Help a Reader: Loans for College

Here's an email I recently received from a reader:

I'm currently in search of student loans for the upcoming fall semester. I was wondering a couple of things that maybe you could help me with. A little background first: I'm 20 years old, and I work while going to school. I will be completing my third year of community college this May, when I will be graduating with my Associates Degree.

I only paid for about half of my community college expenditures, while the other half was financed with scholarships. Now that I'm moving on to a University, I've realized I can't avoid taking out a few loans as my parents faced many challenges over the years, and will not be able to contribute to my schooling. First of all, I did fill out the FAFSA with estimates from my parents for their own tax return. The results from this conclude that my family's estimated contribution should be about $6469. The website for the university I will be attending says that for one year of education at their school, including living at home, commuting, food, and books and supplies, I will be paying $14,500. The way I eat and find ways to save money I think this number can be brought down all the way to $10,000. This means I should expect about 4,000 from my school or the government to subsidize the costs. I applied for various scholarships, but I won't get those results until after my fees are due to my school. This means I will need to apply for a loan for the other $6,000 regardless of the scholarships.

I plan on applying for the Perkins Federal Loan, the Stafford Loan, and also to apply for a student loan through State Farm. My biggest question is this: Will applying for a loan from various placed negatively affect my FICO score? I know that each time an inquiry is made from a creditor it does affect it, but I wasn't sure if that meant EACH time, or for each type of loan during a given time period?

Also, do you have any other ideas to help subsidize the size of the loan I need, other than working and saving (which I am already doing), scholarships (which I have already applied for), and Federal Grants?

What advice do you have for her?

Comments

[Kevin Behringer]

My recommendation would be to connect with Christopher Penn either on his site, his podcast or at his company. That's where I would start if I was in your position.

www.christopherspenn.com

www.financialaidpodcast.com

http://www.studentloannetwork.com/

Kevin

[DebtGoal]

Ok, here's a ton of advice on financing college. You did an excellent strategy so far - attending community college, then transferring to a university. Now for the rest:

1. Set up an appointment with a guidance counselor at your new university ASAP. Map out with them with as much detail as possible your course plan until graduation. Choose one major, no minors or a double major. It is much more important to have a major with good grades than multiple majors/minors, more debt, and a lower GPA. Following this plan will save you a ton of money - and you may discover that you can earn your bachelor's degree even faster than the normal schedule, which is great because it saves you a lot of money.

2. Fill out a profile on Fastweb.com and apply for as many scholarships as possible. Set aside a week or weekend and focus just on this. It will pay off in the long-run. Up until graduation with a bachelor's degree, organizations are much more generous with scholarships ,mon h

3. Get in touch with your financial aid office at your new university and ask them for a list of scholarships that you can apply for. Apply to as many as possible.

4. If possible, take out only federal loans, no private loans. Federal loans include but are not limited to: Perkins, Stafford, and PLUS. Private loans typically have variable interest rates, which are dangerous, and they cannot be consolidated later on.

5. Take only the minimum number of total courses to graduate with your bachelor's degree, while completing only a manageable load each term. Spend your free time pursuing paid internships or doing work-study programs on campus.

6. Commute from home to the school; don't invest in an expensive dormitory or other campus housing, unless it is a cheap deal relative to any other housing option off-campus. If you cannot live at home while in school, rent a room near campus from Craigslist. Renting rooms are the most cost-effective way to go.

7. Live and die by a strict budget. Do not eat out - focus on cooking as many meals as possible at home, unless there is a cheap place to eat on campus. Remember, food and housing are your biggest expenses until graduation day.

Best of luck!

[Jim]

Here is a page with info on loans and FICO:
http://www.finaid.org/loans/creditscores.phtml

I've quoted a couple key bits below but you'll probably want to read that whole page.

"The Stafford, Perkins and PLUS loans do not depend on your credit score. The Stafford and Perkins loans are available entirely without regard to your credit history. The PLUS loan, however, requires that the borrower not have an adverse credit history. (Undergraduate borrowers whose parents are denied a PLUS loan will be eligible for increased unsubsidized Stafford loan limits.)"

