Preparing for College- Guest Blog

Going to college now isn’t just about picking a major and then wait for a great paying career to fall in your lap. Too many students are graduating with debt waiting for them, the average being $26,000 after four years of school.  The best way to secure your future is to plan now for future college success. You’ll need to carefully select a school, plan how you are going to pay for it, budget for what you need and be ready after graduation to begin paying back your loans.

First, you have to select the right school. This also means some determination on what you want to do after school as well.  If you want to turn wrenches, then select a school with a great trade reputation in auto or marine mechanics.  If you want to design the engines that others will work on, then you’ll want a school with a superb mechanical engineering program. The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations. The purpose of the NCES is to provide extensive information about educational institutions in the U.S. to government and private organizations and individuals.  It is a division within the Department of Education and is an incredible source of data for students and parents looking for a college.

Now that you’ve picked a school, you’ll have to pay for it. The best way is scholarships of course. If your grades are good enough, you have thousands of options available to you. One of the best resources you can find online is CollegeScholarships.com. They have detailed scholarship information for over 2000 colleges in the U.S. If you are unable to qualify for scholarships, there are a number of things you can do to keep expenses down and your post-graduation debt low.

Tips to Avoid Student Debt

• Put money aside now. For parents reading this, it’s better to send your child to school in a used Toyota and have them graduate debt-free or as close as possible. They may complain for four years, but they’ll thank you when they see that first repayment notice.

• Work where you study. Many schools have internships and other positions that pay fairly well for part-time work. Other schools have positions that offer free or reduced class hours in the next semester for work. Besides the financial assistance, these jobs also show work experience on what would be a very short resume otherwise when it comes time to finding a job.
• Borrow only what you need. If you have to take out loans, don’t take on too much debt. Federal loans can be used only for tuition and fees, but many students and parents take out too much in private loans for other expenses. This is another reason why you have to carefully choose a school; it can mean the difference between as much as $5000 per school year depending on where a student attends classes.

OK, you’ve completed your four years, worked and saved everything you can. Six months later, it’s time to begin paying back those loans. There are four repayment plans that you should know about now. Two will apply when it’s time to begin paying them back immediately (Standard and Extended Plans) and two will be there to help you a few years down the road if you need assistance then (Income Based and Income Contingent Plans):

Standard Repayment – You will be placed in this category automatically unless you ask.  The lender will determine your monthly amount by taking the total amount of your loan or loans and dividing it into 120 payments over a 10 year period or up to 30 years depending on the balance. You can pay off your loan early to reduce the amount of interest you’ll owe. If you do need to change it due to unemployment or underemployment, you should visit or call your lender as soon as possible. The paperwork is fairly simple and is set up to keep you on schedule and your credit score intact.

Graduated Repayment – If you need a smaller monthly payment and a longer period of time, this is your best option. Changing to a Graduated plan will mean a larger amount of interest you’ll owe over the new repayment schedule, but smaller initial payments. You start off by paying only interest on the loans and every two years your payment increases.

Income-Based Repayment – This plan is designed for graduates who have been working for several years and perhaps have even started a family.  Financial hardship must be shown by comparing current monthly loan payment against discretionary income. This is the amount you have left after rent, groceries and utility payments are deducted from your monthly income. Once qualified, the monthly payment is capped at 15 percent of this discretionary income and there is no minimum payment.  Some applicants even qualify for a monthly payment of $0 depending on their finances.

Payments are calculated every year to account for changes to your income and other factors such as new family members. After 300 eligible payments and 25 years, any remaining balance is written off or discharged. You can repay the loan before 25 years if you choose to and are able.

Income Contingent Repayment – This plan is similar to the Income-Based Repayment but is calculated differently. If this is you, your family size, income and the total amount owed (not monthly payment) are the primary considerations. Your monthly payment is recalculated every year just like the Income-Based Repayment plan. The total schedule is also 25 years or 300 payments.  If there is any amount left of that original loan after that time, it is discharged just like the Income-Based plan.

A college degree is still worth the money when it comes to increasing lifetime earnings. That said, students and parents must pay attention to the school they choose and the debt they’ll incur upon graduation. It’s the best way to make sure they can build on a bright future rather than have to spend their early years paying for their past.

*Guest blog by Student Debt Relief http://www.studentdebtrelief.us/knowledge-base/