College students and their parents may have been following the “fiscal cliff” negotiations carefully prior to December 31 in order to discover exactly how tax cuts set to be enacted would affect their student loan prospects. While a last-minute deal was hammered out, the question of federal spending cuts and how they would affect student loans and financial aid has still not been fully answered.

Student Benefits of the American Taxpayer Relief Act of 2012

The package put together in the eleventh hour by Congress, known as the Taxpayer Relief Act, affects student financial aid immediately, according to The New York Times. Some provisions of this act include:

• Extension of the American Opportunity Tax Credit through 2017. This credit allows taxpayers to take up to $2,500 in income tax relief.

• The Tuition and Fees Deduction will continue through the end of 2013. This deduction allows taxpayers to claim up to $4,000 in tuition expenses.

• Permanent changes to the Coverdell Education Savings Accounts. The contribution limit has been increased from $2,000 to $5,000. Changes also include higher income restrictions and allowances for primary and secondary school expenses as well as college tuition.

• Most importantly, the 60-month limit for deducting up to $2,500 of student loan interest has been repealed. This means that if you pay on your student loan longer than five years, you can continue to deduct the interest up to $2,500.

Tax advantages are important to students and their families. According to US News, 47 percent of college students or their parents take advantage of these tax credits and deductions. Despite these benefits, however, there are also some pitfalls, and more may be on the horizon.

Disadvantages of the Act

While the American Taxpayer Relief Act pulled the country back from the “fiscal cliff,” the protections are only temporary. If nothing is settled by March 1, new restrictions will include across-the-board spending cuts. This would have a significant impact on student aid funding, with an 8.2 reduction planned. Work study jobs, Federal Supplemental Educational Opportunity Grants, and Pell Grants will all be reduced, limiting the number of students who can hope to benefit from these programs.

What Can I Do to Protect My College Financing?

One of the best ways to ensure that you have the money you need to go to college is to fill out your Free Application for Federal Student Aid, or FAFSA, in a timely manner. With spending cuts looming, those who get their applications in early will be the first to benefit from available funds, according to The Chicago Tribune.

After this year, the data retrieval tool available on the Department of Education’s FAFSA website should be working, allowing applicants to immediately download their tax return information for easier filing and less chance of error. The tool was not available for early filers this year due to the fiscal cliff negotiations.

Another way to approach the college loan/tax issue is to assume the worst-case scenario. If the tax cuts do go into effect, you may not be able to deduct student loan interest or tuition costs at the same rate as that of previous years. Planning ahead can help you avoid borrowing too much money and being faced with long-term payback problems.

You should also be aware that any deep cuts in federal spending may affect the amount of money available for student loans and how easy it is to access them. The best way to prepare for possible cuts in the future is to secure your college loan funding as soon as possible and to have several “irons in the fire.”

For example, if you were counting on a work study job to help you make it through your four years, be aware that cuts to this program may make it harder for you to find on-campus employment. Instead, plan to apply for a job outside of school and budget your time and money carefully to ensure you have funds for necessities. Explore other options such as grants and scholarships and keep your grades up to give you the best chance of earning them.

No matter what Congress decides to do, a college education is always within reach if you plan carefully, budget wisely, and never stop working toward your goals. If you have the money to go to school, a legal major is still a great choice. One of the more popular legal specialties is business law because coming out of college you can get a job with a law firm or go work in corporate America.

Tis the season for Financial Aid Award Letters to be making their way through the mail to high school seniors across the nation. Some families/students are well versed in how to navigate the various aspects of a financial aid package but for others this could be a challenging educational journey. CheapScholar.org provides some great resources for families that need guidance on deciphering their financial aid awards and the following infographic (created by Citizens Bank) is an informative visual tool to reference as well. Ultimately, the goal for a family is to have a solid understanding of what each college is offering in the form of financial assistance. That knowledge will bring them one step closer to making their final decision before “National College Enrollment Deposit Day“!

The FAFSA is the single most important instrument that a student/family should utilize to access funds for college. The FAFSA (Free Application for Federal Student Aid) is responsible for gathering information related to the assets and income of families and their students, churning it through a lengthy calculation (you can download a copy of the 36 page formula here), and spitting out an EFC (Estimated Family Contribution).

That EFC figure is then sent to all the colleges and universities designated by the student during the FAFSA application process. This is where the magic happens! 😉 Those colleges and universities will take that information and start going to work on putting together a comprehensive financial aid package for you that includes need-based and merit-based awards, a work-study component, and usually a federal direct student loan option.

