WASHINGTON, April 7 - Most college bound students received their financial aid offers this week, and not everyone was happy with what they saw.
Schools in a tight money squeeze have responded by gapping more and more students -- that is, leaving a gap between what they need and what they'll get from the school. And most schools continue to rely heavily on loans instead of grants in awarding aid to students.
At the same time, new federal legislation and developments in the private loan marketplace have clouded the financial aid picture. It can be hard to even understand what the financial aid letter says, and what it means to your bottom line. At least understand this: Much is negotiable, and you do have options.
Among the new changes: Federal Stafford loans will now come directly from the Department of Education, instead of from private banks using Federal loan guarantees. That shouldn't affect individual students very much; they will still find out about those loans from their school's financial aid office and be able to apply with some simple paperwork.
The legislation also increased Pell grant funding for the neediest students, but not nearly enough to cover all actual need.
Finally, the supply of supplementary private loans -- which had tightened up considerably in the last two credit-crunched years -- has increased considerably. There are more private loans available than there have been for a couple of years -- and many have very low interest rates that may compare favorably to Federal loans.
So, there's lots to know and lots to do now for next fall's incoming class. Here's how to get the most aid and pay the least out of pocket when the bill arrives this summer.
-- Analyze your aid package and consider going back to ask for more. Most college financial aid offices are open for negotiations in the month of April, before your decision about where you are attending is due on May 1. You won't get more money just because you ask. But if you have any factors that might help convince the aid officer to be more generous, go for it. Some factors that could work are (1) a changing circumstance, such as family job loss or health problem that wasn't reported on your initial form; and (2) a competitive school offering a much better offer. Write a letter to the aid office, and follow it up with a phone call.
-- Pick and choose the pieces of the aid package that you want to take. It may include a campus job or max out your federal loans. But you don't have to take all of the package just because you take some of the package. You may, for example, look for an off-campus job that pays better; or find another source of funds that would take the place of the loans.
-- Consider alternatives before you borrow a lot of money. Many graduates are paying the price now for big borrowing of the past. Having tens of thousands of dollars in student loans can complicate things later on, when you want to buy a house, get married, go to grad school or work in a low-paying field. (A relatively new government program will give you a break on your federal loans if you go into a low-paying public interest job -- but that won't help cut your payments or rates on private loans.) To keep the amount you borrow down, you could host a garage sale, take a second job, start your education at community college; go to summer school locally and knock a semester off of your total college education; study part time and work full time; take 18 or more credits every semester and squeeze your degree into fewer semesters. You could also hit up friends and relatives for help. In 2009, college students depended on their personal circle to pay for 6 percent of their total cost of going to college, according to student lender Sallie Mae. That's double what it was just one year earlier.
-- Weigh private loans carefully. Parents can fill any gaps in funding by taking out a Federal PLUS Loan, even if they don't have a great credit score. Right now, those loans are carrying a fixed rate of 7.9 percent -- that's not so great, either. You can get a private loan instead for slightly more than 4 percent, if a parent with a good credit score agrees to co-sign. But those private loans have variable rates. That means that in 5 years, when you are just finishing up college, its rates could be far higher than the PLUS loan, if market rates rise. There is renewed competition in the private loan market, though, so it wouldn't hurt to see what's available -- you can comparison shop at SimpleTuition (http://www.simpletuition.com).
-- Start paying interest ASAP. Not every lender or loan program lets you do this, but several do: Borrow via a program that lets you pay the interest on the loan while you are in college, instead of deferring it. Then do pay that interest. When you defer interest until you graduate, it still continues to compound, vastly increasing the amount you can owe over the life of the loan.
(editing by Gunna Dickson)