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.