Questions and Answers
What is the primary difference between merit-based and need-based financial assistance?
What are the potential consequences of defaulting on a student loan?
What distinguishes a subsidized federal loan from an unsubsidized federal loan?
How might the net cost of attending a more expensive private school be less than a cheaper public school?
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What is one advantage of a Federal Work-Study job?
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Which document is essential to complete the FAFSA?
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Why is signing up for autopay a good idea for managing student loans?
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What does it mean to have a loan in deferment?
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Which type of financial aid is considered the most desirable for students?
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What is the main purpose of the FAFSA?
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Why are private student loans generally considered less attractive than federal loans?
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What should students do before considering private student loans?
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What is a significant benefit of subsidized loans during college?
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What is an important factor to consider when evaluating student loans?
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Study Notes
College Costs and Net Cost
- Four years at a public college can cost approximately $100,000, encompassing tuition, fees, room, and board.
- This amount is significant and can be a burden for many families, depending on their financial situation.
- Net cost of college refers to the actual cost after deducting financial aid, grants, and scholarships from the total expenses.
- Attending a pricier private institution can sometimes be less than a public college due to substantial financial aid packages, leading to lower net costs.
Financial Assistance
- Merit-based assistance is awarded for academic, artistic, or athletic talent, while need-based aid is given based on financial circumstances.
- FAFSA requires income tax information, social security numbers, and assets for completion, and should be submitted as early as possible, ideally before the college’s priority deadline.
Grants vs. Scholarships
- Grants are typically need-based and do not need to be repaid, while scholarships are often merit-based and may also not require repayment.
- Both provide financial aid but differ in eligibility criteria and application processes.
Federal Work-Study Program
- Advantages include earning money while in school and gaining relevant work experience, while disadvantages can involve a time commitment that may impact academic performance.
- Alternative scholarship information can be found on scholarship search engines, community organizations, and local foundations.
Educational Tax Credits
- Educational tax credits can reduce tax liability similarly to grants, providing financial relief.
- Unlike grants, they directly discount taxes owed rather than being awarded as cash for educational expenses.
Student Loans
- A subsidized federal loan has the government paying interest while the borrower is in school, whereas an unsubsidized loan requires the borrower to pay interest while enrolled.
- Parent Plus Loans are available for parents and have different repayment terms compared to federal student loans, which are in the student's name.
- Accepting a student loan is optional; however, it may be necessary for covering educational expenses.
Private vs. Federal Loans
- Disadvantages of private student loans include higher interest rates, fewer repayment options, and lack of borrower protections compared to federal loans.
- Autopay for student loans is beneficial as it often results in lower interest rates and ensures timely payments.
Loan Repayment Options
- Federal student loan borrowers can choose from several repayment plans, including standard, graduated, and income-driven repayment plans, with varying lengths and payment amounts.
Jerome's Decision
- Jerome may consider an income-driven repayment plan that allows for manageable payments relative to his income while prioritizing high-interest credit card debt.
Loan Default and Consequences
- Defaulting on a student loan occurs when payments are not made as agreed; consequences include damage to credit score, garnishment of wages, and potential legal action.
Deferment vs. Forbearance
- Deferment allows for a temporary pause in payments, typically without accruing interest on subsidized loans, while forbearance allows a pause but interest continues to accrue.
Paying for College
- Paying for college and managing student debt pose significant challenges for young adults.
- Consider the net cost of attendance after applying any scholarships or grants when comparing schools.
Financial Aid Sources
- Grants and scholarships are preferred because they do not require repayment; they are considered "free money."
- Scholarships may be provided by the institution or various external sources.
- Completing the FAFSA (Free Application for Federal Student Aid) is essential to qualify for institutional financial aid.
- There is no cost to submit the FAFSA and it should be sent to any prospective schools.
- Tax credits can help lower the net cost of attending college.
Student Debt Overview
- Approximately half of all college students incur debt to finance their education.
- Direct Student Loans are federally guaranteed loans for students.
- Subsidized loans are the most favorable as the government covers interest during enrollment and the grace period.
- Private student loans should only be considered after exploring all federal loan options due to less favorable conditions.
Managing Student Loans
- Graduates may have multiple student loans, making consolidation a beneficial option for simplifying payments.
- Direct Student Loans offer varied payment options along with potential for forgiveness, deferment, and prepayment.
- Understanding the terms associated with each loan is crucial to making informed financial decisions post-graduation.
- It's important to evaluate the total amount of debt incurred before leaving college to manage financial commitments effectively.
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Description
Explore the various aspects of college costs, including total expenses over four years at a public institution and the concept of net cost after financial aid. Learn about the different types of financial assistance, including merit-based assistance and the FAFSA process. Understand the distinctions between grants and scholarships to better navigate funding for college.