Paying For Your Child’s College

College is expensive – Everyone can agree on that. As true as it may be, your child’s education is an investment. It has been proven time and time again that the higher your education, the more money you will likely earn in the future. If you intend to help your child pay for their education, it is never too early to start planning, as this investment is a big one.

You have many options when it comes to paying for your child’s education, but that doesn’t mean that they are all the best option. If you still have some time before your child heads off to college, look into opening a College Saver Certificate, where you can make unlimited deposits (at least $50) into an account that earns higher dividends. If your child is starting college soon, check out our list below to determine how you can get the most out of your investment, and the least money coming out of your pocket.

1. Submit a Free Application for Federal Student Aid (FAFSA)

The office of Federal Student Aid provides grants, loans, and work-study funds for college students. Filling out the form is completely free and can be done online. Once you complete the form, you will be notified with what your child has qualified for, which you are free to accept or decline. Federal student aid includes:

• Grants – These are funds that do not have to be repaid. That’s right, free money!
• Loans – These are loans that must be repaid, with interest. The are two types of loan programs, the Direct Loan Program and the Federal Perkins Loan Program. You can find out more about them here.
• Work-Study – This is a work program through which you earn money to help pay for school, kind of like having a part time job.

Once you complete your FAFSA, only accept the grant money first (It’s free!). Before accepting any loans, it is important to see if your child can qualify for any scholarships, and then determine if getting a loan is right for you.

2. Find Scholarships

There are thousands of scholarships out there, your child will just need to do the work to find them. Your student can meet with their high school or college counselor (or both) to find scholarship applications that they qualify for. You can also search online with the U.S. Department of Labor’s free scholarship search tool.

3. Student Loans

If you still do not have enough to cover your child’s education expenses after applying for grants and scholarships, you can start shopping around for the best loan. Consider the federal loans that you were offered after completing the FAFSA, but also look into private student loans as well. Below are the differences:

• Federal Direct Loan Program – These are available to eligible college students. You may only qualify for this type of loan by completing the FAFSA. Depending on what your child qualifies for, he/she may not be required to pay interest or make payments until after they graduate. If you are planning to be the primary borrower on your student’s loan, you may qualify for a Direct PLUS Loan for Parents. However, that loan does charge interest during all periods.
• Federal Perkins Loan Program – To qualify for this loan, you also must complete the FAFSA. This type of loan has a lower interest and is offered by the school. The amount you can borrow depends on your financial need and what the school can offer.
• Private Student Loans – These types of loans are not funded by the government, therefor you do not have to fill out a FAFSA in order to qualify. The big difference with Private Student Loans is that you will more than likely have to make payments while your child is in school, interest rates may be fixed or variable, and they are not subsidized, so interest is charged during all periods.

4. Home Equity Loan

Another option that may be more appealing than taking out student loans, is to use the equity you have built up in your home. With a home equity loan, you can finance up to 80% of your home’s value, less any outstanding loans (such as your mortgage). You can purchase a Home Equity Loan with a rate as low as 4.49% APR*, so when comparing that to Student Loan rates, a Home Equity Loan may be the better and cheaper option. If you have any questions, you can reach out to our Home Equity Loan Officer.

Conclusion

What is the best option for you? File a FAFSA, find scholarships, and then think about Student Loans or a Home Equity Loan.

Grants – FREE
Scholarships – FREE
Federal Student Loans (Paid by Students) – 3.4% – 6.8%
Federal Student Loans (Paid by Parents) – 6.31% – 8.5%
Private Student Loans – Varies
GCEFCU Home Equity Loan – 4.49% – 14.49% APR*

 

*APR=Annual Percentage Rate. Actual rate may vary based on credit worthiness and terms of your loan. A home equity loan of $50,000 for 5 years at 4.49% APR will have a monthly payment of $931.92. Taxes and Insurance are not included, your actual payment may be higher.