calculating financial aid

As spring turns to summer, the challenge of applying for college ends and the challenge of paying for college begins.  Though that first college bill can be daunting, remember that you have 3 options to pay for college:  you can tap your savings (your accumulated past income), pay as you go (out of your current income), or you can borrow (committing your future income to pay down education debt).  Choose 1 strategy or combine all 3!

    • Savings.  The easiest way to pay for college is to pay out of your savings.  Of course, it took a lot of hard work to accumulate that savings account, but once the time comes to pay for college, the money is readily available and requires no reduction in lifestyle to access these funds.  And if you’ve saved for college in a 529, see Using Your 529 Saving Plan for tips on how to best utilize this type of account.
    • Payment Plan.  If you don’t have a large reserve of money on hand to pay 2 sizeable bills for the fall and spring semesters, but have some disposable income that you can devote to tuition payments on a monthly basis, a college payment plan may be a good option for you.  Most colleges offer a payment plan that allows you to spread out yearly tuition over 10 monthly payments.  The plans often charge a small enrollment fee ($20-$50), but the cost is minimal compared to finance charges on a long-term loan.
    • Loans.  If you do need to borrow, first be sure the student has taken advantage of her full Subsidized and Unsubsidized Direct Loan eligibility ($5,500 total for freshman year).  For remaining loan needs, you have 4 alternative financing options:
        • Direct PLUS Loan:  Parents with satisfactory credit can borrow a Direct PLUS Loan from the federal government.  The loan has a 7.9% fixed interest rate and can be used to finance any amount up to the total cost of the school less other financial aid.  Repayment begins immediately, but can be deferred upon request.
        • State Loan:  Many states offer education loans with terms comparable to the PLUS Loan.  Investigate loans from your home state and the state where your child’s college is located.
        • Private Loan:  Many private banks offer education loans to students and parents.  Though terms differ between banks, most private loans have variable interest rates, which are a riskier option for long-term borrowing.
        • Home Equity Loan:  In this market, you may be able to access a very low fixed rate loan through your home equity.  Just be sure you plan to stay in your home a while and don’t have other uses for your home equity in the foreseeable future.

Though receipt of that first tuition statement can be nerve-wracking, remember that you’re able to tap your past, present, and future income to pay the bill.  Combining these 3 resources will make tackling that college bill a lot less painful.

College Coach’s financial aid experts can help you navigate the process of applying for financial aid for your child.  


Written by Shannon Vasconcelos
Shannon Vasconcelos is a college finance expert at College Coach. Before joining College Coach, she was a Senior Financial Aid Officer at Tufts University and Boston University. Visit our website to learn more about Shannon Vasconcelos.