Family Money Advice You Can Bank On (page 2 of 8)

College-Bound: Getting on the Right Track

Secure college financing. Whether you think your family will qualify for financial aid or not, fill out the Free Application for Federal Student Aid (FAFSA), which you can get online at fafsa.ed.gov. Families who have the greatest need qualify for the most aid, but even with a high income (there's no limit), you can still get a low-rate government education loan.

Here's how government aid and loans break down. Pell Grants, available only to families with the lowest incomes, have no merit requirement, and you don't have to pay them back. Perkins Loans are the lowest-rate federally guaranteed student loans (5 percent interest for 2009-2010). Stafford Loans come in two varieties: subsidized (currently 5.6 percent) and unsubsidized (6.8 percent). After you fill out your FAFSA, the school will calculate what you qualify for. If you're still falling short, fill out a PLUS Loan application, now at 8.5 percent. (The official site for information on federal student aid is federalstudentaid.ed.gov. Finaid.org does a great job of explaining the many options.) Avoid private loans from banks or student loan companies because they tend to charge a lot more in fees and interest.

Have the money talk. Help your son or daughter find a low-cost bank or credit union near your home, and look for accounts with low overdraft penalties and no monthly fees. Teach your child how to manage an ATM card and monitor a checking account online. Spend a little time agreeing on some rules: Who pays for extras like late-night pizzas? Can studying be his full-time job, or will he need to find part-time work to help cover costs? Talk through expected expenses for the year, and make clear what you're willing (and able) to cover and what you expect him to handle.

Steer clear of credit cards. Certified financial planner Nancy Lange of Hartland, Michigan, recently sent her son Josh off for his first semester away with one nonnegotiable rule: no credit cards. Instead, he's got his debit card, and Lange has set up a system with her credit union so she can monitor his spending. "Taking revolving credit off the table reinforces the value of budgeting by making your student live within the limits of cash flow," she says. "Otherwise, the temptation to splurge may be too strong."

First-year college students who carry a balance on their credit cards rack up an average of $1,300 in credit card debt, according to the U.S. Public Interest Research Group. It's hard to believe in these economic times, but students can still easily qualify for a credit card. The best thing you can do is educate your child about the potential pitfalls of credit card abuse. Go to getrichslowly.org and search for "The Dirty Secrets of Debt Reduction." One young man tells how his collegiate credit card abuse turned into $20,000 in debt.

QUICK TIP: Josh Lange

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After graduating from high school in 2007, Josh Lange decided to attend nearby Cleary University for one year. Not only did he save on room and board by living at home, he also received a significant tuition discount, since his mother, a CPA and financial planner, taught at the college. Without these expenses, Josh, 20, was able to save most of the $14,000 he made working part-time at the local marina during the school year and the following summer. The result: When Josh transferred to Western Michigan University for his sophomore year, he had a nice cash cushion to help defray the cost of his off-campus student apartment.

Savings Advice: Provided Josh gets decent grades (a B average or better), his parents will keep him on their car and homeowners insurance as well as their cell phone plan -- a net annual savings of $200, since family rates are cheaper than individual coverage.

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