Paying for college can be a complex business. Here are 6 things to know to get the best student loans.
Paying for college isn't as simple as it used to be. To meet myriad costs, including tuition, student fees and room and board, college-bound freshmen and their families increasingly have turned to financial aid in the form of grants, scholarships and loans that have become more and more complex in recent years.
Between the 2006-2007 and 2010-2011 academic years, the percentage of students receiving some form of financial aid at four-year colleges grew from 75% to 85%, according to the National Center for Education Statistics. But while parents and students may think an offer of financial aid is the ticket to an affordable higher education, experts caution that such letters often can be confusing and misleading.
"It's really a case of buyer beware for both parents and students," says Andy Lockwood, a Plainview, N.Y., college finance consultant.
At the end of the day, colleges are businesses, whether they're public or private, for profit or not. "They want to get you to come for the most money they can get out of you," Lockwood says.
The key to keeping your education costs down is to do your homework after receiving the financial aid offer letter and not get carried away by the acceptance letter. Asking these six questions can help:
A typical offer letter includes a dollar amount and some description of how that money will be distributed. Unfortunately, colleges sometimes obscure the fact that the money will come in the form of loans, Lockwood says.
"If the offer is described as anything other than a scholarship or a grant, it's not free, and that money will need to be repaid," Lockwood says.
But those two words -- whether or not they appear in your letter -- shouldn't end your inquiry. In fact, Lockwood says most students and parents should take the time to ask questions about the offer letter and clarify anything they don't understand.
If possible, Lockwood advises following up with a phone call or by visiting in person. But some financial aid offices may not be responsive. Getting answers may be frustrating, but students and parents shouldn't accept an offer they don't understand.
The type of loan your student takes out can have a huge impact on his finances after graduation. Unfortunately, the terminology surrounding student loan products can be incredibly confusing.
"The irritating thing is that two different financial aid offices can refer to the same loan product differently," Lockwood says. "For example, 'direct loans' is the new term for Stafford loans, but not all colleges have adopted the new nomenclature."
While it's important to get a handle on the lingo, parents and students also need to understand the terms of each loan product. That means understanding the interest rate, when repayment should start and whether the rate is fixed or adjustable, Lockwood says. It's also a good idea to ask what happens if the student is unable to make payments.
While most parents are likely to be involved in their student's financial aid process, they'll want to specify whether they'll be asked to co-sign for a student loan. If the parents do co-sign, they should ask about how they can remove themselves from their co-signing obligation, Lockwood says.
We tend to fixate on the tuition number, but the fact is that college students incur many other costs, including room and board, books and lab fees. Most students need some spending money, too. But if you're looking to compare prices based on an award letter, you might find it difficult.
"Every college publishes a cost-of-attendance figure that includes hard costs like tuition, fees, and room and board, (as well as) soft costs like books, transportation and living expenses," says Joseph Orsolini, the president of College Aid Planners in Glen Ellyn, Ill. "Some colleges will use the hard cost only in their award letters, while others show the full cost-of-attendance figure."
To get an apples-to-apples comparison, Orsolini suggests comparing only hard costs, because every school provides those figures. Still, parents and students shouldn't ignore soft costs.
"Some students look past the other costs, but you will still spend money on books and personal expenses," says Steve Booker, the director of financial aid at Rollins College in Winter Park, Fla. "Knowing what these estimated costs are and what options are available may help you minimize these costs."
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