Loans can fill gaps in college financing

With tuition bills due to hit mailboxes in the next few weeks, college students and their parents are scrambling to find a way to pay for this year's education.

Rare is the family that can write a check for the full amount, and "free" money may be scarce.

"Scholarship funds may have dried up by now," said Tom Joyce, senior vice president of student lender Sallie Mae. That means most families ought to be thinking about loans.

Most financial aid packages include loans. If you didn't apply for financial aid and didn't file the free application for federal student aid (FAFSA), you can still do so, Joyce said. You may need to file the FAFSA if you want to qualify for federally insured loans, which are the cheapest and have the best repayment terms. Go to www.fafsa.ed.gov for more information.

The first stop in loan shopping should be your school's financial aid office, said Ginny D'Angelo, vice president of student lending at Commerce Bank in Chesterfield. The staff will know what is available and can point you to lenders who are making loans. In addition, they can help you with a realistic estimate of all the expenses you and your student will face in the coming year.

Many families don't get serious about financing college until the tuition bill arrives, said Tony Georges, financial aid director at the University of Missouri-St. Louis. They need to look at savings and income available to pay it before they take out a loan.

Georges said, "I discourage people from borrowing. I tell them to be as prudent as possible."

However, Georges said most students "aren't bashful about borrowing money." They don't think about repayment because most loans don't have to be repaid until they graduate or drop to less than full-time status.

If you expect to have income through the year that will allow you to cover costs but you lack the savings to write one big check, find out whether the school offers an installment plan for tuition, Joyce said. That way, you can write several smaller checks spread over a few months.

A part-time job could provide a student's spending money. Some jobs, like working in food service, could include some meals, reducing living expenses.

Joyce said students and parents should weigh how much debt is reasonable for a family to shoulder and for a student to repay from income earned from the job he or she takes after graduation.

"We try to counsel would-be borrowers about what their obligations will be post-graduation," he said. For example, it may not be realistic to take on $100,000 in loans for a student earning a degree in art, social services or other fields where pay is low or employment is dicey.

The average student comes out of college with $19,000 in debt, Georges said. Of course, many borrow less and some borrow much more, depending mostly on the tuition charged by the school and a family's financial situation.

The first choice for many students is a Stafford loan, a federally guaranteed loan with a fixed interest rate that is available to students with little or no credit history. As of July 1, the rates on subsidized Stafford loans fell to 6 percent.

For most students, the process of getting a Stafford loan is pretty painless. New students need to have a counseling session, then sign a master promissory note and have the school ask for the money, Georges said. The loan amount is automatically applied to a student's tuition bill.

Stafford loans may be sufficient for a student attending a public institution, but they are limited to a few thousand dollars a year. If a student needs more money, he or his parents may need to look at other loan types.

Other federally insured loans include parent loans, generally called PLUS loans, and a newer program for graduate students known as Grad PLUS loans. Parents and graduate students can borrow up to the total cost of a student's education, less any aid received.

Finally, there are private loans, which could be in short supply this year because of problems in the credit markets. The rates are higher than for the federally insured loans, and they're based on credit scores and other factors. Student may need a cosigner to qualify, usually a parent or grandparent.

In addition to financial aid offices, online sources can help students shopping for loans. TuitionBids.com is a new site that links students and lenders. The College Board web site has general information about loans, as does FinAid.org.

Keith Alliotts, cofounder of TuitionBids, said the site organizes information about college costs, estimates the gap between financial aid and total costs and connects students with up to six lenders offering federal and private loans. TuitionsBids.com only gets paid if a loan is funded, so students can use it to educate themselves and shop around.

Alliotts agreed with other experts that federally insured loans should be a student's first option.

"It's expensive debt, not cheap debt, once you get in these private loans," Alliotts said.

Georges encourages students to respond quickly to a school's financial aid offer and return any required documents.

"When someone asks how fast the process will work, I tell them it's how diligent the student will be in applying for federal financial aid," Georges said.

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Loans can fill gaps in college financing