Paying for college can be a big undertaking. Understanding the difference between federal and private loans and your consolidation and repayment options can save you thousands of dollars.
September is College Savings Month. For parents and guardians, the thought of putting their kids through school may seem daunting. However, this month, the CASH Campaign of Maryland and the Montgomery County Office of Consumer Protection are here to provide you some useful tips on how to save for college and avoid common pitfalls.
Do Your Research
The main objective is to get your college degree with borrowing as little money as possible. Start saving for college as soon as possible by considering a state sponsored 529 Savings plan. Use the Consumer Financial Protection Bureau’s (CFPB) “Know Before You Owe” worksheet to compare all the costs involved in the schools you are considering so you know the entire price you will be paying for college. Include your local community college in your list since they are often less expensive and offer an avenue to transfer into a four-year college/university. The CFPB has a comprehensive “Your Financial Path to Graduation” tool to help students understand the total cost of a college degree.
Check Out Free Funds First
Research and apply for funds that do not need to be paid back such as scholarships, grants, assistance from local/state government and awards from the college you want to attend. One good place to start is the nonprofit College Board’s website. If you qualify, the federal government’s Pell Grant is another source of funding that does not need to be repaid. Always check with your local higher education agency for sources of funds and information on choosing a college:
- DC’s Higher Education Licensure Commission
- Maryland Higher Education Commission
- State Council of Higher Education for Virginia
Federal Student Loans
If you do need to borrow money to pay for college, look at the federal government’s student loans first. There are significant protections built into these loans that are generally not included in the loans offered by private lenders. Check out the different types of loans on the U.S. Department of Education’s Student Aid website. Be sure to fill out the Free Application for Federal Student Aid (FAFSA) to be considered for financial aid from the federal government, state governments and most colleges. You can fill this out starting on October 1 of the year before you will start college.
When you are paying for college with student loans, research the repayment options before you graduate. For federal student loans, use the Student Aid website. If you have a loan that is “unsubsidized,” meaning it is incurring interest while you are in school, try to pay the interest amount each year to avoid the interest being added to the amount borrowed and additional interest being charged on that amount.
Watch Out for Student Loan Debt Scams
Some companies promise to help reduce student loan debt, but there’s nothing they can do for you that you can’t do yourself for free. And some of the companies that promise student loan debt relief are scams. It’s illegal for companies to charge you before they help you. What are some warning signs that a student loan debt relief company may be trying to rip you off:
- Pressure to pay high upfront fees. It can be a sign of a scam when a debt relief company requires you to pay a fee upfront or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before they explain how they’ll help you. Avoid companies that require payment before they actually do anything. Not only is free assistance available through your student loan servicer, but many times taking payment for debt relief services before providing help is illegal.
- Promises of immediate loan forgiveness or debt cancellation. Debt relief companies do not have the ability to negotiate with your creditors for a “special deal” under federal student loan programs. Payment levels under income-driven payment plans are set by federal law and, for most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.
- Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.
- Requests for your FSA ID. Be cautious about companies that ask for your Federal Student Aid ID. Your unique FSA ID, issued by the U.S. Department of Education to allow access to information about your federal student loans, is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to come up with a plan and will never use your ID to access your student loan information.
Student Loan Ombudsman
Various states and the federal government have student loan ombudsman programs to monitor student loan servicing activity and help resolve disputes. You can find the ombudsman locally at:
- Maryland: Commissioner of Financial Regulation
- District of Columbia: Department of Insurance, Securities and Banking
- Virginia: State Council on Higher Education