Financial Aid Nightmares!

Careers and Colleges, Sept-Oct, 1999 by Nancy Fitzgerald

Josh was ready to start law school in Boston after taking a year off to travel and teach. But a couple of days before classes were to begin, he learned that his $12,000 loan application had been denied.

It turned out that although Josh had made payments faithfully on his $15,000 Stafford college loan during his year off, he'd forgotten to pay back a $400 Perkins loan. "It was a stupid mistake, and it really cost me," he says. Josh's family scraped the money together for him by dipping into their savings and borrowing from a bank and family members. But for a few scary days, it looked like his dream of going to law school might not come true.

Missing payments on your college loans can have nasty consequences. Not only can it keep you from getting loans to help you finance graduate school, it can be noted on your credit report for years to come. That can haunt you when you try to make a big purchase like a car or a house. "It all goes back to reading the fine print," says Phyllis Hooyman, director of financial aid at Hope College in Holland, Michigan. "It's really critical that students understand all about accruing interest and about the impact that missing loan payments can have on their lives."

AVOIDING THE NIGHTMARE

Know what you owe. By the time you graduate from college, you might have a dozen different loans from as many lenders, so be sure you sit down with your financial aid officer and go over all the details. Find out what the monthly payments will be and where to send them. There are loan consolidation programs that you might want to consider. Your financial aid officer can walk you through the process, and if you're planning on graduate school, make sure you apply for loan deferrals.

Pay on time. This is really important! And if you're having trouble landing a job or making ends meet, call your lenders and let them know. They can help arrange for lower monthly payments or even a hardship forbearance until you get back on your feet.

EATEN ALIVE BY SCHOLARSHIP SHARKS

Tony received a letter his senior year from a scholarship search service, guaranteeing him at least $10,000 in scholarship money in return for a small weekly consulting fee. It sounded too good to be true, and, of course, it was.

"When they said you had to sign up right away or lose our, my parents said okay," says Tony, now a freshman at a state university in Georgia. His parents signed the forms authorizing the service to debit $20 a week from their checking account. A month later, they received a list of five scholarships that Tony could apply for, but Tony soon learned that the deadlines for three of them had long since passed. Another scholarship was targeted for women, and the fifth was offered by a company that had gone out of business years before. By the time Tony and his family realized they'd been taken, months had gone by, and the service had debited nearly $500 from his parents' account.

AVOIDING THE NIGHTMARE

Be cautious. Scholarship scams are a huge problem. Last year, 175,000 victims lost a total of $22 million, according to the Federal Trade Commission. Don't be taken in. Watch our for high-pressure sales pitches that push you to sign up immediately. No reputable service would require you to make up your mind on the spot. And don't allow your checking account to be debited. If the service turns out to be a scam, you can kiss your money good-bye.