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THE cost of higher education creeps higher and higher each year, at both public and private colleges and universities. And with that increase comes the need for more financial assistance in the form of not only scholarships and grants, but also student loans.

About 64 percent of all students borrow money to finance college. Annual student loan volume more than doubled from 1990 to 2000 to $37.4 billion, according to one study.

There are two sources for financial aid, one from the federal government and the other from private or consumer companies, including colleges and universities. One report shows that federal aid has changed drastically since 1980. Federal student loans–Perkins or subsidized and unsubsidized Stafford loans–now account for 59 percent of student aid. Grants account for 41 percent of student aid. Twenty years ago, the debt-grant ratio was exactly the opposite.

To aid you in the process of applying for financial aid, here are 10 things you and your family should consider:

1. Build a financial plan. That way, when you do apply for financial aid, you have a better idea of what you and your family can afford to contribute. It’s important to note, however, that not all schools participate in all federal student aid programs. Experts say you should check with your high school guidance counselor or your school’s financial aid office to make sure your school participates in the federal programs you are interested in.

2. Obtain and complete a FAFSA (Free Application for Federal Student Aid). A FAFSA opens the door to the financial aid process. This application will help you determine if you’re eligible to receive not only federal financial aid, but also aid from private sources, says Sandra R. Dunn, chief marketing and sales officer for Chela Financial, a San Francisco-based education financer. “It’s an important first step,” Dunn says, “even if you or your parents don’t believe you’re eligible for federal financial aid.”

3. Find out what, if any, loans you’ve been awarded. By using your award letter, you can figure out which need-based loans you’ve been given and in what amounts. Depending on your year in school, loan amounts range from just under $3,000 to more than $5,500, says Katarrah Basnight of Killeen, Texas, a financial aid counselor with Sallie Mae, an education lending service.

4. Don’t borrow more than you need. Look at alternatives. Just because they’ve offered you the maximum amount, it doesn’t mean that you have to accept the maximum amount. Take a second look at your expenses and see where you can make cuts. You may want to work off-campus or during breaks or during your summer vacation to save money for the school year.

5. Find the free money. Make sure you’ve exhausted all scholarship opportunities. Apply for any and every scholarship you can find. If necessary, you may even want to appeal your financial aid package from the school of your choice.

6. Move quickly to complete your loan application. Once you’ve determined your financial need, apply for a loan right away. It may take up to two months for approval to come through. Think about accepting the loan with the best terms. The lower the interest rate, the less you’ll have to repay once you’ve completed your education.

7. Understand the terms of your loan. Most lenders will give you all of the information you need to grasp the full financial picture. What any borrower must understand is that once he or she has accepted a loan, he or she agrees to the terms of repayment, with interest. For federal loans, interest rates vary from about 4 percent to 8 percent and are set each July.

8. Fill in the gaps. Not everyone’s financial needs are met by federal student aid. Maybe the parental contribution isn’t as high as anticipated, or perhaps a scholarship fell through. Whatever the case, many students apply for consumer or private loans, according to experts. This money can be used to cover unforeseen expenses, such as books, a computer, trips home and other items not covered by federal student aid. Because many of these loans have higher interest rates, experts advise that you save this option for last.

9. Understand repayment. As you near the end of your college career, make sure you realize your options for repaying the loan. And if you’re struggling to make payments, many lending agencies offer loan forbearance or deference if your circumstances warrant such an action. The alternative, defaulting on your student loans, can be a devastating blow.

“Having a defaulted loan destroys your credit,” says Basnight, a senior college answer representative for Sallie Mae. “You could get into several types of collection activities, including garnishment of your wages.”

10. Consider consolidation. Combining all of your student loans for one monthly payment can save you money. This year, the interest rate on all federal student loans dropped to an all-time low, ranging from 3.46 percent to 4.86 percent. Eligible borrowers who are struggling with payments or who are in their grace period should consider consolidating their loans to reduce monthly payments and lock in the lower interest rate for the life of their loans.

If you have any specific questions about the Free Application for Federal Student Aid (FAFSA), call the Federal Student Aid Information Center at 800/4-FED-AID (800/433-3243) or go to its Web site at

This Financial Services article was written by Ebony on 6/1/2005

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