Here is part two of five sets of responses to the questions posed by a group of 40 high school students in preparation for a personal finance workshop I led last month. Comments and feedback are always appreciated!
Part 2: College
1. When should I start saving for college tuition?
If your parents want to start saving early, they can open a 529 plan for their child (regardless of the child’s age). If you want to know when you can start saving for your own college education, the sooner the better! Start putting aside small amounts of your paycheck for college and monitor how much you have saved over time. The bigger questions to try to answer are: where do you want to go to school and how much will it cost?
2. How should I save money for college?
There are lots of different ways to start saving for college. First of all you may want to find a part time job. Remember though, that you are a student first, and don’t overload your schedule so that it has a negative effect on your studies. Once you have a part time job, you can specifically aim to set aside a certain amount in savings every month. For example, set an amount that you will take out of your paycheck, like 10%, and take it out as soon as you receive it (and before you have the chance to spend it!).
3. What is the minimum amount of money given out on scholarships, grants, etc? How much can I plan to get for college?
There are no guarantees for any scholarship or financial aid. There are different criteria for each option to determine whether you are eligible or not. Some are “needs-based” and ask how much your parents make to determine if you experience financial hardship. For government aid you have to meet certain eligibility requirements (citizen or legal US resident, Social Security Number, high school diploma etc). Furthermore, your eligibility for aid depends on your Expected Family Contribution (EFC), your year in school, your enrollment status, and the cost of attendance at the school you will be attending. Your school’s financial aid office will tell you how much you can receive.
4. Would I have to pay the bank back for the whole four years if I get a specific loan or scholarship for college?
Whenever you borrow any money from the bank you have to pay them back for the amount you borrowed plus the interest you agreed to pay, regardless of other scholarships or loans you have taken on. If you have money available, it’s always a good idea to try and pay off your balance as quickly as possible. When you do this, try and pay off the loan with the highest interest rate first (that’s the one that will be the most expensive in the long run).
5. How do I afford college?
Begin to ask these questions: Why do you want to go to college? What type of career do you want after college? With your grades, test scores and career interest in mind, what are some of your options for college (include 4-year public, 4-year private, community colleges, vocational schools etc)? Are you eligible for federal aid? Will your family be contributing to your education? Will you be able to qualify for a private loan? Does the school have work-study programs available? Remember, there are LOTS of scholarships available too. There are scholarships for minorities, scholarships from religious organizations, scholarships for the career you want to persue, scholarships for the type of volunteer work you enjoy and also scholarships for first generation college students (if you are the first one in your family to go to college). The key is taking the time to research them and finding out what you might qualify for.
6. How can I save for college?
See #2.
7. How can I get a loan for school?
First, do a bit of research about what financial aid is available, and what you might be eligible for. There are federal loans, and private loans. You have to apply and show that you (or your parents) have a track record of trustworthiness. It’s very important to remember that a loan is NOT free money. The longer you take the pay it back, the more expensive it costs you. A $20,000 loan could end up costing as much as $40,000 if you wait 30 years to pay the entire balance off.
8. When getting our paychecks, how much money should we save for college?
It’s a personal decision, factoring in: how much you are currently making, how much college will cost, how long until you start college, whether you will be eligible for federal or private loans etc. See #2.
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