Fund out what student loans and other aid available to students and parents to pay for college. Get the Money Girl Book at http://MoneyGirlBook.com
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358 MG How to Get a Student Loan to Pay for College (Part 1)
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The newsletter is where I cover more tips and give answers to listener questions that don't make it to the weekly podcast. While you're there, also connect with me on social media, subscribe to the podcast on iTunes, or read a transcript of this show, which is episode number 358, called "How to Get a Student Loan to Pay for College, Part 1." This two-part series was inspired by a recent question from an anonymous Money Girl podcast listener who asks, "I plan to go to college and then to a two-year graduate program. What are the different types of student loans and aid that I can apply for? Plus, what tips do you have to make education debts easier to bear?" The high cost of college can make you think that winning the lottery is the only way to pay for a good education. Fortunately, just about every student can qualify for some type of financial aid or loan. In this two-part series, you'll learn the variety of ways students or parents can get the funds they need to pay for college. In part one, I'll cover federal aid, and then in part two, you'll learn about many other options. Plus, get tips for managing student loans once you're on the hook for them. When someone asks me how to get help paying for school, my first recommendation is to always tap out your federal options. Why? Well, the federal government is the largest source of financial aid. Every year, the U.S. Department of Education awards approximately $150 billion to 15 million students who need help paying for college. You can use the money to pay for a variety of expenses, such as tuition, room and board, books, a computer, and even child care. Some types of federal aid must be repaid because they're doled out as loans, but other aid is free or allows you to work for it while you're in school. Here's a brief description of the three main types of federal student financial aid, which are grants, work-study programs, and loans. So, the first type federal grants are one of the best types of financial aid to receive because they don't have to be paid back unless you withdraw from school. The most popular is the federal Pell Grant, which is generally awarded to undergraduates seeking a bachelor or associate's degree. The award amount you receive depends on your demonstrated financial need and the cost of your school. For the 2014 to 2015 academic year, the maximum Pell Grant award is $5,730. The second main type of financial aid are federal work-study programs. These provide part-time employment for undergraduate and graduate students with financial need. The jobs are generally in community service or related to your course of study when possible. For instance, you may work on campus for your school or off campus for a nonprofit organization. Work-study programs are a great way to get hands-on experience, learn more about your field of study, and earn income. They're awarded on a first-come, first-serve basis, so be sure to apply for them as early as possible. I'll tell you how to apply for all types of federal student aid in just a moment. And the third type of aid that most of us are familiar with are federal loans. These are funds sourced from the government to help pay for education expenses and must be repaid with interest. Getting loans for college should be your last resort if you don't qualify for other types of aid, such as grants and work study. Student loans can really hurt your financial future if you borrow too much and have trouble making payments. Here's a quick and dirty tip. A rough guideline is to never take out more in student loans than your expected annual starting salary. For instance, if you're a computer engineer living in an area where the average starting salary is $50,000, don't even think about borrowing more than a total of $50,000 to pay for school. You may even qualify for a combination of these three types of aid in addition to other types that I'll cover in part two of this series. Let's talk more about federal student loans. There are two main types, the Direct Loan Program and the Perkins Loan Program. So for direct loans, these come directly from the federal government in a few different products. There's Direct Subsidized, Direct Unsubsidized and Plus. Direct subsidized loans are for students with financial need. They don't require you to pay interest while you're in school at least half time. And Direct Unsubsidized Loans are for students who don't have financial need. They require you to pay all accrued interest on the loan. And plus loans are available to parents of dependent students, graduate students, and professional degree students. They're always unsubsidized and require a satisfactory credit check for approval. The second main type of federal loan are called Perkins Loans. These are federal funds given to eligible schools to make subsidized, low interest loans to undergraduate and graduate students. These campus-based loans are reserved for students with the most financial need. You can learn more about federal loans at the government's student aid site, studentaid.ed.gov. Student loans are like a double-edged sword with some very good and very bad features. So let's talk about their pros and cons so you know what you're getting into if you accept a loan offer. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science, and social studies. IXL has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. 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Thanks Capital One Bank guy. What's in your wallet? Terms apply. See CapitalOne.com/bank, Capital One NA member FDIC. Hey I'm Ryan Reynolds. At Mint Mobile we like to do the opposite of what Big Wireless does. They charge you a lot, we charge you a little. So naturally when they announced they'd be raising their prices due to inflation we decided to deflate our prices due to not hating you. That's right we're cutting the price of Mint Unlimited from $30 a month to just $15 a month. Give it a try at mintmobile.com/switch. $45 up from payment equivalent to $15 per month, new customers on first three month plan only, taxes and fees extra, speeds lower above 40 gigabyte C details. Now back to student loans. Some of the terrific advantages of federal student loans include low interest rates. They're fixed and can never go up. You also get flexible repayment options if you have a financial hardship. There's also a grace period for repayment so you don't have to make payments until after graduation. A federal loan is cancelled if you die, become disabled or make payments for 25 years. Additionally there's cancellation for doing certain types of public service work after 10 years. And there's some nice tax benefits too. The interest you pay on an education loan is deductible up to a certain amount depending on your income. And lastly I talked about subsidized loans. That means the interest doesn't begin to accrue until after graduation if you demonstrate financial need. Now there are also serious disadvantages of federal student loans that every borrower should know. First of all, maximum loan amounts may not cover all your education costs. I'll tell you more about that in a moment. But the big problem is when you default. If you cannot pay your student loan, that could result in being sued, having wages garnished, and not receiving tax refunds or other government assistance. Defaulting could also result in being denied a professional license. It damages your credit, eliminates eligibility to defer payments and causes you to be denied for future student aid. Also you generally cannot wipe out or discharge a federal loan even by declaring bankruptcy. The maximum federal student loan amount you can receive increases each year that you're in school. Additionally the maximum depends on whether your loan is subsidized or unsubsidized and your dependency status. For instance, an eligible undergraduate who's a dependent freshman could get a subsidized loan for up to $3,500 or unsubsidized up to $5,500. To apply for any type of federal student aid, including grants, work study programs, and loans, you must complete the free application for federal student aid known as FAFSA. If you fill it out online at fafsa.ed.gov, it's sent automatically to schools you list on the application. Then you'll receive notification from those schools about the types of aid and amounts you may be eligible for. You can decline any loan offer or request a smaller loan amount. Now that you understand the basics of grants, work study programs, and loans funded by the federal government, and join me for part two of this series for much more information. I'll tell you about tips to manage student loans, plus other types of non-federal financial aid that can make your college dreams come true. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to our richer life. [MUSIC] Is it time to reimagine your future? The right business skills may make a difference in your career. At Capelli University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication. 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