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7 Pitfalls to Avoid When Paying for College


1.  Don’t wait until the financial aid award arrives to decide which schools you can afford

Asses your ability to pay and your student’s chance of getting financial aid while you’re coming up with a college wish list.  Start by finding your expected family contribution using the calculator at the Department of Education’s website (fafsa.ed.gov).  Then use the net-price calculator to get a sense of how much the colleges you are interested in are likely to contribute.  Add the two numbers and if the total doesn’t cover the cost you will have to borrow money.


2.  Don’t count on a scholarship at your student’s “reach” school

Colleges generally offer merit scholarships to applicants with a test score or grade point average that places them in the top quartile of applicants.  Compare your student’s academic record with the freshman profile on the specific college website.  At “reach” schools students typically are in the bottom quartile of students accepted and more than likely pay full price (minus need-based aid).


3.  Don’t assume that stretching for a prestigious school will pay off down the road

For a tiny percentage of students this may hold true.  Payscale.com, which calculates return on investment for more than 850 private and public colleges, has found students who attend top engineering, business, or science programs gain the highest return on investment over a lifetime.  Think of college as an investment in your future, don’t overpay for an education that will not provide results.


4.  Never assume that your star student will get a full ride

If you match your student to a school that covets his or her qualifications, you could land a deal that covers half or full tuition, plus any need-based financial aid.  However, few schools offer merit scholarships that cover room and board.  According to College Board, room and board for 2012/2013 averages $9,205 per year for public colleges and $10,462 per year for private colleges.  


5.  Don’t choose a private student loan over a federal loan because the rate is lower

Advertised rates on private student loans are often substantially lower than federally backed loans.  But private student loans require underwriting and generally a cosigner.  Only applicants with outstanding credit scores get the lowest rate.  Borrowers with lower credit scores will end up with loans that have rates well into the double digits.  


6.  Never cosign a loan for your student to avoid borrowing in your own name

As a cosigner, you put yourself equally on the hook if your student defaults.  Defaulting can be a matter of missing just one payment and your credit, as well as your student’s credit, will both be impacted.  Instead, look at a Parent PLUS loan, which requires a minimal credit check, and carries a fixed rate.


7.  Don’t neglect to calculate how much your student can reasonably repay

It is important to connect the amount of the loan with the repayment that is involved.  Determine what loan payments will look like for your child.  Have a discussion about the length and cost of debt repayment before you let your child borrow thousands of dollars.


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