It’s time to revisit a cardinal rule about paying for college.

The time-honored advice is to plan carefully and years in advance of when the money will be needed.

Federal education loans have long been counted on by many families to finance at least a portion of college expenses, and when other resources such as savings and scholarships aren’t available, they’re often indispensable. But this option is going to cost more, partly because of recent changes in federal law that replace fixed interest rates with a more market-sensitive variable rate for a popular program that students and parents have used to consolidate their loans.

But the most obvious new hurdle is rising interest rates. Student loan rates are now tied to the 91-day Treasury bills, which are sensitive to the Federal Reserve Bank’s ongoing tightening. The result: higher interest rates.

“The era of historically low interest rates on student loans has ended,” said Mark Kantrowitz, founder of FinAid.com, a popular Web site about student financial aid.

The higher costs could be tough to avoid. Sue Armstrong, financial aid director for William Jewell College in Liberty, Mo., said other financial aid will only go so far and loans will continue to be important in paying for college expenses. But that shouldn’t prevent parents and students from trying to minimize the loans and their cost. There are strategies that can help.

For some of those strategies, planning isn’t just a good thing - it’s mandatory.

If personal savings are going to be part of your plan to pay for college, then it’s essential to start early. And state-sponsored 529 programs can give you an extra push.

The earnings on the savings are tax-free as they grow, and the accounts can be spent on qualified college expenses without being taxed. Residents in each state also can qualify for some deductions on their state income taxes.

Another advantage is that the accounts can be treated as parental assets rather than the student’s assets, meaning they won’t be used first as a dollar-for-dollar offset of any potential financial aid.

Similar treatment will be extended in July to accounts established for children under the Uniformed Gifts to Minors Act that are transferred to a 529 fund. However, transferring from an UGMA (or Uniform Gifts to Minors Act) to a 529 could trigger gains or losses that would need to be reported on the child’s income tax return, according to Joe Hurley, a college financing expert whose Web site is www.savingfor college.com.

What do you do if you haven’t saved?

For those who procrastinate, it’s going to be a scramble. But grants, scholarships and loans are going to have to fill the gap.

Grants are especially attractive because this money doesn’t have to be paid back. The federal Pell Grant will provide up to $4,050 per year for college, and the related Supplemental Educational Opportunity Grant can provide up to an additional $4,000.

To apply, you’ll have to fill out the Free Application for Federal Student Aid, which calculates a figure for what a family is expected to contribute to college expenses.

There are other grants besides the Pell that you may be eligible for.

Then there are the scholarships that are awarded regardless of financial need. There are countless services to help find them. FastWeb.com and CollegeAnswer.com are two that offer free searches for scholarships.

If you’ve exhausted all avenues for finding money for college and you’re still short, look for ways to cut expenses on your student loans, especially come repayment time. Some upfront fees, for example, are being dropped. Students who show financial need can still get a subsidized loan, which means the federal government pays the interest while in school.

Lenders and guarantors of the loans will often reduce the rate if you agree to have payments automatically deducted from your bank account.
Do it now

Start saving for college as early as possible. Use tax-advantaged savings programs and develop a long-term investment plan.

Get your child involved. Don’t tackle saving for college alone.

Understand how to fill out the Free Application for Federal Student Aid when the time comes, and don’t be afraid to ask for help.

Contact your high school guidance counselor, a college financial aid administrator or the Federal Student Aid Information Center (1-800-4-FED-AID)

Source: The U.S. Department of Education: www.fafsa.org

Source: myrtlebeachonline.com

This entry was posted by Taman Siswa on Friday, April 28, 2006 at 7:12 am and is filed under Education News, Student Loan. Tags: bank account, College, countless services, Education News, federal government, federal law, Federal Reserve Bank, Federal Reserve System, Federal Student Aid Information Center, Financial Aid, Grant, Joe Hurley, Liberty, Loans, Mark Kantrowitz, Missouri, Scholarship, Student, Student Loan, Sue Armstrong, U.S. Department of Education, William Jewell College, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.