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.