New & old ways to pay for an education

A new program from the Department of Education aims to make student loan repayment more manageable for people whose loan size is out of proportion with their income and family size. The Income Based Repayment (IBR) Plan reduces monthly student loan payment amounts by lengthening loan terms for people who qualify. This program works for both old and new federal loans for any type of education; however, it is not for everyone. For example, not everyone will qualify (to see if you are eligible for the new plan, use the IBR calculator*) and it is important to understand that lengthening the loan terms could cost you more in interest over the long run. In addition, there are some types of loans, such as federal loans parents take out to pay for their child’s education, that are not eligible. While the IBR Plan may provide welcome relief to qualifying borrowers struggling to make high monthly payments, many future students may be dismayed by the thought of paying for their education 25 years after graduation. If this is a situation you and your college-bound child would like to avoid, there is good news. Opportunities for funding your child’s education are diverse as the career paths they afford.

-Private scholarships. There are thousands of private scholarships awarded every year that fall outside of the university’s domain. Private scholarships are not limited to students with perfect grades and packed resumes. Artistic talent, creative writing skills, lineage, interest in a particular field of study or being a member of an underrepresented group can all help you secure a private scholarship. However deadlines can be as early as July, more than a full-year before the student plans to enter college.

-Section 529 plans. Section 529 plans are state-sponsored college savings programs. The two major types are Prepaid Tuition Plans, which lock in current tuition rates, and State College Savings Plans, which offer more flexible investing options. Both are useful ways for families to save for their children's college education.

-College controlled aid. Your individual college may be able to offer a short-term installment plan that splits your tuition into equal monthly payments. Many schools also offer their own merit scholarships.

-Military Aid. The U.S. Armed Forces offer several programs to provide students with money for school. The most well known is the Montgomery G.I. Bill that provides a cash education incentive to encourage you to join and serve a tour of duty.

Finally, don’t forget to enlist the student’s help; money earned from a part-time job can cover incidentals, such as books. Keep an open line of communication with your child; unfortunately, they might not be learning about personal finance at college. *If you've already accumulated student loan debt, but do not qualify for the new program, check out a previous post titled How to repay your student loans.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.