Tackling Your Tuition Bill: FAFSA

September 6, 2012 | posted by College Money Insider.

It’s that time of year when tuition bills will be showing up in mailboxes across the country! To ensure you are covered, here are some things that students and parents may want to consider.

Today is the first of three guest posts by Overture Technologies’ Ben Carey.

Fill out that FAFSA…(It’s not too late!!)

So much has been said and written about filling out the Free Application for Federal Student Aid (the FAFSA). Filling out the FAFSA will open the doors for many types of options, such as grants and scholarships (otherwise known as gift aid).  Like the name suggests, “gift” aid does not have to be repaid.  Consider another self-titled option, “college work study”.  Students earn money by working (hopefully at a job in their field of study) to offset the cost of their education.  Then there’s the dreaded “L-Word”…Loans.  LOANS HAVE TO BE REPAID!  (More on that later!)

Federal loans come in different shapes and sizes.  There’s the “Perkins” loan that carries a very low rate of 5%…great deferment/forbearance options (I call them safety nets)…and a longer term “grace” period that holds off repayment obligations until 9 months after graduation/dropping out/falling less than half-time enrollment.  For students, there’s the William D. Ford (formerly Stafford) direct student loan options. These loans have a “fixed rate”. That is, the rate is set at the beginning of the loan term and will not change with market conditions.

Students and parents should be mindful that there are two different types of direct student loans; subsidized and unsubsidized loans.  Let’s start with the “subsidized” loan.  While it sounds simple enough, the interest rate on the subsidized loan is “subsidized/paid” by the federal government. It is usually set aside for those students who demonstrate financial “need”.  The interest that accrues while the student is attending school (at least half-time) is paid on the student’s behalf. NOTE:  The interest is subsidized ONLY for the period the student is enrolled…NOT during the typical “grace period” between end of enrollment and repayment (usually 6 months).  Then there’s the potentially more costly twin brother of the subsidized loan…the unsubsidized direct student loan.  Clearly, as the name suggests, the government is NOT picking up the interest tab on this one! Interest will accrue on this loan during the term of enrollment and during the standard 6-month grace period.  So, it is imperative that students understand the difference between these loan options: Subsidized student loans have interest paid by the government while the student is enrolled (NOT during any grace period), while unsubsidized student loans accrue interest while the student is enrolled and during their grace period. It’s important to note that both the subsidized and unsubsidized direct student loans have very generous deferment and forbearance options to assist students who may fall on hard times down the road of repayment!

In addition there’s an option strictly for parents (and graduate students) called “PLUS” (formerly Parent Loans for Undergraduate Students).  Long story…but let’s just call them Parent and Grad PLUS for now.  These loans have a “fixed rate”. That is, the rate is set at the beginning of the loan acceptance and does not change with any financial up-and-downs. They too have terrific deferment and forbearance options and a “6 month deferment period” available if chosen.

So, all this and more is available by simply filling out the Free Application for Federal Student Aid a.k.a. the FAFSA!

Ben Carey is currently the Vice President of Sales at Overture Technologies.  His is a 23-year veteran of the student lending industry with extensive experience working with colleges and universities.  Ben served in both sales and sales leadership roles helping schools and families make informed decisions about the best ways to finance higher education.