With a recession looming, many parents are wondering how they can afford to help their kids with college. Kelli Grant, Consumer Reporter for SmartMoney.com, has some tips.
Current economic woes may affect your ability to pay for college. The credit crunch, weakened job market and decreasing home values may make you eligible for more aid than you think. But for some families these same factors could also hinder their ability to secure certain loans.
When filling out the Free Application for Federal Student Aid, most families use last year's income tax returns instead of estimating what this year's will be. But when the economy is shaky, it's a good idea to look ahead rather than back. A wage cutback or even temporary job loss lowers your annual earning potential. Presenting documentation of that to the college could get you more aid.
Nationwide, the number of foreclosures has reached record highs. Parents who have lost their home to foreclosure don't have good odds of getting approved for a PLUS loan. The application requires a review of your credit history. If you're turned down for a PLUS loan, your child can take another $4,000 in unsubsidized Stafford Federal Student Loans to balance out the hardship of having parents who are unable to contribute.
Most private colleges consider home equity an asset when determining financial aid eligibility. The average U.S. home's value plunged 5.5% last year, so you could have less equity in your home than previously reported. Show the college an estimate from a home valuation site like Zillow.com or Eppraisal.com, and you could get more aid. Bear in mind that low equity may also limit your ability to take out a home equity line of credit, something many parents opt for instead of a PLUS loan.
The sub-prime meltdown has private student loan lenders tightening their criteria. Come fall, you could have fewer lender choices for private loans. If your credit score is less than impeccable, you may end up with higher rates, too. Shop around and make sure you're getting the best deal.
Soon-to-be graduates will benefit from the Federal Reserve's recent slew of rate cuts. Student loan rates reset on July 1, and experts are predicting a drop of more than 3%. Think about consolidating, which lets you lock in that rate for the life of the loan.
For more financial advice, click here to visit SmartMoney.com
By Kelli Grant
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