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Your child’s college decision is rapidly approaching. You may be looking at the cost of their schools and thinking to yourself, My savings are only a fraction of this. What am I going to do?
Well, to begin with, don’t be so hard on yourself. You did the best you could. Fortunately, there are still ways to take on more of the cost responsibility, thus minimizing the amount of loans your child will take on.
A common misconception is that after factoring in tuition aid (grants, scholarships, work-study) and college savings, the remaining balance can only be covered through loans. Thanks to payment plans, that doesn’t have to be the case.
Payment plans allow you to contribute money while your child is in school to either cover a year’s entire remaining balance, or just a portion. Your only cost is a small administrative fee. For example, if your child’s remaining balance is $15,000 for the school year, you could pay $500 per month for 12 months (totaling $6,000), and that $6,000 would lower your child’s remaining balance to $9,000.
In this example, your child would still owe money, but any amount you can contribute while your child’s in college means less to take out in loans later on. It’s much easier to pay back $9,000 in loans than $15,000. So if you feel guilty about how much you saved, payment plans give you an opportunity to make up for lost time.
So how much should you contribute in your payment plan? That’s up to you.
You may have noticed an Expected Family Contribution (EFC) number on your child’s financial aid award letter. That number represents what the government thinks you can afford to pay, on your own, toward your child’s education. Your EFC is based on information provided on your Free Application for Federal Student Aid (FAFSA). For example, the government might say you can afford to pay $600 per month for college; that number impacts how much aid the government will provide to you and your child.
However, you are under no obligation to contribute your entire EFC, or even a fraction of it. You can contribute as much or as little as you want. But if you can afford to pay off all or some of a school year's balance through a payment plan, you could be saving your child years of debt repayment after graduation.
If you’re interested, try to set up a payment plan through the school’s financial aid or business office. If the school doesn’t offer this option, they should be able to connect you with a third party who can.
Even with payment plans, you or your child will likely have to take out student loans to bridge the remaining gap. The loan application process can be overwhelming, but there are ways to reduce the stress involved.
Most lenders will ask you to fill out a new student loan application every year you borrow. However, some private lenders only ask you to apply once (at the start of school), then estimate how much you may need in the future, and could offer multi-year approval on loans. Then, instead of reapplying from scratch each year, you’d only have to fill out a request form since you were already approved, which saves time.
College is a large expense, so naturally there will be times when you will feel overwhelmed. That’s especially true if you feel like you came up short with your college savings. Fortunately, there are a variety of ways to bridge any funding gaps. That responsibility doesn’t have to rest solely on your child’s shoulders.
We are committed to helping you reach your potential. Click here if you have questions, or would like more information about your student loan options. You can also speak to a Student Lending Specialist at 1-888-411-0266.