Financial Aid 101 – Figuring out what you can afford

College is expensive and its doubtful we will see the costs coming down or stabilizing any time soon.  And believe it or not, its not greedy faculty and administrators taking all the money.  Did you know that some electronic scientific journals that students need to access in order to learn 20th century research techniques in the class room can cost the university as much as $27,000 per year!  There are thousands of hidden costs that you will never know about but are still there and are really driving up the costs faster than inflation.

Now back to paying for it.  Where to start.  First, talk with your parents if you haven’t already.  How much help are they able and willing to give you?  There are options for every budget, but considering you need to audition for 10-15 schools and then hope to get into at least one, we do need to make sure the schools on that list are within your range of possibility.  Start off by assuming you will not receive any scholarship.  As much as we would all like to hope you will receive free money, there are more students than ever, a terrible economy, and less donors with money to give to scholarship funds.  You can still audition for those dream schools that you can’t really afford hoping you’ll get something, but we don’t want to only apply to dream schools only to realize you can’t afford to go to any of them with no scholarship and end up having to stay at home for a year.

Now if you’re parents say “Son/Daughter I have it completely taken care of don’t worry?”  Ask “So that means I won’t have to take out any loans?”.  If they say yes, sweet!  You’re very lucky.  If they stumble around, you really need to talk about what “taken care of” means.  We’ll get into why in a few minutes.  I know this can be a difficult discussion, especially if your parents don’t like to talk about money with you, but its a VERY important part of the discussion for students considering majoring in the arts.

If your parents are like most parents in this country, they would give you the world if they could, but with the average private university pushing $200,000 for four years, they may very well say “we’re not really going to be able to help a whole lot”, or “we can help you with living expenses, but that’s about it.”  Have no fear, there is a plan for you as well.

Let’s start with an example of a private school.

Tuition: $35,000
Room and Board: $9000
Books/Fees: $1,000
Total: $45,000 per year.  All expenses tend to go up at 3% a year, so figure $188,263.22 for four years.

So let’s look at loans. For loan money, you have two options, Federal and Private. Federal (Stafford) Loans come from the United States Government. Some loans are subsidized (meaning the government pays your interest while you’re in school), some are unsubsidized (meaning the interest accumulates (your loan gets bigger) while you’re in school. The interest rate is fixed and you have numerous options to help you pay back the loan once you graduate. Student loans are the best type of loans to carry but unfortunately they are limited to rather low dollar amounts. They are as follows:

Freshmen: $5,500
Sophomore: $6,500
Junior/Senior: $7,500 each year

For a grand total of $31,000 of which no more than $23,000 can be subsidized.

(If you are considered an independent student or your parents cannot qualify for a PLUS Loan your available loan amounts can increase to $57,500. However, this is VERY difficult to accomplish. More info can be found here.)

In addition to Stafford Loans, you can also apply for a Perkins Loan which is a loan from the college you are attending.  Those are capped at $4000 a year.  If you come from a low income family, you may qualify for a Pell Grant or Work Study (basically a minimum wage campus job).  Because many students do not qualify for these loans, we will not include them in these calculations.

Getting the Maximum Loan

Unfortunately even though your parents may not have enough money to pay for your college tuition, the government may not see it that way.  Your parents will have to send the government a copy of their income tax forms and fill out a form called a FAFSA.  From that form, the government will decide how much they are able to pay and the amount of student loans you are eligible to take out each year – usually not the maximum.  This is probably the most frustrating part of this whole process.  The government does not take into consideration your monthly expenses, they put you into a formula and pop out a number.  Many times the amount they say your parents can pay and the amount your parents can actually contribute are far apart.  Leaving you the last resort option of private loans.

Private Loans (Click here to visit Chase Banks Private Loan FAQ section)

Private loans are where you must turn when you have to fill in the gap.  Private loans come from for-profit businesses and do not offer the same “student friendly” repayment options as the government.  Whereas the government will require you to pay no more than a small portion of your income towards your student loans each month on the Income Based Repayment plan, private loans will set a payment amount that you are responsible for regardless of your income.  Whereas Perkins loans will have a fixed 5% interest rate and Stafford Loans a rate around 6.8%, banks can have interest rates as high as 10% which are largely dependent on your parents credit rating and their willingness to cosign for you.  If they won’t cosign, your rate will more than likely push the maximum.

So going back to your total tuition at a private school of $188, 263.22

Assuming you take the maximum of all loans, your totals would be:

Stafford:  $31,000 at 6.8%
Perkins:  $16,000 at 5%
Private:  $141,263.22 at 7% (assuming a rate with a parent cosigner with good credit.)

Your monthly payment (not based on income) would be:

Stafford/Perkins Consolidated: $310 per month
Private:  $1269.71 per month

For a grand total monthly payment of $1579.71 per month or 18,956.52 per year.  Although I will write another article later on living expenses and income post graduation, to give you an idea, on Broadway the minimum salary is about $1650 per week or $85,800 a year if you work every single week of the year, which almost never happens.

Now, if this comes as a shock to you, I apologize.  BUT….better now than after graduation.  I know too many people who have fallen into deep depression after graduation when they realize there is no conceivable way they can pay back their loans with a musicians salary.  I also know people who refuse to pay and whose credit is destroyed to the point they will never be able to get a loan for a home or car and often quit jobs and/or move to avoid wage garnishments (where a judge orders your employer to take money out of your paycheck before you get it and send it to the bank to make payments towards your loan).

There are still plenty of ways to have a career without going to an ultra expensive school.  Stay tuned to this blog and we will show you how.  Until then, figure out where you stand financially so we can make the right decisions for you.

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