Paying for College
Although some people are lucky enough to have wealthy parents who can pay for their entire education, most students planning to earn undergraduate degrees are forced to rely on external money sources to supplement their own savings and any type of college fund established by their parents. Most often, college loans and scholarships are the sources of these supplemental funds for paying for college. Students can fill out the FAFSA to find out what loans and grants they may be eligible for.
Obviously, a scholarship is preferable to taking out a loan, mainly because the money does not have to be repaid. Essentially, scholarships are monetary grants earmarked for the student's education. With so many scholarships out there, it's important that individuals gauge their likelihood of receiving a given prize so they can use the time required to prepare applications efficiently. In particular, you should identify the following information for any scholarship you are considering:
- Title of the Scholarship: Sometimes, the title can be enough to tell you whether you qualify for the prize. For example, a scholarship called "The Prize for Women Pursuing Further Education in Science" can probably be ruled out if you are a man applying to an arts program.
- Sponsor: This can also help you determine your eligibility and chances of winning the award. Consider whether the sponsor is involved with a specific religion, racial group, geographic area, etc., and if that sponsor would likely consider you an eligible candidate for the award.
- Contact Information of the Sponsor: If you are unfamiliar with the sponsor, but a website is provided, visiting the website would be a great way to learn more about the values and beliefs of the organization.
- Contact Person: If you have questions about whether or not you can apply, calling or sending an email to the contact person is a great way to clarify things.
- Deadline: Obviously, it's essential to know when you should send your application. With so many people applying for scholarships, submitting your forms even a day or two late may instantly disqualify you.
- Field of Study Required: Ensure that your intentions and this requirement match up. Don't apply for a medical college grant if you're studying agriculture.
- Value: Consider how much the scholarship is worth. If it's only for a small amount, and your chances of winning are not very good, you may decide to pass it by in favor of better prospects.
- Application Rules: Review the rules carefully, and ensure you meet all requirements and that your application complies with all regulations.
- Required Information: Find out exactly what you have to provide to be considered, and double-check your application package to make sure it is complete before you send it. Official transcripts, a resume, reference letters, essays - it's essential to include absolutely everything that has been requested.
- Factors Used in the Decision-Making Process: Many information packages will tell you what factors are taken into account when award decisions are being made. Check to see whether the information also indicates how much weight will be given to each category. This is an important part of targeting your application for an award or scholarship. For example, some prizes are based almost entirely on academics, while others may look more closely at volunteer work. Try to find prizes that are consistent with your strengths. Otherwise, you may be just wasting your time by applying.
With the large number of prizes out there, it's important to identify all of the factors described above and decide whether it's worth your time to put together an application package. Applying for scholarships, loans and grants is a process that can be quite time-consuming. Some individuals may even decide that it's not worth their time to apply for scholarships because they have little chance of winning. However, this view is extremely short-sighted. The time it takes to put together an application or fill out the FAFSA can pay dividends in the long run. For example, if you spend five hours putting together an application for a $1,000 prize - and you win - that works out to $200 per hour, which is pretty impressive compared to what you might earn at a typical part-time job. With a strong academic and community background, a little luck, and a lot of effort, you may be one of the lucky ones awarded enough funds to cover your entire education.
One of the biggest questions asked by students when it comes to paying for college is where they should be searching for available scholarships. Bulletin boards, listings provided by a guidance counselor, and documents obtained directly from groups and organizations awarding the prizes are all great sources of information. An Internet search can also be very beneficial, but companies claiming they can help you find scholarships and fellowships should generally be looked upon with skepticism. These companies often claim they can help students find huge prizes that almost nobody even knows about. The catch is that they require a registration fee in order for students to access these listings. Often, the student does not reap any financial rewards, and has instead simply lost the money they paid. Be wary of any organization that charges a fee and makes outrageous claims.
Unless you've been lucky enough to receive a full academic or athletic scholarship, you will probably have to fund or supplement your college savings with an educational loan, which the FAFSA can help you with. There are a number of financing options out there, so consider each of the following factors to ensure the terms are fair and you're not getting in over your head. Remember, when paying for college, most financial experts recommend that you borrow only between 8 and 15% of what you expect to earn after you finish school. Following this simple rule can help you avoid overwhelming periodic debt payments down the line.
- Guarantee fee: This gives the lender some protection should you fail to make your agreed-upon payments.
- Administration Fee: Most lenders will charge you a fee for the labor involved in finalizing your loan. This is also often known as a college loan origination fee.
- Capitalization: How soon will interest begin being charged on your college loan? Some student loans begin charging and accumulating interest debt almost immediately, while other lenders will wait until the student is finished with their education. Consider both the rate of interest and the point when interest will begin to accumulate to determine whether that relatively small principal loan amount might balloon into a very large one before you even begin the repayment process.
- Fixed or Non-Fixed Rates: It can be tough to know which option is better. On the one hand, fixed rates mean that your payments will be the same, regardless of the Prime Rate and other economic factors. This is great if interest rates increase, but not such a good deal if interest rates drop dramatically. On the other hand, variable rate borrowing can get you into a lot of trouble. Variable interest rates are usually pegged to external interest rate indexes. This means they are lower interest rate loans than fixed rate loans when you take the loan, but the interest rate can increase along with rising national interest rates. Even a small increase in interest will quickly add up if it is applied to a large principal. Of course, variable interest rate loans can also decrease, and so can your interest payments, but that is a gamble. In general, fixed rates are less risky, and are probably the better choice if you are looking for stability and predictability in your repayment schedule.
- Deadline for First Payment: Find out when you will have to start repaying your loan. Also ask whether you can begin repaying the loan while you are still in school if you have the financial means to do so.
- Interest Deduction: Ask whether there is any way to receive a reduced interest rate. Some lenders may offer reduced rates if you agree to set up your bank account to allow for automatic direct payment. In this way, lenders are more likely to get their money, and this added security may convince them to offer you a better rate.
- Payment Schedule: How often is payment required? Monthly? Every two weeks? Bimonthly? These considerations have an impact on the total amount of interest you pay. Also ask whether there are provisions that would allow you to double up on your payments or occasionally skip payments without penalty.
Last Updated: 04/24/2014