this subject. Item #5 is one I had not seen before, but will keep in mind when the next grandchild reaches that age.

  • Report this Comment On March 27, 2014, at 9:57 AM, 48ozhalfgallons wrote:

    6. Start your own internet company.

  • Report this Comment On March 27, 2014, at 12:01 PM, CinCity wrote:

    "3. Max out on subsidized federal loans"

    Upon first sight of that I quit reading.

    A lot of students drop out of college and take blue collar jobs. Last time I checked, those were the folks having the most trouble paying back their student debt. But what do I know? Maybe folks like taking the risk of living paycheck to paycheck because they took on swarms of debt that doesn't go away when you file bankruptcy.

  • Report this Comment On March 27, 2014, at 12:21 PM, classic216 wrote:

    I'm not saying a well-rounded education is bad thing,but financially speaking, college is a very poor investment.

    We live in a society that teaches people to think a degree will land them a job, and the idea of a degree landing someone a job is very speculative in nature, considering that every job opening averages 200 applicants, leaving people unable to overcome the numbers game and end up working in lower-wage jobs that they could have gotten without a degree.

    and I'm not just talking "psychology majors"....there are a lot of people who major in so-called "hot fields" -- health care, engineering, business, who can't find work. Meanwhile they have huge student loan debts that cannot be discharged in bankruptcy. To think if, instead of school, they had spent 4 years working (even in a low-wage job), they would have been a lot wealthier.

  • Report this Comment On March 27, 2014, at 2:05 PM, TheDumbMoney wrote:

    CinCity -- he is talking about taking subsidized federal loans instead of unsubsidized private loans, if you are going to take out loans or must take out loans at all. It is a fair point.

    Best,

    TDM

  • Report this Comment On March 27, 2014, at 4:02 PM, Lea77 wrote:

    On work study, when I was in school it looked like most regular jobs paid as well or better than work study.

  • Report this Comment On March 27, 2014, at 5:56 PM, jwatkinson wrote:

    You can also check out low or no tuition schools, such as Berea College http://www.berea.edu/, and others.

    For graduate schools, seek out assistantships and fellowships, or an employer willing to cover the costs.

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