College costs a lot, which is probably not news to you. But by virtually everyone's
estimate, a college education is a great investment in you. All of the evidence
suggests the value you get outweighs the costs.
Assume you have decided what interests you, and you have found a school that seems
to offer what you want. Now, how do you go about paying for it? Fortunately, there
are many resources available; including grants, scholarships, several types of loans
- and even the military. The question is: where do you start?
We can help you get everything done by taking one step at a time. And even though
ISM is an education loan company, you will notice loans are near the bottom of the
list. That is because we believe you will be better off looking to loans as your
final option after having looked at all of the other options first.
Ways to Pay For School
Grants, scholarships and loans are not the only options available to students and
families to pay for school. Other plans include saving for school and working in
public service positions that offer repayment of student loans.
The following sources provide even more information about planning and paying for
school:
Indiana's CollegeChoice 529 Investment Plan
Indiana's CollegeChoice 529 Investment Plan is a program that offers tax benefits
for families that choose to save for their children's education.
AmeriCorp
AmeriCorp is a network of local, state and national service programs that connect
more than 70,000 students each year to employment opportunities in areas such as
education, public safety, health and the environment for over 2000 non-profit companies,
public agencies and faith-based and community organizations. Full-time participants
can earn up to $4,725 to pay for school or to repay student loans.
U.S. Department of Health and Human Services (HHS)
Indian Health Program
This program, offered through HHS, gives health professionals an opportunity to
have up to $20,000 per year in education loans repaid in return for working to provide
health care services to Native Americans.
National Institute of Health Loan Repayment Program (NIH)
NIH offers two and three year research positions in return for which NIH
will repay up to $35,000 per year of qualified education loans.
U.S. Department of Educations Student Aid on the Web
Student Aid On the Web offers information about the federal student aid programs,
scholarship search, saving for college, choosing careers and finding colleges which
offer programs to match your interests.
IRS Publication 970, Tax Benefits for Education
Internal Revenue Service Publication 970 contains information about Hope Education
Credits, Lifetime Learning Credits, Coverdale Education Savings Accounts, Qualified
Tuition Programs and other provisions in U.S. Tax Code to help fund education expenses.
Private Education Loans
In recent years, private, non-federal education loans have been the fastest growing
source of funds to pay for school, with annual new loan volume estimated to be over
$17 billion.
While some financial institutions that offer private loans have at times advertised
private loans as similar to federal loans, there are significant differences. For
example:
- Private loans are not subsidized - the borrower will be responsible for payment
of all interest from the day the loan is made.
- While some private loan lenders offer to delay payment while the student is in school
and for a period after the student leaves school (similar to the Grace Period in
federal loans), interest will accrue during the entire period. If interest is not
paid when it is due and is added to the loan balance, borrowers could have to repay
thousands more than they originally borrowed.
- Interest rates for private loans are typically considerably higher than federal
loan rates. While the current Federal Stafford rate is fixed at 6.8%, a rate of
10.5% is not uncommon for private loans and rates may be much higher for borrowers
with less than good credit. Rates as high as 20% have been reported.
- Unlike rates on federal loans, interest rates on private loans are variable and
may change every 90 days. There is usually no maximum rate; if interest rates in
general increase, rates on private loans will increase as well with the possibility
of borrowers repaying their loans at rates twice as high as, or more than rates
on federal loans.
- Some private loans have fees that are much higher than those for federal loans.
Some lenders charge fees at the time the loan is made. Others charge fees when the
loan enters repayment. These fees are either deducted from the loan proceeds or
added to the loan balance. In either event, the cost of borrowing will be increased.
The availability of private loans is based on the borrower's credit rating as is
the interest rate and fees. It is not unusual for undergraduate borrowers to be
required to obtain a co-signer.
While loan consolidation to obtain longer repayment terms may be available for private
loans, only private loans can be included. Borrowers cannot consolidate federal
and private loans, although some lenders are able to offer joint billing.
Many private loan applicants do not realize they may be able to obtain federal loans
at much more favorable terms. Some advertising for private loans include statements
that there is no school involvement and "no complicated government forms to
complete." Regrettably, many families may read these advertisements and not
bother to complete the FAFSA, under the belief they are unlikely to be eligible
for student assistance through their school. Such families could be giving up the
opportunity for thousands of dollars in federal or state aid.
One advantage of private loans is that much higher annual loan limits may be offered
than in the federal loan program. While parents in the Federal PLUS loan programs
can borrow up to the full amount of school expense less aid received, student borrowers
are often limited to annual maximum amounts which are far less than the cost of
attendance. For example, the Federal Stafford loan annual limit for dependent freshmen
students is only $3500.
Private education loans are similar to federal loans in one respect; generally they
are not dischargeable in bankruptcy.