Changing Times Call for Changing Financial Strategies, Experts Say

Major changes are on the horizon for college aid programs in 2006. Interest rates on federal loans will rise effective July 1, ending a prolonged period of historically low interest rates for college loans. Increased interest rates will mean much higher debt costs for students and their families. At the same time, loans have largely replaced grants and scholarships as sources of educational funding. For many students, it's difficult to get through four years of college without taking on some degree of debt.

Experts advise that these changing times call for changing financial strategies on the part of students and families. Their recommendations include:

• Research grants and scholarships – There are literally hundreds of grants and scholarships available to college students. A remarkable number of them go unclaimed each year. Make an effort to learn what awards you are eligible for, and then go after them. Even small awards can reduce the amount of money you need to borrow for college.
• Don't assume your family income disqualifies you from grants – Many people mistakenly assume they don't qualify for any grants because their family income exceeds the limit for Pell Grants. That's not true. Other grant funding is available from other sources. Complete a FAFSA even if you know you're not eligible for a Pell. (Many colleges and universities use the FAFSA as the starting point for their own grant decisions.)
• Be honest but modest in giving your home's value. Some private schools will look at real estate values when they decide what a family's contribution toward tuition should be. This can lead to inflated expectations of what families can afford, especially when housing prices are high. Be honest but modest if you're asked to report the value of your family home. Experts advise giving the figure you think you would get if you had to sell your house within 30 days. Don't forget to deduct agents' fees, taxes, and other expenses from the estimated selling price.
• Consider 2 years at a junior college – Think about doing your first two years of college at a community or junior college. Their tuition is usually lower than it is at 4-year institutions, and you'll save on living expenses if you take classes while living at home. This may not be the college experience you dreamed of, but it can help you avoid graduating with a debt load that's three times your annual salary – which is no dream come true, either.
• Cut your living expenses to the bone – Pull every dollar you can away from discretionary spending and put it toward your education. Drive a used car instead of leasing a new one. Eat macaroni and cheese for dinner instead of calling out for pizza. Use that $1,000 to pay for a class instead of spring break. Short-term sacrifices like these aren't fun, but they'll pay off in much greater freedom post-graduation.