Squeezed by the Freeze?
Start early and have backup plans to secure next year’s college funds.
If you’re counting on education loans, particularly private education loans, as part of your college financing plan for next school year, listen up: The pool of loan dollars is apt to be a lot smaller, and the competition for them much greater, in the foreseeable future.
The U.S. and global economic downturn has severely impacted the credit markets, which means that obtaining loans of any type, including student education loans, has become more difficult.
Many banks and lending institutions have raised credit standards and interest rates to lower their risk, and dozens of others have pulled out of the student loan market altogether.
The federal government has taken action to help shore up the federal loan program and impart confidence to lenders. A one-year extension of the Ensuring Continued Access to Student Loans Act was signed into law in October 2008, with the goals of stabilizing the student loan marketplace, preserving the public/private partnership in the federal student loan program, and, most important, ensuring availability of federal student loans for the 2009-2010 school year and beyond.
And while the government is ready to provide federal backing of loans, lenders are still challenged to secure private capital for the loans’ initial financing. With the economy still in turmoil, it’s definitely a “wait and see” situation.
So what’s a student to do? You (and your parents) can maximize your chances for securing next year’s college financing by doing the following:
- File 2008 taxes ASAP. The sooner your parents (or you, if you’re independent) have your taxes figured out, the sooner you can complete the Free Application for Federal Student Aid (FAFSA).
- Complete and immediately submit your FAFSA form, the most important determinant in financial aid eligibility. If you need help filling make an appointment right away with a financial aid counselor at your school. Want to get an early read on your federal aid eligibility? Access the AFSA4 caster.
- Start searching for alternative sources of funding, including school and community scholarships, parents’ employer grants, and employer tuition assistance. Get some good guidance on scholarships from the Department of Education. If you have investigated every possible source of funding and find you are still coming up short on the money you need for next year, you may want (or have) to:
- Ask your parents to consider obtaining a home equity loan or line of credit (if they own their home, have sufficient equity, and maintain a decent credit score).
- Do your part by getting a job during school and semester breaks.
- Consider commuting to school to save on room and board costs.
The Credit Trap
Don’t even think about using a credit card to pay your college bills, unless you have the cash on hand to pay it off right away. Credit card debt can negatively impact your ability to obtain future school loans and even consolidation loans once you’ve graduated. You don’t want to exit school with a poor credit score!
When the Money Just Isn’t There—Trading Service for Tuition
There are several public service programs that enable you to “trade work for tuition”:
Teach Grant Program—Offers grants of up to $4,000 per year to students who intend to teach in a high-need field in an elementary or secondary school that serves students from low-income families.
AmeriCorps—Join one of three AmeriCorps programs and contribute a year of service addressing critical community needs. Full-time members earn a Segal AmeriCorps Education Award of $4,725 to pay for college, graduate school, or to pay back qualified student loans.
PeaceCorps—Volunteers work mainly abroad in essential areas such as information technology, agricultural and business development, and AIDS Relief. Peace Corps Volunteers may defer Perkins and Stafford loans as well as consolidated student loans. Perkins loans may even be partially canceled.