Parents - Paying for College? Do the Math First

(ARA) - In these challenging financial times, parents make certain sacrifices to ensure they can navigate the crunch and provide their children with the things they need most. Given the frequent need for sacrifices when it comes to paying for college, parents owe it to themselves to make sure they focus on value.

Securing the right education at the right price means "doing the math" to determine the real cost of a college education. While the reality check may not be pleasant, it can lead to considerable money-saving decisions when it comes to funding a child's college education.

A few smart, simple rules can help families determine a realistic number to start budgeting for.

Math Rule 1 - Know Your Estimated Total Costs
Tuition is just one part of the total cost of college. It's important to factor in books, meals, housing, transportation and other expenses (even decorating the dorm room) when making a college financial plan. Your school should be able to provide helpful information on costs. Meanwhile, here are a few insights that may help:

* Four-year public college - If you're in-state, the average budget is about $18,000 per year, of which tuition and fees are $6,185. The average out-of-state budget should be about $28,000, of which tuition and fees are $16,640. Students considering a public college should be mindful that tuition and fees are approximately one-third of their total budget.

* Four-year private college - The average budget should be about $35,000 per year, of which tuition and fees are close to $24,000. Students considering a private school should consider their tuition and fees as just over two-thirds of their total budget.

* Two-year college - The average estimated budget for a two-year college is about $13,126 per year. Tuition and fees are just $2,361 of that amount. Students considering a two-year college should understand that tuition and fees are approximately 20 percent of their total budget.

Math Rule 2 - Know the Impact of One Percentage Point of Interest and Shop Around for the Best Rate on Student Loans

If, after determining the total cost, you and your child decide you need to borrow, keep in mind that even a small change in rate can make a substantial difference in the overall cost of a student loan. For example:

* A $10,000 private student loan that has an average percentage rate (APR) of 8.69 percent will cost $20,512 in interest if you defer payment until after graduation.

* Meanwhile, a $10,000 private student loan with an APR of 6.92 percent will cost $14,797 in interest if you defer payment until after graduation.

In other words, a less-than-2-percent difference in the rate of interest on a $10,000 loan translates to a $5,700 difference in the amount you'll have to repay.

Math Rule 3 - Understand the Impact of Your Repayment Decisions

Using the same examples above, recalculate the interest payments if the borrower starts repayment on the student loan immediately.

* The first loan's total interest owed is reduced to $11,056, a savings of nearly $9,500 in overall interest paid.

* The second loan's overall interest amount paid reduced to $8,420, a nearly $6,400 difference.

Because payments need to be made consistently, it may not be realistic for many students to start repayment immediately. However, knowing that interest accrues during the deferment period and that you have to make it up by paying it back later should help parents and students make smarter borrowing decisions.

Student loan company MyRichUncle offers handy tools for prospective borrowers. One tool, called the APR Monthly Repayment Calculator, provides student loan borrowers a new process where they can view examples of private student loans and repayment from several different vantage points, including the cost difference between different repayment terms, different repayment options and the impact of different interest rates on the overall cost.

For more information on student loans and for online tools, visit www.MyRichUncle.com.

Courtesy of ARAcontent