Playing To Win

In Jeopardy?

The answer is: "A place where you and your children can look for low-cost college loans." If your question was "What is the Federal Family Loan Education Program?" you've won the daily double. Low-cost federally backed loans provide money to about half today's college students. The three low-interest loan programs are: Perkins Loans, a need-based loan with a 5 percent interest rate (available at most four-year colleges); Stafford Loans, the most popular student loan, with an 8.25 percent repayment interest rate (available to most students regardless of financial need); and PLUS (Parents' Loans for Undergraduate Students) Loans, which carry an 8.75 percent interest rate. (All interest rates quoted were current at press time.)

If these loans sound exciting, don't jump just yet. Most federal loan programs have strict borrowing limits ($2,625 for dependent freshmen, for example), so you'll have to muster additional funds elsewhere. For more information on federal borrowing programs, call (800) 891-4595 and order the free brochure called Borrowing for College, published by Sallie Mae, a Washington, DC, financial services company that funds nearly 40 percent of all insured student loans.

To qualify for any type of financial aid, whether from government or private-sector programs, you must first prepare the Free Application for Federal Student Aid (FAFSA). Get one from a high school guidance counselor or library, or call the U.S. Department of Education at (800) 4FED-AID. This form will help determine the types of aid for which your child may be eligible, including work-study, grants, or public or private loans.

Remember the early bird that catches the worm? Well, likewise for many scholarships. Prepare your FAFSA form as soon as possible. For help with your homework, call the College Answer service at (800) 891-4599. It's a free hotline operated by Sallie Mae, which offers advice on the financial aid process.

Whatever school you select, early saving and investing can make all the difference. Parents who start saving when their child is born will need to put aside approximately $260 per month (at 8 percent interest) to raise the projected $125,000 that may be necessary by the time their child enters college. Should they wait until Junior enters high school, the tab rises to about $2,200 per month to reach the same goal.

Starting early not only decreases the amount you'll have to save each month but allows for more flexibility in your investments. By giving yourself a longer time frame, investing in higher-return investments such as common stocks can provide the best opportunity for keeping pace with rising college costs. But no matter what age your child is, prudent investors don't put all their investment eggs in one basket. Asset allocation, or spreading investments across investment classes including cash, bonds and stocks, can improve overall returns while decreasing your exposure to risk.

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This article was originally published in the September 1997 print edition of Entrepreneur with the headline: Playing To Win.

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