It’s that time of the year when high school seniors eagerly await their acceptance letters and parents nervously wonder how much college is going to cost them. Even those who may have put away some money through a 529 Plan or another college savings account may find that it’s simply not enough to cover all their expenses, even after they factor in federal financial aid and scholarships. When this happens, students and parents may need to make some tough decisions. They can look into schools that may cost less, such as community colleges or in-state public colleges, or they can consider another option – private student loans. But, before students and parents make the decision to take on additional student loan debt, they should take a close look at the pros and cons of applying for a private student loan.
Is your financial aid package a little lighter than anticipated? It may be time to consider getting a private student loan. And if you do, keep in mind that you will likely need a cosigner to qualify for the loan; very few students are able to receive financing based on their own creditworthiness. But, how do you approach a potential cosigner? It’s a good idea to start with someone you trust, such as a friend or family member. Be sure your potential cosigner has a good credit score (720 or higher), as well. This not only increases your chances of being approved, but may also reduce the interest rate on your loans. Once you decide who will be the most likely candidate (and most willing to help), you’ll want to follow these steps to ensure the conversation goes smoothly.
What is EFC? It’s short for Expected Family Contribution. Basically, it is a number derived from the Free Application for Federal Student Aid (FAFSA) that shows your family’s financial health and how much you should be able to contribute to your child’s college education for one year. Where does this number come from? It’s really too complicated to explain in great detail here, but it essentially factors in your family’s income, taxable investment assets, college savings accounts, the number of children enrolled in college, your household size, and even your marital status (just to name a few). Most parents are stunned when they view their EFC for the first time, so don’t be alarmed if you think it’s incorrect, too. Our wonderful elected officials in Congress are the ones who actually created the EFC formula, so it’s no wonder that it seems a bit flawed. Just remember that it’s an estimate of what you should be able to pay for college and that your actual amount may be quite different.
In order to maximize your chances for both federal and state financial aid, file the Free Application for Federal Student Aid (FAFSA) as soon as possible on or after January 1 for each academic year in which you will need assistance. For the 2015-2016 academic year, the FAFSA became available on January 1st, 2015. You may file the FAFSA for the 2015-2016 academic year online as late as midnight Central Time June 30, 2016. You may file corrections or updates online up until midnight Central Time September 17, 2016. The school you attend may have a separate deadline as well. Be sure to check with your financial aid office to ensure you meet their requirements. Each state has separate deadlines and some require additional applications. Use the following table to learn about deadlines in your state.
Most students turn to financial aid to help fund their college educations, using a combination of student loans, grants and scholarships to help cover their expenses. But, what happens when that isn’t enough or you’re enrolled in a program not covered by federal financial aid? Sure, you could turn to private student loans or look into peer-to-peer lending to help pay your program fees, but that’s not going to help you stay out of debt. If you’re really interested in earning a degree or following some alternative pathways to a career without acquiring considerable student loan debt, you may want to take a look at these three unconventional ways to fund your education.