Dealing with Too Little Aid

In this topic, we cover:

• Why some students may find it hard to pay for school.
• The availability of financial aid appeals.
• Other sources of financial support after the aid process has been completed.

A situation some students may face in college is dealing with too little financial aid.

One of the main causes of too little aid is a change in your family's financial situation in the time since you applied for aid. Examples of changes that could affect your ability to afford college include:

• The loss of a parent's job or a reduction in family income.

• The loss or reduction of other income reported on your aid application, including your job.

• An expensive medical event.

• Family financial difficulties, like a home foreclosure or personal or parental bankruptcy, which may make it difficult to receive non-governmental loans.

Before assuming that your financial aid package will not meet school expenses, you need to discuss your situation with a financial aid officer at your school, which may ultimately include filing a formal appeal. In this conversation, you can clarify your financial situation and make sure that you have received all the aid that you are eligible for. If there is a situation that was unclear in your aid application, or if there has been a change in your family's financial situation, there may be more aid available.

Even if there has not been a change in your family's financial situation, we also encourage you to meet with a financial aid officer at your school. There may be other sources of aid, including low interest university loans that would be less expensive than other loan options. An insufficient aid situation is not unusual, and aid officers have helped many students find enough aid to complete their degree.

Once you have clarified that you have received all of the federal and institutional aid that you are eligible for, there are a few additional options to consider before taking out the kind of private loans we'll describe in a moment:

• Apply for scholarships - There are many free scholarship databases that you can explore on the internet. Applying for scholarships can be time consuming, but someone has to get the millions of dollars given away each year. Why not you?

• Cut your expenses - Use our interactive budget calculator to understand where you spend money and to see where there is the potential for saving.

• Earn income - Many students work while in school to help make ends meet and reduce overall college debt. In fact, studies have shown that students who work roughly 10-20 hours per week actually do better in school than those without any job at all. But working more than 20 hours per week is likely to harm your academic performance - a risky choice since the only thing worse than graduating with too much debt is not graduating.

• Seek help from parents - Depending on your family's financial situation, they may be able to help you financially by applying for the federal PLUS loan program or by tapping their savings or home equity. And if you are considered a dependent student and your parents apply for a PLUS loan and are denied, you will be eligible to borrow more (as if you were an independent student).

• Consider service, military, or loan forgiveness programs - Programs such as Americorps and the Peace Corps offer financial incentives for service, including the repayment of some student loans. The military's ROTC program and Army National Guard also offer generous help for students. Finally, loan forgiveness programs for professions such as teaching and nursing may be available. Please speak with your financial aid office for more information on these and related programs.

Private Student Loans

As the cost of attending school has risen faster than federal loan limits, private (also known as "alternative") loans have become an increasingly common way to fill the financial gap between what you need and what the government will provide. These student loans are completely independent of the federal aid application process and are similar to any other type of loan in that the rates you pay and the amount you may borrow depend on your credit score. Here are some tips for getting the best deal on private student loans:

• Comparison shop - Some companies charge much higher interest rates than others - up to twice as high for similar services. Keep in mind that you may not qualify for the lowest advertised interest rate. You will only know your exact interest rate offer after applying.

• Check fees - Be sure to consider fees in addition to interest rates when you calculate the cost of these loans.

• Understand the repayment options - Some loans must begin to be repaid immediately, others require interest-only payments while in school, and others require no payments while in school. Each option will affect the total cost of the loan.

• Read the fine print - Never sign for a loan without reading and understanding the terms of the agreement. Does the interest rate go up after a certain period of time? What happens if you miss a payment?

• Clean up your credit report - Since private student loan rates are impacted by your credit score, even small increases in your score can result in lower interest rates. You may obtain free copies of your credit report from all three major credit reporting bureaus at AnnualCreditReport.com. Pay any overdue bills, make sure your account balances are under your credit limit, and report any inaccuracies you may find. Closing unused accounts will not raise your score and may lower it. But opening new credit cards in the months before applying for a loan may lower your score. And don't forget, missing even one payment for anything - credit card, cable, or even a parking ticket - could lower your credit score by 100 points or more.

• Consider a cosigner - Having a family member with a good credit history cosign for a private student loan may lower the interest rate.

There is no one answer for dealing with too little aid that is right for every student. You will have to make important choices about your overall student debt, work schedule, and even your lifestyle while in school. All of these choices will have major consequences that will last for years after graduation - for instance, too much debt can be a burden, but working too much in school can reduce your academic performance. In an uncertain economy and job market, a conservative approach that balances part-time employment with student loans may be the best choice. Remember to explore all your options.