How to fund a college education

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Sometimes it feels as though you need a college degree to figure out how to pay for a college degree. Money Magazine's Carolyn Bigda explains student loans, grants and other ways to help you fund a college education.

How to fund a college education
  • Sad but true: You should start saving for college tuition as soon as you can after a child is born.
  • Always apply for scholarships, even if you can afford tuition. Look for “needs-blind” scholarship programs, which are based on academic merit.
  • Always obtain a financial aid package from the school. It will detail a variety of options, including grants, which are most often government-backed programs and do not need to be repaid; work-study programs, which assign students jobs at school to earn money while studying; and student loans, which are backed by federal guarantees and often come with subsidized interest rates.
  • Schools will offer to help you apply to a loan program with a lender they work with. Look at this, but also look at other lenders for the best interest rate and repayment terms.
  • Carolyn Bigda recommends visiting www.simpletuition.com, or www.finaid.org.
  • Know that parents can borrow for their child’s education too. While students borrow under the Stafford Loan Program, parents can apply for Plus loans.
Transcript

LISA: I'm Lisa Birnbach for howdini.com. How do you fund a college education. It is a big big price tag. With us is Carolyn Bigda from Money magazine, good morning.

CAROLYN: Good morning.

LISA: Carolyn, the average price of a college education at a private school ranges, averages I guess about twenties, high twenties?

CAROLYN: It's huge today.

LISA: Per year!

CAROLYN: Tuition and board we're talking about $30,000 on average.

LISA: That's average because the Ivy Leauge, I know, is in the 40's and that's for one year. College usually takes four years and you may have more than one child. You have to be independently wealthy it seems to pay for your college education, for your kids' college education.

CAROLYN: It's an enormous expense and it's an enormous strain on families' budgets these days. A lot of parents are picking between funding their retirement or sending their kid to college. And both can have enormous implications on their futures. If parents aren't funding their retirement they have problems down the road. If the kids have to take out loans for their college education, then they're left with a huge debt at the end. 

LISA: That's right. Now first of all are schools that call themselves need-blind, does that mean that they will take any applicant regardless of his or her ability to pay?

CAROLYN:Exactly when you apply for that school they are not looking at your finances, they're looking at your qualifications academically for the program.

LISA: Schools talk about the package they offer. Package usually consist of grants and funds, work-study, all kinds of--a mosaic of different moneys. Does this mean those kids have to pay that money back. Can parents pay that money back?

CAROLYN:It depends. When you receive your financial aid package, there will be different categories that you are awarded. One might be a grant. In a grant you're not paying it back; it's basically like a scholarship. That's money that the school is just giving you to use. A work-study program is essentially where the student will have to work while he's studying and some of that money that he earns helps pay for his books or other living expenses that he'll have. And then he'll also have some loans and loans are--they are loans. You borrow that money and then at the end of school you pay that money back. 

LISA: The school borrows the money or shows you where to borrow the money from?

CAROLYN: What you do want to do when you get your package is that you might want to start with the lenders the school is recommending, but you might also want to go online and shop yourself. Do your homework, see what else is out there. There are a few websites such as simpletuition.com and finaid.org where you can find other lenders and compare the others they're making to students today.

LISA: As a parent, are you supposed to start saving for your child's education when he or she is born? And I'm not being silly about it.

CAROLYN:The sooner you start the better obviously because tuition keeps rising at a faster clip than inflation.

LISA:  Are there many kinds of federal loans available for college educations?

CAROLYN:Yes there is a lot of federal loans out there and there's a myth that if you don't apply for those loans at the start of the year the supply runs out. But the federal government is always there to offer loans to families that need them. Students can borrow what are called Stafford loans. They have caps for each year that you're in school, but some of these loans have subsidized interests where you pay the interest while you're in school and those rates no matter what tend to be lower than what you would find with a private lender. Parents can also borrow loans if the student loans their child is taking out doesn't cover the cost of tuition, then they can borrow what is called a Plus loan to cover the rest of the expense for that.

LISA: So Carolyn, the parents take out a loan, kids take out a loan, it's going to take forever to pay back.

CAROLYN: Yeah the typically repayment term is ten years, but it can go as long as twenty-five years so it is a big committment and nothing you should take lightly when you are applying for these loans.

LISA: But it's worth it right? I mean a college education is a good investment.

CAROLYN: It definitely is. Studies show that over a lifetime, a college graduate earns one million dollars more than just a high school graduate.  

LISA:  One million dollars! Haha thank you so much for joining us today.

CAROLYN: My pleasure.

LISA: For howdini I'm Lisa Birnbach. 

 

meet theexpert
  • Carolyn Bigda

    Carolyn Bigda Money Magazine Carolyn Bigda is a reporter at Money Magazine, covering credit, savings and debt. She writes a weekly syndicated column for the Chicago Tribune, tackling personal finance issues for twenty-somethings. She's been featured in interviews on ABC, CNN and many others, as well as several radio stations. more about this expert »

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