Officially, you can not file your FAFSA until January 1st of 2013. You can submit the paper option (access a draft of 2013-2014 FAFSA here) but I recommend that everyone complete their FAFSA online at www.FAFSA.gov. You may be tempted to go to FAFSA.com, however, even though they will gladly file your FAFSA, they will also charge you about $80 for their services. Remember, the first “F” in FAFSA stands for FREE.

Submitting your FAFSA online provides you the ability to save any work that you completed and return to it later. In addition, the Department of Education has implemented skip-logic technology to make sure that you only answer the questions that are applicable to your situation. Lastly, the online FAFSA has a new IRS Data Retrieval Tool (DRT) that gives families the option of importing their IRS tax information directly into their FAFSA. This has been a great resource for FAFSA filers but it has not come without its glitches (see articles below):

• Digging up “DRT” on the New FAFSA IRS Linking Tool
• Unearthing More “DRT” on IRS FAFSA Data Retrieval Tool

As you are starting to gather your information together to prepare for filing your FAFSA, please don’t hesitate to utilize the resources here on CheapScholar.org to help you along the way. Here are a few articles that may prove to be helpful (and one that is a little humorous):

• The Top Ten Ways A FAFSA Is Like A Colonoscopy
• Now Introducing the Sleeker, Newer, Updated FAFSA!
• When Should I Complete The FAFSA?
• Don’t Make THESE Mistakes On Your FAFSA
• College Goal Sunday – Helping FAFSA Filers Nationwide!
• Help a Reader: FAFSA Questions and Answers
  
• Tips For Deciphering The Financial Aid Package
• Glossary of College Money Terms

Student loans present a host of opportunities and problems to new college students. On the one hand, a properly used student loan could make the difference in a potential student’s college attendance. On the other hand, a misused loan could saddle that same student with tens of thousands of dollars in debt, with no job prospects to help pay it off. To say that accepting student loans is a hard decision would be an understatement.

With so much on the line, how can a young person expect to make an informed decision on student loans? My answer is that they must examine the ins and outs of each available loan, from its amount to the interest rate applied to it after a student graduates. Someone looking into student loans can’t read enough information about them—the more knowledgeable they are about the process, the more likely that they’ll make the right choice about their loans.

Let’s examine just what a young person needs to consider when they’re looking into student loans.

Assess Available Loans From Every Angle

As I said before, student loans are serious business. The amount of collective student loan debt in America—over a trillion dollars—exceeds that of credit card debt in this country. The thought of adding to that monumental figure is daunting to say the least, but it shouldn’t discourage you from considering loans altogether.

Choosing the right loans is all about understand which loans work for you and which ones won’t. There are several key questions you need to ask of the loans available to you:

1. Lenders: Are the loans public or private? (Offered by the government or through a bank, respectively) Are the loans offered from a trusted and well established lender?<
2. Interest rates: What is the interest rate on a loan? Is that interest rate fixed? How does the interest rate compare to the rate of other lenders?
3. Future payments: What would my monthly payments on the loan look like after I graduate? Can I afford those payments on an entry level job, or even a part time job?</li>

These are difficult questions to be sure, but they’re absolutely critical to your decision process. If you accept a student loan without fully understanding the money you’re borrowing, then there’s no telling what the repercussions could be down the line. There are a number of sites that are great for informing people about the nuances and complexities of the student loan system, including FinAid.org and StudentAid.ed.gov.

A Safety Net For Worst Case Scenarios

If you do decide to take out student loans to help fund your college education, I advise treating the money with respect and frugality. It’s frightfully easy to spend your student loans in a short amount of time, and on items that aren’t critical to furthering your education. Once you’ve spent some of the money on necessary expenses like textbooks and school supplies, it can be hard to resist spending the rest of the money on miscellaneous luxuries.

My advice is that you treat your student loans like your emergency savings. After buying the absolute necessities, put the remaining amount of your funds in an account that you won’t use with any frequency. The idea here is to keep an “out of sight, out of mind” approach to your loan funds. If you loans aren’t attached to your checking account, then there’s less of a chance that you’ll fall into the habit of relying on them for random expenses that you shouldn’t indulge in in the first place. Should an accident occur where you need access to cash quickly, you’ll have the loans to buoy you. Otherwise the money is best left untouched; you’ll have less to pay off after your graduate.

