By Russell Bailyn

If you’re looking to do your kids a huge favor, consider the cost of college when they are quite young. As many are aware, the burden of college costs has increased dramatically in the past 10 years and is showing no signs of decreasing anytime soon. The earlier parents start saving, the lower the regular contributions to qualified plans will have to be.

In many cases, a child will find that adequate funding for their educational needs are not in place by the time those funds are needed. These kids (the majority of us) will need to look towards scholarships, loans, and grants to assist in making these payments. Below is information regarding different types of scholarships, grants, and federal funds.

Scholarships

Scholarships are funds given to a student to use for educational needs. The money does not need to be paid back as it is normally a gift or recognition of achievement. Most scholarships are awarded for academic or athletic accomplishments and are offered primarily by individual schools, corporations, and private foundations. Scholarships are sometimes based upon financial need. Note that if you do receive substantial scholarship it may adversely affect your ability to receive other assistance. For more information on locating scholarships check www.collegeboard.com.

Federal Grants

Receiving a federal grant is always a wonderful thing. The federal government gives you a gift which does not need to be paid back to help fund your educational needs. Pell Grants are the primary form of federal grants & are generally need-based. One can look into a Pell grants whether they are a part-time or full-time student.

Supplemental Educational Opportunity Grants

Rather than obtaining the funds directly from the federal government, these grants are awarded to individual schools which then award them to the students. To see if your potential school will offer you an SEOG contact the financial aid office directly.

Perkins Loans

If you are going to college and either don’t qualify or aren’t lucky enough to receive grants or scholarship money, you’ll probably end up with a federally funded loan. These loans are still need-based, but easier to obtain since they are loans rather than grants or scholarship (free money). Perkins loans have a 5% interest rate which begins after the individual is done with the education. This is called a subsidized loan, and the borrower is not responsible for the interest while they are in school. The repayment period after college is generally limited to 10 years but can possibly be negotiated on a case-by-case situation. For more information on obtaining a Perkins loan, visit www.salliemae.com.

Stafford Loans

These are the big guys in the loan business and offer both subsidized, and unsubsidized loans. Naturally, a subsidized loan is always preferable since you don’t need to worry about interest while in school. Stafford loans are also need-based, and generally capped at $5,500 per year. Sometimes more is offered to a graduate student than an undergraduate student. The interest rate on a Stafford loan is variable and generally lower than on the Perkins. However, students generally consolidate loans after college and an average interest rate for the combination of loans is offered. Stafford loans have a 6-month grace-period starting the month of graduation so the student has a chance to start working and collecting funds before beginning to pay back the loan. There is generally a 10-year repayment term on Stafford loans as well, but that can be avoided by doing a loan consolidation after you graduate.

Parent Loans to Undergraduate Students (PLUS)

If your parents are willing to do a PLUS, you are a very fortunate student! Under this type of loan, parents can borrow an unlimited amount of money at a slightly higher interest rate and essentially take responsibility for the funding of their children’s educational needs. As with Stafford loans, PLUS loans are available ultimately through private lenders so that terms of repayment, interest rates, authorizations fees etc… are discretionary and should be investigated before accepting a loan.

Further information about both state-funded financial aid (less common) and federally funded aid can be obtained from the government website at www.studentaid.ed.gov.

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