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The Savage Truth: How to Pay for College

Imagine being a 24-year-old woman, graduating from college with more than $65,000 in debt.

Now you're looking for an entry-level job that -- if you can find it -- might pay $40,000 a year. And you're stuck with monthly payments of nearly $600 on your consolidated loans.

Those payments will consume more than a quarter of your after-tax paycheck, every paycheck, for 20 years.

Was that college education worth it?

It's a question many parents and children are asking themselves, as college costs keep soaring at twice the rate of inflation. In 2007-08, the average all-in cost of a private college education is $32,307 a year. At a public school the average is $13,589 annually. Many schools cost much, much more.

Given the tough economic times, and the relatively high interest rates on student loans, it's no wonder that families are questioning the costs.

On average, college grads make $1 million more over their lifetime than those who just graduated from high school -- projected if they continue working for a lifetime. But the immediate burden of student loans requires some tough thinking in the coming weeks.

It's the time of year when college applicants are receiving acceptance notices -- and the now-equally important letters offering financial aid. Those document the amount the family is expected to contribute (EFC) based on the Free Application for Federal Student Aid (FAFSA). Then, they list the forms of aid the school will offer to the student.

There will likely be a combination of outright grants and scholarships, work-study programs, and federal student loans.

But there still may be a gap.

Perhaps the family can't contribute what was expected. Perhaps the school didn't offer enough financial aid. It's not just the outright cost of the school, but the gap that's important.

At CollegeAnswer.com, there's an online tool to analyze and compare financial aid offers, which can otherwise be a confusing process. This site will also walk you through the procedure for understanding the award letter and making a decision based on the comparisons.

One important tip: If you've decided to accept the aid package, let the school know immediately. Then go to the lenders they've suggested -- or any others -- to secure your Stafford loans. Many financial institutions, troubled by the credit crunch, are cutting back on the money available for Federal student loans. You may have been "approved" for a loan, but it's your job to actually contact the bank, finish the paperwork, and close the deal.

When The Aid Offer Is Not Enough

So, what do you do if you get that letter and the financial aid offer is not enough?

There are several routes to take. First, if family financial circumstances have changed, through loss of a job, for example, it's important to revise your FAFSA -- and contact the student aid office to advise them of the situation. You may qualify for more aid.

If the lack of aid is going to make attending impossible, financial aid expert Reecy Aresty of Paylessforcollege.com advises students to write a polite letter to the school, appealing for additional help. He suggests writing instead of calling, so it's more difficult for them to turn you down.

Aresty advises that you ask for "help," not money. His rule: "If you don't ask, you don't get!"

Another helpful Web site is SimpleTuition.com, which can help you work your way through alternatives to the aid you've been offered in the original letter.

Among those gap-filling alternatives: Private loans to students, PLUS loans to parents, or home-equity loans, if you qualify. You can actually search and compare private student loan providers on their site, including rates and total repayment cost.

You can find and compare rates for home-equity loans, mortgages and more at BankingMyWay.com.

Interest Rates Have New Impact

Starting this year, Stafford loans have a fixed rate of 6.8% for the life of the loan. PLUS loans to parents carry a fixed 8.5% rate. New Stafford loans made after July 1 will carry a 6% rate.

(It's a shame that Congress decided to "fix" the rates just as the Federal Reserve started cutting rates. Student loans are now relatively more expensive than in previous years, again adding to the cost of attending college.)

Is college worth it?

That depends on the burden that both student and family are willing to shoulder. Certainly there may be less expensive alternatives, such as community colleges, online universities and evening programs.

Only you can decide if your education is worth the ongoing financial load. But the time to think about that is before you get caught in the student-loan trap. And that's The Savage Truth.

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Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.

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