"So you still need to limit the total number of private student loan applications and to apply for the loans in a short time span. More than five inquiries is likely to reduce your credit score enough to have an impact on the interest rates and fees for subsequent applications. More than eight inquiries will definitely have an impact on the interest rates and fees. FinAid recommends limiting your private loan applications to one bank, one non-bank specialty lender and the nonprofit state loan agencies in your home state and the state where your college is located."

[Jim]

Just to clarify my last post: The private student loans DO look at FICO. The 2nd paragraph above is about private loan approvals.

[Rachel]

Hello! I just graduated with my BA and am now working full time and paying for grad school so I now what you're dealing with.

When you filled out the FAFSA you by default were applying for loans-the Perkins, Stafford, nd PLUS. All of these loans which are federally insured, are usually financed by Sallie Mae or Direct Loans and come subsidized and unsubsidized.

You should automatically be approved for loans equalling the difference between your SAR-the $6469 you were told you could afford, and their estimate of cost of living+ expenses which you said was $14,500. You should automatically be approved for the difference-about eight thousand dollars, this shouldn't exceed the federal maximums. Only when you reach the federal maximums, which you can find on the FAFSA site and the Department of Education Financial Aid site would you need a private loan.

Most schools will provide you with an online account where you can register for classes and such, in this system you should be able to see what loans you have been approved for and how much, if they haven't done this yet, or don't have the system, call the financial aid office. They will, by default, have you 'accept' the full amount of the loan, they will pay for tuition and such and send you a refund check for the rest, I reccommend if you know you are not going to need this money to call financial aid and tell them what you need.

As Jim said above the Stafford, Perkins, and PLUS loans don't depend on your credit score-but do effect it. Which can be a nice boost to your credit score in college because your loans are in defferment and they're considered current.

Sorry for the very long post, I hope I was able to help! I have been dealing with this for seven years now so I'm almost an expert :)

-And just in response to DebtGoal's #5 tip- this can be a good plan to reduce stress, especialy if you're working. Though, if you are not working, and want to take mre classes for breadth or to graduate quicker, at most colleges, once you pay for twelve credits you are considered full time AND tuition is capped- you can usually take up to 18 credits paying the same amount of money as for twelve. Check out your school's rules.

[Eric]

Minimize student loan debt. Most are not bankruptable. (only private)

State school + full-time job + living at home + buy books off of half.com (never at the University ripoff Bookstore) = little student loan

*Also look for companies to intern at... that have tuition reimbursement programs.

*It will be difficult but it will give you a great story to tell employers in the future. Employers love young people that know how to target a goal and work relentlessly.

Good luck

[Angie]

As long as you do all your applications in a short amount of time (over a week or so) all of the credit pulls should count as one on your credit report. The same as applies when shopping for a mortgage or car loan.

[doctor S]

My advice is to do whatever you can to obtain as much federal aid as possible. Sites such as fastweb.com are good sources for third-party scholarships. Also, go to the financial aid office of your university AND go to the admissions office of the college of study WITHIN the university. Many times, when you deal with your program of study and identify with them you need extra need, they can go through avenues that will open more doors for you.

My younger brother is a sophomore in college and he went through his MIS (Management Information Systems) College and found aid that he just needed to apply for. No one else applied for it! Sometimes they just do not advertise the opportunities enough to its student body.

Be persistent and network your face off with everyone you can possible!

[Becca]

Hey everyone. I'm the one who was looking for advice. I appreciate every one of your comments. I finally got my parents offical tax information, and with the little money they made, I was eligible for the Federal Pell Grant, as well as Federal Work Study. I was also accepted into my university's EOP program. And (if California actually passes a budget without cutting them), I should receive a Cal Grant as well. I was lucky enough to be covered by the government for my first year at University, and not have to pull out any loans. But this information will be greatly helpful for me again a year from now when I may or may not be eligible for government money again. So thank you, and I appreciate the help.

[credtcardquick]

I think it was a good idea and a great way to start by saving up. Though I believe that this may not be enough to contribute to your college tuition fees. There are a lot of good college grants mentioned above; I suggest you research about them first to get a first-hand opinion about them before applying for one.