How can I Handle the Cost of College - II
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Back to: DRP FAQ's
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In Part I, we explored saving or investing in advance to prepare for the financial side of college. To find the right type of investment for your situation, you must consider several factors:
- How much risk can you handle?
- What Return on Investment will you target?
- Can we liquidate the investment when you need it?
- How many years do you have to accumulate the needed college fees?
You won't necessarily have to accumulate the entire cost of college. You and your child may qualify for financial aid or use other ways to keep college costs down.
Financial Aid:
Millions of students apply for and receive financial aid and this can help make college attainable. Almost one-half of all students who continue education after high school receive financial aid of some kind.
Sources of Financial Aid:
There are three main sources of financial assistance available to qualified students at the college level: Grants and Scholarships; Loans; and Work-Study
- Grants and Scholarships:
This aid does not have to be repaid. However, there may be conditions attached: recipients may be required to maintain certain grade levels or take certain courses.
- Loans:
This type of financial aid is available to both students and parents. You must eventually repay educational loans, just like a car loan or a home mortgage. Interest rates are normally lower than other types of loans. Payments are often delayed until the student finishes school. Students do not necessarily need an established credit record to qualify for educational loans.
There are many sources of education loans. The terms and conditions will vary by lending institution, so evaluate it with the same critical eye that you would with any other type loan. Some basic questions:
- What are the terms and conditions of the loan?
- What is the interest rate? Is it simple interest?
- What is the total amount of interest?
- What is the monthly payment?
- When will the monthly payments begin?
- What options and penalties if the start date is delayed?
- How long will the monthly payments last?
- What penalties are applied in case of late payment?
You should seriously consider the downside of taking out an educational loan. The loan must be repaid, even if the student fails to finish college or fails to get a job after finishing college. Defaulting on the loan can ruin a person's credit rating. It will be difficult to get financing in the future, but that is not all. Many companies check credit rating as part of the hiring process. A blemished credit rating may kill your chances of landing the right job in the future. Help your child select the right school and understand the commitment.
- Work-Study Programs:
Students can work during the summer and/or part time during the school year to help pay for college. Many students find their own jobs. Colleges also offer work-study programs to their students. A work-study job is often part of a student's financial aid package. The money earned is used to pay for tuition or other college fees.
Types of Financial Aid:
Financial aid can be merit-based, need-based, or a combination of merit-based and need-based.
- Merit-based financial aid:
Merit-based assistance is usually in the form of scholarships or grants. It is given to students who meet requirements not related to financial needs. Merit scholarships may be given to a student who has done well in high school or one who displays artistic or athletic talent. Most merit-based aid is awarded based on academic performance or potential.
- Need-based financial aid:
The amount of aid a student can receive depends on the cost of the college and on the family's ability to pay these costs. Most financial aid is need-based.
