4 Vital Facts About College Financial Aid

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Financing your college education is overwhelming and stressful, particularly if you don't know what you're doing. With a lot of help, guidance and planning, you'll be set-up for successful financial planning that will benefit you now and after graduation. The hard work you put into planning will definitely pay off.

According to USA Today, the average college student graduates with $19,000 of debt. Making the most of available financial aid now will help cut those high monthly payments that come due after graduation.

Student financial aid comes in many forms and variations. At first, it can be hard to understand what kind of aid you're looking for, how to get it and how or if you'll eventually pay it back. It's vital to understand all these components to ensure you're paying for your education in the way that best suits you and your financial needs.

Thankfully, applying for financial aid is easier these days.

"Everything is going Web-based," said Chris Peterson, University of Northern Colorado associate director of financial aid. "The government has eliminated some of the most frustrating questions from the online version of the Free Application for Federal Student Aid (FAFSA), which is the standard application. It's also easier for students and parents to figure out how much a prospective college will actually cost and how much aid they'll receive before applying with Web-based calculators."

Consider the following four facts to help jump-start your financial planning.

1. Know Your Loans
Education loans come in three categories: Student loans, parent loans and private student loans. Many students rely on federal government loans to finance their educations because they have low-interest rates and don't require a credit check. Federal loans also offer a variety of payment options.
 

• Stafford Federal Student Loan: The Stafford loan is the main federal loan for students and comes in two variations.
  
  Federal Family Education Loan Program (FFELP) connects students with such private lenders as banks and credit unions. The government guarantees these loans against default.
  
  Federal Direct Student Loan Program (FDSLP) offers loans administered by direct-lending schools and provided by the U.S. government directly to students and parents.
  
  All Stafford loans are either subsidized or unsubsidized, based on your financial need. Subsidized means the government pays the interest while you're in school. Unsubsidized means you'll pay the interest.  Payments can be deferred until six months after graduation or until the students enrollment drops to less than part-time. The standard repayment time is 10 years, but alternative-payment terms are available. 

• Perkins Federal Student Loan: A Perkins loan is awarded to students based on exceptional financial need with the school acting as the lender. Perkins is considered by many as the best student loan available because it's a subsidized loan with a nine-month grace period for repayment after graduation.  

• Parent Loan: Your parents can take out loans to supplement your financial-aid packages. The federal Parent Loan for Undergraduate Students (PLUS) can be taken either as a FFELP or FDSLP. Federal parent loans are most often used to pay for dorm or off-campus housing. 

• Private Education Loans: Private education loans are offered by private lenders and no government forms are required. Eligibility, fees and the interest rate you'll pay depend entirely on credit score. Private loans tend to cost more than a federal loan, but are less expensive than credit-card debt. The interest rates can very, but they are worse than federal loan interest rates. They also tend to have worse repayment options and far less forgiveness leeway than federal loans. 

Peterson advised students, "Only borrow what you need in loans, if you borrow more you will probably spend it. Get a job. Studies show that students who work do better in school in most cases. Save for your future, whether it is a summer job or if you are young, save for college."

Peterson tells students and parents to apply early for financial aid, which is usually distributed based on need and a first-come-first-served basis. "You should always apply -- even if you don't think you'll qualify," said Peterson. "You may be surprised to find you have several available options."

2. Consider Consolidating Loans
You may want to consider lumping loans from a variety of sources together into a consolidating loan from a single lender, leaving you with a single monthly payment. Consolidation is available for most federal loans and some lenders offer private consolidation loans for private education loans.   

"Consolidation helps in a few ways," said Peterson. "It simplifies things by leaving a student with just one monthly payment. It also lets students consolidate their loans at a lower interest rates, if the interest-rate drops. You can only consolidate once, so most students wait until after they graduate to do this.  

"Deferment  (putting off payments until you have a job) is also an option, if you graduate and can’t pay your loans. They also have different payment options for students in case the 10-year payment plan doesn’t work because they have no income or a low income."

Visit FinAid.org for more information on college loans

3. Strive for Scholarships
Scholarships come in every variety imaginable. Of course, there are the traditional scholarships based on grades and ACT scores, but you'll also find scholarships available for many other things: Being left-handed, being the first person in your family to attend college, showcasing leadership in your community, etc. 

Begin your search by filling out your school's universal scholarship application then check out the searchable database at ScholarshipExperts. You'll also want to talk with local agencies and organizations, such as your church, community groups like the Elks or Rotary, and your local chamber of commerce. Check in with your high school advisor, who should have a list of regional scholarships. 

While scholarships are clearly the ideal way to pay for an education, many states, charities and colleges are cutting scholarship budgets, thanks to cut-backs in non-profit funding.

4. Gaining Grants
A federal need-based grant, called the Pell Grant, is now easier to get. The Pell Grant is free money from the government for low-income undergraduates. The Obama administration has announced plans to raise the maximum size of the Pell Grant so students will get more money. They also broadened the qualifications, thereby increasing the number of students that will receive aid. "Feds are trying to increase grants for need-based students and lower loan debt," Peterson said.

Brittany Sarconi is a student at the University of Northern Colorado where she is working on a B.A. in Journalism. She loves to shop but, like most college students, Brittany is trying to live a Champagne lifestyle on a beer budget. When she's not studying, shopping or writing blogs, Brittany loves to work out.