Millions of American teenagers and adults are heading off (or back) to some form of higher education institution this fall.
Although the actual enrollment date may be months away, there are a few steps they should take as soon as possible to ensure there is as much money as possible available to pay the cost.
File for financial aid
According to the CollegeBoard’s Trends in Student Aid, in 2014-2015 full-time undergraduate students received an average of $14,210 in financial aid.
That sounds like a good chunk of funds. But keep in mind that it’s the average amount, and depending on the total cost of the school in question, the financial aid package may still leave at least $5,000 to $25,000 worth of expenses that need to paid for from family savings or income—each year.
The first step towards qualifying for the lion’s share of all types of financial aid is to file the “Free Application for Federal Student Aid,” or “FAFSA”. It’s available online at www.fafsa.ed.gov.
It’s better to fill out the application sooner rather than later, since some types of aid is awarded on a “first come, first served” basis. Once you open and begin the application, you may be dismayed to find out that it requires you to enter financial information from the 2015 tax year, and you probably don’t have all of that information yet.
Don’t fret, or delay your filing. Instead, you can put estimates in now, file, and then enter the figures once you’ve assembled them. How much money will you get?
Another opportunity for disappointment may arise when you find out that the only type of financial for which you qualify is student loans, and not grants and scholarships.
Again, don’t let that discourage you. Those loans (especially the federal versions) can go a long way towards covering expenses that can’t be met by accumulated savings and future family income.
In fact, even if you do have some or all of the money needed to pay for future higher education expenses, there are several reasons that you may still want to borrow some or all of the money available via federal student loans.
First, the terms and rates of the loans available today may be better than what is available in future years. If that turns out to be true, you’ll be happy to have retained your savings to pay for education expenses during that period.
Second, you may have other more pressing personal or family financial emergencies (such as a job loss or uncovered medical expense) that may be difficult to fund via borrowing, and may require you to use money earmarked to pay for college.
Last but not least, federal student loan payments can be minimized or forgiven if the student doesn’t earn enough income after graduation, and/or works in certain public service jobs for a few years.
You can find out more about these programs at www.ibrinfo.org, and tinyrul.com/pubstuloan.
Making more money available
There are some other steps that can help create more funds to pay for looming higher education expenses.
If you’re a homeowner, consider taking out a new 30-year mortgage for as much as the lender will allow (usually 80% of the home’s appraised value), and then parking any net proceeds in a savings account.
You’ll be tapping your home’s equity at a time when rates are relatively low, valuations are relatively high, and lenders are friendlier than they have been in a while (and may be in the future).
You’ll also get a large cash infusion that can help cover college costs now, and be repaid over the next thirty years, while incurring a low, potentially-tax-deductible interest rate.
And if everybody in your family gets through college with no need for proceeds from the mortgage, you can use any leftover funds to pay off the loan as soon as possible, with little or no penalty.
If you can’t stand to take out a new mortgage, at least establish a home equity line of credit (HELOC) for as much as your lender will allow.