How to pay for college

It's that time of year again: Seniors are hearing back from college admissions offices. There will be delight, and there will be sadness. And then there's the issue of how to pay.

The cost of postsecondary education is enormous, and a financial strain on most families. But applying for aid need not be as painful as it seems.

The first thing any soon-to-be-matriculated student must do is file the FAFSA (Free Application For Federal Student Aid), which is the entry point for all government loans. It's best to fill it out early, too.

Stephen O'Meara, deputy director of student financial assistance at the City University of New York, said everyone should fill out the FAFSA, even if you think you don't qualify.

The rates for borrowing loans from the government are often lower than taking out any other type of loan, he said.

Experts advise against taking out private loans, too. The terms are often confusing, repayment can begin before a student has graduated and interest rates are often not fixed, meaning they can fluctuate.

"Alternative loans are a last resort option," O'Meara said.

"If your total debt is less than your annual income, you should be able to pay it back in 10 years," said Mark Kantrowitz, publisher of the financial aid information sites FinAid.org and FastWeb.com. "Otherwise you'll struggle."
Consider how much money you'll need for college, but also how much you'll be making after you graduate, O'Meara said.

"Everyone's excited to live alone, to live in a dorm. The budgeting piece is far from your mind," he said.

Indeed, student debt is on the rise. Between 2004 and 2012 it nearly tripled, according to a report issued last week by the Federal Reserve Bank of New York. More people are taking out loans, and taking longer to pay them back. In 2012, 44% of borrowers were not yet repaying their loans due to deferments and forbearances. Delinquency rates were up too: 17% of borrowers in 2012 were more than 90 days late on a payment, a steep increase from 10% in 2004.

Being late on loan payments also makes it more difficult to get approved for a loan later, too.

Delinquency "is the kiss of death," said Andrew Haughwout, vice president and economist at the New York Fed.

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1. Complete the FAFSA every year, even if you weren't awarded anything the year before. Many factors are considered when applying for federal aid, including the amount of children in a household that are enrolled in college.

2. Calculate a precise budget for yourself. Include all monthly expenses from tuition to textbooks to transportation. You will have a better idea of how much you need to borrow.

3. Always read the fine print before you sign any loan documents. The acronyms and terminology can seem like a foreign language.

4. Start saving for college early. Every dollar you borrow will cost you twice as much when you pay it back.

5. Consider the future. What degree are you pursuing? A liberal arts degree will not yield the same salary as a law degree. Be realistic about how much you can borrow.

6. Privately held loans are attractive if you have exhausted all other options and need more funds to pay for college, but if it has come to that, you're probably over borrowing. You should reassess your college choice and perhaps your career choice.