You Don’t Have To Spend Your Loans

This is a bit of advice that gets lost on many college students. Of course, it’s a different story for those who depend on the entirety of their loans to get by during their undergraduate years. But students who supplement their loans with a part time job or support from the family, absolutely should not spend all of their loan money unless it is absolutely necessary.

It might seem glamorous now to have a few thousand dollars in the bank, but graduation rolls around sooner than most undergraduates expect, and the time for loan repayment even faster. Your financial future will be much brighter if you save as much of your loans as you can.

About the Author

Today’s guest article is submitted by Alvina Lopez, a freelance writer and blogging extraordinaire for the past seven years. She now mainly contributes her expertise about online colleges to accreditedonlinecolleges.com. Her ultimate goal is to help future students discover their potential by enrolling in the right program for them. She also writes about trends in education, personal finance, and sustainable living. She loves getting feedback from her readers at alvina.lopez@gmail.com.

When you apply for financial aid using the FAFSA, you’ll eventually receive what’s called a financial aid package, which lists grants and loans for which you qualify. If the dollar amount you receive exceeds costs like tuition—usually billed straight to the school—you may be sent a check that is meant to cover extraneous expenses like living and books. The tricky part about being sent a check, however, is that you are free to do with this money as you please. When you’re still in your teens or early twenties, and you don’t have much experience managing money, it can be hard to be cut a big check and then be told you’re free to do with it what you want, no accountability necessary. Sounds like fun, but it can turn into a nightmare. One of my college friends spent over half of her check on a fancy camera. The check was supposed to last her an entire semester. She blew through it in less than a week. Don’t let this happen to you by following these tips:

1. Figure out how much of your check you’ll need each month.

It doesn’t take a genius to understand that the key to preventing extraneous spending is setting up a budget. Especially when you’re in college, most of your personal expenses are set amounts per month. Add up rent, groceries (if you don’t have a meal plan), utilities, books, and “etc.” for the occasional unexpected expense. Once you have an accurate figure, constantly check your bank account to ensure you haven’t exceeded this limit for the month.

2. Keep your financial aid check money in a separate account.

When I was in college, I placed my financial aid money in a separate savings account. When the first of the month came around, I transferred the monthly amount to my checking account, so that way I knew what I had to work with for that month, and didn’t touch the rest that was in the savings account. Keeping a large amount of money “out of sight, out mind” so to speak, is the best way to avoid temptation.

3. Make a list of needs and wants. Get a campus job to take care of “wants.”

Financial aid checks are distributed solely for the purpose of paying for necessary expenses associated with being a college student. They aren’t meant to cover costumes for college parties, surround sound systems for your dorm room, or any other items you may really want. Not only is it irresponsible, but using government or institutional aid for unnecessary expenses is also very unethical. To avoid that temptation altogether, try working for things that you want. You’ll appreciate them so much more. Almost all universities offer flexible student jobs that take up only a few hours of your time a week. Getting a job will enable you to pay for your wants while forcing you to manage your time effectively.

4. Always overestimate how much you’ll pay for books.

You’ve heard, I’m sure, that textbooks are expensive. While digital books may in the future help drive down costs, and many textbook companies are being accused of price fixing, for now you can bet your bottom dollar that textbooks will be much more expensive than you think. Of course, the best way to save on books is to buy them online used from sites like Amazon.com or eBay. But be aware that sometimes you’ll have to pay full price for a new edition, which can run in the hundreds of dollars for each book. Always research book prices before the semester starts to fit this expense into your budget.

Although managing your financial aid funds can be tough, it’s completely doable, if you’re careful. Whatever you do, don’t spend it on a fancy SLR camera. A camera won’t give you a roof over your head or put food in your stomach. Good luck!

Today’s guest article is provided by Nadia Jones. She attended both a traditional and an online college. She loves writing about her experiences in both these educational settings, and enjoys offering advice to students who are new to university life. She welcomes feedback, so drop her a line at nadia.jones5@gmail.com.

Going to college is a noble choice. Navigating the financial aspect of that decision can be quite daunting. CheapScholar.org provides a number of resources to help our readers traverse the challenges associated with paying for college.

I have always been a big fan of infographics – especially those that are informative and esthetically pleasing to the eyes. The following infographic is chocked full of great information related to the financial aid process. Some of the topics covered are: FAFSA, Federal Loans, Comparing Financial Aid Packages, The Costs of College, Grants, Scholarships, and Work Study. Enjoy!

Brought to you by SNHU.EDU