Choosing a College and Being Able to Afford It

For many high school juniors and seniors picking a college to attend is probably the most stressful part of high school. Well, that and worrying about whether or not you will have a date for the upcoming dance. So many factors come into play when making this important decision. Do you pick a school based on reputation? Do you select a school based on major? Is campus life and location important to you? Well, I've got another question you should add to your growing list: how much is this all going to cost by the time graduation arrives?

What's that? You never really stopped to consider the long term financial ramifications? You live your life by the "we will cross that bridge when we get there" mantra. Nowadays, with tuition costs on the rise and student loan availability at a premium your college selection is more important than ever. If you wait to cross that bridge you might find yourself leaping off it. Don't let your student loans spiral out of control. You'd be surprised at how easy it is for this to happen.

The stark reality is the vast majority of students wishing to attend college can not afford to pay out of pocket, even with the support of their parents(s). Consequently most families depend on student loans to help finance the cost of tuition each school year. Federal and private student loans are there for you, but may be with you MUCH longer than you had bargained for.

Federal Stafford loans are worth considering first. They offer a lower fixed interest rate than Parent Plus loans and most private student loans, but the downside is they have low maximum yearly allotment. College freshman are eligible for $3500 in subsidized Stafford loan funds, sophomores $4500, and for juniors and seniors that total rises to $5500. These amounts, while helpful, do not usually come close to covering the total cost of tuition at a private four year college.

The next common loan type is the Federal Parent Plus loan (these loans are in the parents name on behalf of the student). Parent Plus loans are at a higher interest rate than the Stafford loan, but you can borrow up to the cost difference in tuition. Finally, you have private student loans which are in the student's name, but usually require a co-signer.

In order to be approved for a private student loan, the student and the cosigner/parent must pass certain credit criteria. While lenders do not expect an 18 year old to have established credit, they do require they have a co-signer who does. In the past few months the credit approval tiers for most private loans have been raised, making it harder for students and parents to get approved for these loans. What does this mean for the student?

If you attend a four year college, come from a middle or lower class family, and your parent or parents have mediocre to poor credit...the chances of you being able to actually get that tuition bill paid, are slim to none. This is why it is so important to choose your school wisely. Every student has a dream of what their college career will entail. They dream of moving far away, starting a new life, and meeting new friends. But at what price? What is that worth if you have to leave that new life after two years because you can't get a student loan to cover your tuition and living costs.

The bottom line is do not assume that if you need a loan, you will be able to get one; especially with all the changes in the loan industry due to the sub prime mortgage crisis. Lenders are tightening their credit standards because they don't want to lose their backing. While picking a college, keep in mind 3 important things:

1. Assuming your parent(s) are willing to help you with the cost of your education; is their credit history good enough in order to ensure they will be approved for a credit based loan?

2. When you graduate, how much will your estimated student loan debt be, and what will your monthly payment most likely be?

3. Is it likely that you and your family can afford this college for four years, without having to rely heavily on private student loans?

Students don't tend to think about these things now...but when your monthly student loan payment is in excess of $400-$500 dollars a month, you will most certainly wish you had thought more about the cost of the school you chose to attend, rather then choosing it based on location, student life, and overall desirability. Obtaining a College degree is suppose to give you a foot forward in life...not leave you questioning whether or not your college degree was really worth the downfall of your financial future.

David Bonvie contributed to this article