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Money Matters: New Ways to Cut College Costs

Parents of the college-bound have lower interest rates and new grant and loan programs to help smooth the way.

There's nothing pretty about tuition bills. My daughter is only 2 and a half years old, and already I'm dreading the day when I'll have to pull out my checkbook. So, I'm doing the best I can to sock away money to pay for her education.

But for those of you in the throes of college bills, there are some new things going on in the world of college funding that may help you save a few bucks.

Princeton Pitches In

In February 2001, Ivy League giant Princeton University announced that student loans will be a thing of the past for its students. Beginning with the Fall 2001 semester, students who are eligible for financial aid will no longer get loans from the school. Instead, they'll get grants to defray the costs, and the grants will never have to be repaid.

The university is hoping the move will make a Princeton degree more affordable for low- and middle-income students. The school today has more than $8 billion in its coffers, so it can afford to spread some of it around. And with bills for tuition, room and board of more than $33,000 per year, the help will sure be welcomed by the 40% of the student body that receives aid.

This is good news, but, of course, it will only help if your child makes it into Princeton and qualifies for aid from the school. But some expect other schools to join Princeton in the practice to stay competitive. Stay tuned.

Nellie Mae Reduces Rates, Loan Minimums

College students gearing up for the 2001-2002 school year will also find some savings through Nellie Mae, a top originator of student loans. The lender is loosening lending requirements and offering more attractive interest rates.

Both Nellie Mae's Student EXCEL Loan program for undergraduates and its EXCEL Grad Loan program for graduate students will offer an interest rate of Prime-plus-0%, down from Prime-plus-0.50% this year. If your student has a co-signer for the loan, Nellie Mae will reduce loan-related fees to 2% from 4%. The loans, which used to require a minimum loan amount of $1,500, will drop to a $500 minimum.

In addition, if you sign up for an automatic payment plan using your checking or savings account, your interest rate will drop another 0.25%. To learn more about Nellie Mae's offerings, check out its Web site (in the Related Links).

Take Advantage of Lower Interest Rates

Whether your child is a freshman or you're still working to pay off your own college loans, today's lower interest rate environment can save you a lot of money if you refinance a loan.

Mortgages aren't the only kind of loan you can refinance. You can also shop for a lower interest rate for student and personal loans. And if you have more than one loan, you can consolidate those loans and get a lower interest rate.

I did some checking, and it seems that with many institutions, you can refinance some types of loans without having to pay any fees. Citibank and Wells Fargo, for example, don't charge anything if you want to refinance federal loans. At Wells Fargo, refinancing personal loans (which could have been used for tuition, or for anything else, such as buying a new car or repaying the money your Aunt Midge loaned to you) will cost an origination fee equal to 8.5% of the loan's balance.

If you do have to pay a fee, how do you know if refinancing is worth the cost? Calculate the amount of money you'll save in interest charges (such as if your rate goes to 8% from 9%) and compare that to the fee itself. If the savings are greater than the fee, go for it.

I may not be ready to take advantage of these programs for my child, but they're definitely worth looking into if you have a hefty college tab. Good luck cutting down those bills!

Karin Price Mueller is the author of Online Money Management (Microsoft Press, 2001).

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