10 Top Tips for Finding Financial Aid

A banking expert offers his advice for finding college funds.

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For many collegebound students—and their parents—the race for money for college begins on New Year's Day. That's because the all-important Free Application for Federal Student Aid (or FAFSA) form should be submitted as close to Jan. 1, 2010, as possible for best consideration. But perhaps you haven't been thinking about financial aid for college at all. If that's the case, you're in luck. We've invited Tom Lustig, a seasoned expert from PNC Bank's Educational Loan Center, to share with us his 10 best tips:

1. Get a head start. Apply for financial aid as early as possible since award deadlines tend to vary from school to school and state to state. You can apply before you have been accepted. If you're planning to borrow, apply for aid at least two months early to be sure that there are no hidden "land mines" in your or your cosigner's credit records. In the event a loan application is denied, the extra time offers a cushion to take advantage of a "second look" process your lender may offer—or to find one that does.

2. Take an F—for free or federal funds—first. Exhaust "free money" opportunities, such as scholarships and grants, before committing to loans. Once these free funds are maxed out, rank your loan options starting with the least expensive, which usually means the lowest interest rate. With interest rates and fees capped annually by the government, and with customer-friendly repayment plans, federal student loans should be the cornerstone of student borrowing.

3. Figure out the FAFSA (and its relatives). There are up to three forms that may have to be filled out to apply for financial aid: the federal government's Free Application for Federal Student Aid (FAFSA), the College Board's CSS/Financial Aid PROFILE form (especially for private colleges), and, for some colleges, their own individual financial aid form. These forms can seem complicated and rather daunting at first glance (and at second and third glances, too). Nevertheless, if you want colleges, or your state, to shell out some moola, you'll just have to grin and bear it. 

[Read about how Applying for Financial Aid Will Be Easier in 2010.] 

4. The college financial aid office is your friend. Many prospective students ignore the benefits of the financial aid office and admissions counseling. Well, don't. Counseling on the way in is a must to receive federal loans, and it provides valuable information about what to expect—and what is expected of you—as a borrower. You can E-mail the financial aid office from the college portal (phone lines are sometimes difficult to get through on), and some forward-looking colleges even have blogs or YouTube- style videos to train you in the finer points of getting your share of the loot. And if in the midst of the application process, your—or your parents'—economic situation changes, be sure to keep the financial aid office posted: Aid officials are aware that situations can change rapidly, and they're happy to make modifications.

5. It's always good to shop around. Choosing a lender is not just a task to check off your list. It is an opportunity to make sure that you start your aid journey with the right partner. Look for a lender that offers the terms you need—for instance, good rates, fees, and repayment options—along with a demonstrated commitment to education financing and customer service. Search the Web under the name of the company and the word complaints to see what experiences other borrowers have had. (Keep in mind these are big companies, so a few scattered complains shouldn't necessarily sour you on the institution.)

6. Distinguish the feds from the colleges. Because federal and private school-certified loans are two very different types of products—with very different considerations—you may want to consider a different lender for each. Some things to consider when comparing lenders: interest rates, capitalization (how frequently unpaid interest is accrued and added to the loan amount; more often = more expensive), incentives, consequences of late payments, benefits of on-time payments, deferments, and prepayment penalties.

7. Know the end of the story. Though no one likes to think about it, for every loan there will come a time when you have to pay it back. It's never too early to start thinking about, and understanding, your repayment terms. The repayment schedule you select now, especially for school-certified private loans, can affect both your rate and your principal amount down the road. For example, if you choose to pay back your loan more quickly (say within 10 years instead of 15), you might get a better interest rate. Knowledge is power—and money, too.

8. Don't marry your lender. Once you've found the best deal for your student loan, you should investigate all the options for your day-to-day banking services—for example, checking and savings accounts, online bill pay, credit and debit cards, and emergency wire transfers. You might find that another institution offers an on- or near-campus presence, a robust online banking setup, financial education services, and accounts designed to fit how you spend and save.

And now, a couple of tips for students already in college—and in hock:

9. Head them off at the pass. Wherever possible, repay interest on unsubsidized loans; by paying interest while you are in school, you could save on interest expenses later. Some tricks to staying ahead of interest accumulation include opening an interest-bearing savings account and depositing the amount of your student loan interest accumulation on a quarterly basis to pay off at graduation, borrowing for second semester and using your savings or income for first semester so you are accumulating interest over less time, and developing a combination strategy with your tuition payment plans to keep your borrowing totals at a minimum and your interest levels in check.

10. Keep good records. As tempting as it is to pretend your loan doesn't exist while you are in school, it is important to keep copies of all papers regarding your school loan—and to remember where they are. You'll have problems later if you can't remember what types of loans you received, or who you're supposed to pay, or how to postpone repayment if you have a financial emergency or choose to attend graduate school. Keeping good records—just like making sure you understand the loans you take out—helps you to ensure that your rights are protected and that you are in good financial shape for the next few years and beyond. 

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