How to Responsibly Finance Your College Education

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Step 1: Apply for federal aid
Before you even think about student loans, find out how much free money you can get. Begin by applying for need-based federal aid with the Free Application for Federal Student Aid, or FAFSA, which uses your family’s tax information to determine your Estimated Family Contribution (EFC). Based on your EFC, you’ll find out how much financial assistance you’re entitled to. FAFSA application deadlines vary from state to state; make sure you check. Millions of dollars in student financial aid go unclaimed each year by eligible students simply because they didn’t apply for them.

Tip
Go to “custudentloans.org”:http://www.custudentloans.org/ for a comprehensive list of links to federal and other financial aid websites.

Step 2: Search for scholarships
Look for local and private scholarships and grants. In addition to rewards for academic and athletic achievement, plus funds set up for minorities, there are all kinds of scholarships for specific abilities and talents.

Tip
Ask the financial aid office at the school you’ll be attending if they offer any scholarships or grants.

Step 3: Apply for a federal loan
If you need a student loan, look into federal government loans first, which are guaranteed without a credit check or cosigner and offer fixed interest rates. Need-based loans like Perkins and Subsidized Stafford loans don’t accrue interest while you’re in school, while Parent Plus and unsubsidized Stafford loans do.

Step 4: Seek private lending
Still facing a gap to pay for school? Explore private lending options. Private loans have variable interest rates and a 15- to 20-year repayment window. Most lenders offer interest rate reductions and other benefits, such as cosigner release, for borrowers that demonstrate responsible repayment habits.

Tip
Credit unions are a good alternative to banks for private loans. They often offer lower interest rates and promote financial literacy and healthy borrower habits.

Step 5: Understand the debt you’re taking on
Understand how much debt you’re taking on, including how much you’re going to owe in interest; when you have to start paying it back; and the benefits and consequences of deferring repayment. When comparing Cost of Attendance (COA) across different schools, don’t forget to factor in expenses beyond tuition, like housing, meals, books, and school supplies.

Step 6: Pay it off early
Consider a plan that requires you to start repaying while you’re still in school; just a month can lower your interest rate, and substantially reduce your debt load down the line. Plus, borrowers who begin repayment before graduation develop better debt management habits than those who defer payment — something that will serve you well throughout your life.

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