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Published March 2006

The ABCs of paying
for a college education

By Hamza Qadri
Guest Columnist

So your child has filled out all the application forms, been accepted into college and you’re left with the burning question: How in the world can you pay for it? Or maybe your first child was just born and you’re thinking so far ahead — good for you! — and you’re wondering what to do now to fund his or her college education.

You’re probably already aware that the cost of college continues to rise — and we’re talking steep increases. The College Board estimates that tuition at public four-year schools increased about 47 percent in the past decade.

And tuition’s not the only cost you’ll face. You also may have to shell out for housing, meals, books and supplies, transportation and personal expenses.

The good news is that there is more financial aid available than ever before — more than $122 billion, according to a recent College Board report. That’s great, yet how do you find these sources and tap in?

Finding the resources to pay for college isn’t something you can do overnight. The sooner you begin, the better. It’s easier to save small amounts of money over a longer period of time, and time also will give your earnings a chance to grow with interest.

A financial planner can help you determine good savings strategies, which could range from prepaid tuition for state 529 college savings programs to Coverdell Education Savings Accounts and Roth IRAs. There are numerous strategies designed specifically for families saving for college.

Scholarships and grants
Scholarships and grants can help. Get on the Internet and investigate the availability of this assistance. Students are eligible for aid based on several factors, including academics, athletic ability and extracurricular achievements.

Scholarships are awarded by many businesses, schools, churches and community organizations. Guidance counselors often can help pinpoint good options, and many Web sites (including wellsfargo.com/student) have information about scholarships.

In addition, grants are awarded based on financial need and academic achievement. Like scholarships, grants do not have to be repaid. College financial aid offices can provide more information about grants.

Student loans
If scholarships and grants won’t cover all your student’s tuition and expenses, loans may help fill the gap. If you have a full-service financial institution at your side, your financial services adviser can help you access federal and private student loans. Always apply for the lower-cost federal loans first, and then consider private student loans if you need additional funds.

The first step in applying for federal financial aid is the Free Application for Federal Student Aid (FAFSA). The information you report about your family is used to help schools determine your eligibility for financial aid. The FAFSA is available online at www.fafsa.ed.gov. Completing the online form is faster and prevents many of the common errors associated with the conventional paper process.

You should complete the FAFSA as soon after Jan. 1 of the student’s senior year as possible. You’ll need income tax returns, W-2 forms, current bank statements, mortgage information, investment records and records of untaxed income. Most colleges have a priority application deadline. Turn all the information in by the priority application date to receive the best financial aid package available. Contact the schools’ financial aid office to find their priority deadline dates.

Based on the FAFSA, the U.S. Department of Education will calculate your Expected Family Contribution — an estimate of what you are expected to be able to contribute to the cost of college. Colleges will determine financial aid packages based on this figure and the cost of attendance at that school.

The federal government offers subsidized and unsubsidized federal Stafford loans through lenders for undergraduate and graduate students.

Subsidized Stafford loans are based on financial need. The government pays the interest on these loans while students attend school and during a six-month grace period following the borrower’s graduation.

Unsubsidized loans are offered to students regardless of financial need, and interest accrues on the loan while the student attends school. The student can either pay the interest while he or she attends school or have it accrued and added to the loan balance at repayment. Some lenders compound the interest on an annual basis, which can increase the cost of the loan. Ask your financial adviser for the facts about this.

On subsidized and unsubsidized loans, the interest rate is variable and may change annually (every July 1) and cannot exceed 8.25 percent.

Parents also can take advantage of a federal loan program called PLUS (Parent Loan for Undergraduate Students). With the PLUS program, parents can borrow up to the entire cost of their student’s education, minus other financial aid. The interest rate on the PLUS loan is variable and may change annually (every July 1) and cannot exceed 9 percent.

Another option is the Federal Work-Study program, which allows undergraduate students to work part time on or off campus.

Borrow only what you need
If you use student loans to pay for college, borrow only what you need. Ideally, a student loan payment should be 10 percent or less of your net monthly income.

Also, be sure to choose a lender that offers discounts and rebates for responsible repayment habits. Try to stay with one lender throughout college so you only have one bill to pay after graduation. And remember: College graduates actually earn 81 percent more, on average, than those with a high school diploma. Over a lifetime, that can mean an extra $1 million in earnings potential.

Hamza Qadri is the manager for Wells Fargo’s Everett store (1801 Broadway). He can be reached at 425-258-3744 or by sending e-mail to Hamza@wellsfargo.com.

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