Smart Ways To Cover The Cost of College
"Federal loans are cheaper, more readily available and have better repayment terms than private student loans," says Mark Kantrowitz, founder and publisher of FinAid.org, one of the most comprehensive sources of student financial aid information.
Interest rates on federal student loans are fixed at 6.8 percent and loan maximums range from $5,500 for freshmen (dependent students) to $7,500 for seniors. If you're eligible for a need-based federal loan, interest rates are lower this year at a 4.5 percent fixed rate.
Private student loan rates are often variable and not all private loans are created equally. Look around and consider the total cost over the life of the loan, Kantrowitz suggests. Also, paying all or partial interest while in school and finding a loan with a shorter-loan term can save you significantly.
Despite the wranglings over the tax deal in Washington, there are some perks for paying for college that you don't want to overlook.
Tuition tax credits can add up to $2,500 a year in savings on your federal taxes, as long as you meet the income requirements.
The Hope Scholarship Tax Credit offers a credit of up $2,500 for tuition, fees and books and supplies for the 2010 tax year. Go to irs.gov to see if you're eligible for this year. And keep your eye on the details for future education tax credits.
Living off-campus (if not at home) can be a huge savings on room and board.
Also, hit the books for less by renting books online at sites like Bookrenter.com and Chegg.com. Half.com (a subsidiary of eBay) which offers textbooks for a fraction of their retail cost and you can sell them at the site too.
Students on a meal plan should opt for one that allows more flexibilty by covering meals for the semester, rather than a weekly allotment.
Build a Plan!
Most importantly, make sure you build a college savings plan that covers the student's entire stay and consider what the starting salary will need to be after graduation to keep loan payments manageable.
"A student's debt at graduation should not exceed their starting salary over the first few years," says Baum, citing a general rule.
And if your financial situation declines while your child is in college, make sure you notify the university as soon as possible—that may also help free up funds.
"Email the provost, email whoever you can and ask questions," says Lisa Staiano-Coico, president of City College of New York. "Very often there is money that can help bridge these gaps, but you need to ask and you need to find it."
Watch the "Price of Admission: America's College Debt Crisis," a CNBC Original documentary.