Help For Families Struggling With Tuition

PERSONAL FINANCE

As Fall College Bills Go Out To Recession-strapped, It's Time To Start Exploring Some Of Your Options

July 19, 2009|By EILEEN AMBROSE

Maryland colleges are starting to send out fall tuition bills, and signs indicate that more families will struggle to pay.

Applications for federal student aid are up. More families are appealing aid packages to get additional assistance. And more parents are being rejected for federal loans.

If you are among those who will have trouble meeting the tuition bill, call the school's financial aid office as soon as possible. Aid officers can walk you through your options, from monthly payment programs to potential sources of funds.

Schools say they are doing what they can.

St. John's College in Annapolis usually accepts aid appeals until mid-June, but this year it suspended the deadline so families whose fortunes suddenly change can appeal their aid package at any time. "We had so many families that seem to have financial circumstances that were changing negatively, we made a decision to continue to accept the appeals," says Financial Aid Director Mary Beth Sommers.

The aid office, Sommers says, has dealt with households with severe investment losses, small business owners whose companies have nose dived, families where both parents have lost jobs and a student who returned home for spring break to find her family's house in foreclosure.

Frostburg State University is handling a 20 percent increase in aid appeals. "Most of the appeals are due to job losses," says Financial Aid Director Angie Hovatter.

Frostburg annually gives out about $1.1 million in grants to needy students. Not only was this year's pot of money gone faster than usual, but the grants went to needier families than years past, Hovatter says.

The University of Maryland, College Park launched a "Keep Me Maryland" campaign this year, raising $234,000 by the end of June for students needing emergency aid to remain at the school. The money started being disbursed this month. It comes during a year when appeals are up 52 percent over last year and applications for federal aid rose 12 percent as many higher-income families apply for the first time.

Aid director Sarah Bauder says she started working last fall with the bursar's office to intervene in cases where students were at risk of having classes canceled for nonpayment. That effort intensified in the spring semester, she says.

If you're having trouble with tuition bills, here are some options:

Pay through installments : Most schools allow you to pay tuition over a 10-month period. You'll pay a $50 to $100 fee, but you won't pay any interest. If you can swing the payments, this is better than a loan.

Get aid from Uncle Sam : If you must borrow, federal loans are the way to go. The fixed interest rate is lower than what private loans offer and the repayment terms are friendly.

It's not too late to apply for a federal Stafford student loan. In fact, you can do so any time during the academic year. Stafford loan limits this year are $5,500 for freshmen, $6,500 for sophomores and $7,500 each for juniors and seniors.

The new fixed rate for Stafford loans that are subsidized, meaning the government pays the interest while students are in school, is 5.6 percent. The rate for non-subsidized loans is 6.8 percent. You must show financial need to get a subsidized loan, but any student can qualify for a non-subsidized loan.

If student loans aren't enough to cover the tab, parents can take out a Parent Loan for Undergraduate Studies to make up the difference. The fixed rate is 8.5 percent, or 7.9 percent through the government's direct lending program. Parents can postpone repayment until six months after graduation.

Parents must pass a credit check to get a PLUS loan. Uncle Sam last year started cutting parents a little slack if they had fallen behind on a mortgage or medical bills, but that hasn't had much impact, says Mark Kantrowitz, publisher of FinAid.org. More parents are being denied PLUS loans and loan volume is down about 25 percent from a year ago, he says.

If parents are denied a PLUS loan, students can borrow more under the Stafford program. The limits are $9,500 for freshmen, $10,500 for sophomores and $12,500 for juniors and seniors.

Tapping equity in a home : This used to be a breeze. A home equity loan or line of credit may still be an option for paying tuition, but a less reliable one in today's credit crunch.

"Lenders are looking for the homeowner to retain at least a 20 percent equity stake after the borrowing," says Greg McBride, senior financial analyst with Bankrate.com. You may qualify if you have lived in the house a long time and never tapped the equity before. Newer homeowners are less likely to qualify because of a smaller downpayment, slumping home prices or previous home equity loan, McBride says.

Think twice about private loans : Private loans are usually considered a last resort because of their less favorable terms.

"Most private loans are a variable rate and don't have caps on that rate," says Lauren Asher, president of the Project on Student Debt, who advises avoiding private loans altogether.

It's not easy these days to get a private loan anyway.

"Lenders continue to tighten underwriting criteria," Kantrowitz says. And student borrowers usually need a co-signer willing to repay the loan if the student doesn't.

There are so-called peer-to-peer lending sites where strangers agree to lend students money and the Web site acts as the middleman in the transaction. About 10 percent of the students using these sites are funded, and the terms aren't better than any other private loans, Kantrowitz says.

Scholarship search : It's late in the game to find scholarships for the fall, but it can't hurt to try searching online at FastWeb.com. If anything, you'll get a head start on scholarships for next year.

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