The pandemic and related lockdowns have taken a toll on some families’ finances, forcing many students to rethink how they are going to pay for college.
A notable 72% of 2020 high-school graduates and 79% of high-school-age teens polled in a recent survey from Junior Achievement and Citizens Financial Group Inc. said they would need to reconsider how to finance some or all of their higher education. This comes as college costs continue to rise, with families spending an average of $30,017 on college for the 2019-20 academic year, up from $26,266 in 2018-19, according to Sallie Mae’s most recent report on how America pays for college.
It’s nothing new that families who lack savings have to find other ways to pay for college. But with the pandemic making things harder for many, and current circumstances affecting the availability and viability of some options, it is worth thinking anew about where to look.
Obviously, the best option for any student who needs help paying for college is to make use of grants and scholarships—free money that doesn’t need to be paid back.
If your family’s financial situation has deteriorated and doesn’t line up with what you provided in your financial-aid application, contact your school’s financial-aid office. Many more appeals are expected this year, and it’s possible you could be awarded more financial aid than initially offered.
There also are third-party scholarships—those offered by organizations other than your college or the government. Some deadlines for 2021-22 scholarships have already passed, but don’t give up. This year, in particular, some scholarship deadlines have been extended due to the pandemic. Talk to your high-school guidance department, your town’s chamber of commerce or other volunteer organizations about options. Online sites such as the College Board, Going Merry and Sallie Mae also can help match students with scholarship opportunities. Students also can visit the National Scholarship Providers Association’s website to find additional search engines, as well as other resources on paying for college. Don’t pay to get scholarship information or to be considered for opportunities, as there are plenty of free, easily accessible resources available.
Get a job
Pay from a summer job might not make a big dent in private-school tuition, but students can use such earnings for spending money or to help fund their living expenses. Reducing the need to borrow, even by a little bit, is usually beneficial in the long term.
In many cases, students won’t earn enough from a summer job to affect their financial-aid eligibility. And even if a student’s earnings are significant enough to affect aid, they won’t be considered on a financial-aid application for another two years.
Some financial-aid offers include the option for a federal work-study job. Keep in mind that students have to apply for work-study positions and balance the time commitment, generally a maximum of 20 hours a week, but often less, with their academic life.
Student and parent loans
For those still coming up short, loans are another option. Federal student loans are relatively low cost—even more so due to historically low interest rates—and they come with borrower protections such as income-driven repayment, public-service loan forgiveness and teacher loan forgiveness. New federal loan rates will be announced soon, but for context, the interest rate on undergraduate loans disbursed between July 1, 2020, and June 30, 2021, is 2.75%, plus a loan fee of 1.057% for loans disbursed between Oct. 1, 2020, and Sept. 30, 2021. There are yearly and cumulative limits for these loans.
Parents also can get federal loans to pay for a child’s college costs, minus any other financial assistance the student receives. For Direct Plus loans first disbursed between July 1, 2020, and June 30, 2021, the interest rate is a fixed 5.30% for the life of the loan. There also is a loan fee of 4.228% for loans taken between Oct. 1, 2020, and Sept. 30, 2021. Parents can repay these loans under an income-driven repayment plan. If they are public-service workers, they might be eligible for loan forgiveness after a certain period. These loans, however, cannot be transferred to the student, and rates may be higher than nongovernment loans.
While the Biden administration is considering student-loan forgiveness, there is no guarantee it will happen. As such, it isn’t advisable for students or parents to overborrow, thinking they won’t have to pay back the money.
Banks and lenders also offer private loans for college. Marketplaces such as Credible or CollegeFinance provide information on what rates and perks, if any, are available. Generally, these loans are best for those with good credit. Borrowers should read the fine print carefully before taking these loans, as most private loans don’t carry the same types of borrower protections as federal loans.
What’s more, borrowers shouldn’t count on having their loans discharged in bankruptcy. It is possible, but it doesn’t happen often. Also, don’t count on having private loans discharged as part of the government-led forgiveness program.
Home-equity loan or Heloc
Some families use secured loans, such as a home-equity loan or a home-equity line of credit, to pay for a college. With a home-equity line of credit, borrowers withdraw money as they need it, up to a certain amount. There’s often a floating interest rate, and borrowers generally have 10 to 20 years to pay back the money. A home-equity loan, by contrast, is a one-time lump-sum loan that often comes with a fixed interest rate. With housing prices rising in many areas, this might be an enticing way to borrow more money, but there can be drawbacks.
While these loans may have lower interest rates, be sure to weigh other factors such as your home’s value, how much you need, closing costs and whether you are comfortable using your home as collateral. Additionally, these loans must be repaid if the home is sold, and you’re likely to have fewer repayment options compared with other types of college loans. In some cases a home-equity loan can reduce a student’s eligibility for need-based aid because it could be counted as an asset, especially by highly selective colleges.
Source: Wall Street Journal