College Costs and Financial Assistance Overview

Questions and Answers

What is the primary difference between merit-based and need-based financial assistance?

Merit-based assistance requires a repayment, while need-based does not.

Merit-based is awarded based on academic achievement, while need-based is awarded based on financial necessity. (correct)

Merit-based is available at public colleges only, while need-based can be at any institution.

Merit-based assistance is only for athletics, whereas need-based assistance is for academics.

What are the potential consequences of defaulting on a student loan?

You can apply for additional federal loans.

Increased interest rates only.

Immediate forgiveness of the loan.

Lower credit score and potential wage garnishment. (correct)

What distinguishes a subsidized federal loan from an unsubsidized federal loan?

There is a higher repayment term for subsidized loans compared to unsubsidized loans.

Unsubsidized loans are only for graduate students, while subsidized are for undergraduates.

Subsidized loans are only available for public colleges, while unsubsidized are for private colleges.

Subsidized loans do not accrue interest while the borrower is in school, while unsubsidized loans do. (correct)

How might the net cost of attending a more expensive private school be less than a cheaper public school?

Private schools often provide more scholarships and financial aid packages than public institutions. Signup and view all the answers

What is one advantage of a Federal Work-Study job?

It provides flexible hours that can fit around a student’s schedule. Signup and view all the answers

Which document is essential to complete the FAFSA?

Social Security number. Signup and view all the answers

Why is signing up for autopay a good idea for managing student loans?

It helps avoid late payments, which can increase overall debt. Signup and view all the answers

What does it mean to have a loan in deferment?

No payments are required, and interest may not accrue during the deferment period. Signup and view all the answers

Which type of financial aid is considered the most desirable for students?

Grants and scholarships Signup and view all the answers

What is the main purpose of the FAFSA?

To determine eligibility for federal financial aid Signup and view all the answers

Why are private student loans generally considered less attractive than federal loans?

They lack repayment options and forgives. Signup and view all the answers

What should students do before considering private student loans?

Complete the FAFSA and explore federal options Signup and view all the answers

What is a significant benefit of subsidized loans during college?

The government pays the interest while you are in school. Signup and view all the answers

What is an important factor to consider when evaluating student loans?

The terms of each loan and total prospective debt. Signup and view all the answers

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.