 |
 |
Paying For It |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
How can I afford to send my child to college? Saving money in advance and obtaining financial aid are common ways for parents to make their child's education affordable. Other ways of making college affordable, such as attending college part time, will be discussed later in this handbook.
Saving Money Saving money is the primary way to prepare for the costs of college. Setting aside a certain amount every month or each payday will help build up a fund for college. If you and your child begin saving early, the amount you have to set aside each month will be smaller.In order to set up a savings schedule, you'll need to think about where your child might attend college, how much that type of college might cost, and how much you can afford to save. Keep in mind that colleges of the same type have a range of costs and your child may be able to attend one that is less expensive. You can also pay part of the costs from your earnings while your child is attending school. In addition, your child may also be able to meet some of the costs of college by working during the school year or during the summer. Finally, some Federal, State, or other student financial aid may be available, including loans to you and to your child. You will also want to think about what kind of savings instrument to use or what kind of investment to make. By putting your money in some kind of savings instrument or investment, you can set aside small amounts of money regularly and the money will earn interest or dividends. Interest refers to the amount that your money earns when it is kept in a savings instrument. Dividends are payments of part of a company's earnings to people who hold stock in the company. A savings instrument has an "interest rate" associated with it; this refers to the rate at which the money in the instrument increases over a certain period of time. Principal refers to the face value or the amount of money you place in the savings instrument on which the interest is earned. Chart 7 shows how much you would need to save each month in order to have $10,000 available when your child begins college. As the chart demonstrates, the amount varies depending on the interest rate you obtain and the number of years that you save. The higher the interest rate and the earlier you begin to save, the less you need to set aside each month. For example, if you start saving when your child is born, you will have 18 years to save. As shown on the chart, each month you will only have to deposit $32 in an account earning 4 percent interest in order to save $10,099 by the time your child is 18. However, if you use the same savings instrument but do not start to save until your child is 16, you will have to save $401 each month. In addition, if you use the instrument with the higher interest rate -- 8 percent -- you will only have to put away $21 each month starting when your child is born. Remember, by starting to save early and by using instruments with higher interest rates, you can put aside smaller amounts. If you wait until later to start saving, you may not be able to afford to put away the larger amounts of money needed to meet your savings goals.
Amount You Would Need To Save To Have $10,000 Available When Your Child Begins College
When deciding which type of savings instrument or investment is right for you and your family, you should consider four features:
If you start early enough, you may feel confident about making some long-term investments. Some investments are riskier than others but can help you earn more money over time. Chart 8 lists some of the major kinds of savings instruments and investments that you may want to use. You can get more information on these and other savings instruments at local banks and at your neighborhood library. Don't forget that you won't necessarily have to save for the entire cost of college. The following section tells about student financial aid for which you and your child might qualify and other ways to keep college costs down.
Financial Aid Financial aid can help many families meet college costs. Every year millions of students apply for and receive financial aid. In fact, almost one-half of all students who go on for more education after high school receive financial aid of some kind. In school year 1994- 95, postsecondary students received about $47 billion in financial aid.There are three main types of financial assistance available to qualified students at the college level:
 Grants and Scholarships Grants and scholarships provide aid that does not have to be repaid. However, some require that recipients maintain certain grade levels or take certain courses.Loans Loans are another type of financial aid and are available to both students and parents. Like a car loan or a mortgage for a house, an education loan must eventually be repaid. Often, payments do not begin until the student finishes school, and the interest rate on education loans is commonly lower than for other types of loans. For students with no established credit record, it is usually easier to get student loans than other kinds of loans.There are many different kinds of education loans. Before taking out any loan, be sure to ask the following kinds of questions:
In all cases, a loan taken to pay for a college education must be repaid, whether or not a student finishes school or gets a job after graduation. Failure to repay a student loan can ruin a person's credit rating and make finances much more difficult in the future. This is an important reason to consider a college's graduation and job placement rates when you help your child choose a school. Work-Study Programs Many students work during the summer and/or part time during the school year to help pay for college. Although many obtain jobs on their own, many colleges also offer work-study programs to their students. A work-study job is often part of a student's financial aid package. The jobs are usually on campus and the money earned is used to pay for tuition or other college charges. The types of financial aid discussed above can be merit-based, need-based, or a combination of merit-based and need-based.Merit-based Financial Aid Merit-based assistance, usually in the form of scholarships or grants, is given to students who meet requirements not related to financial needs. For example, a merit scholarship may be given to a student who has done well in high school or one who displays artistic or athletic talent. Most merit-based aid is awarded on the basis of academic performance or potential.Need-based Financial Aid Need-based means that the amount of aid a student can receive depends on the cost of the college and on his or her family's ability to pay these costs. Most financial aid is need-based and is available to qualified students.From: "Preparing Your Child for College" Copyright© 2000-01 The U.S. Department of Education, All Rights Reserved | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
