A few days ago we talked about the  importance of grants and scholarships to financing a college education. But few students get a full ride, and most end up taking out loans at some point. So today we’ll provide some guidance about how to handle student loans as painlessly as possible.

Only once your family has exhausted all grant and scholarship options should you and your kid look into loans. While some options are certainly better than others, all loans involve paying back the money borrowed after graduation. There are two main choices: (1) federal and state loans, and (2) private and home equity line of credit (HELOC) loans.  Always take a federal or state loan before taking out a private loan. Federal loans have significantly lower interest rates compared to private loans, and some state loans are even interest-free. The two most common types of federal loans are Perkins loans and Stafford loans.

Private and HELOC loans can be a much more risky way to borrow money if not done carefully. Private loan companies will entice you or your kid to borrow from them by allowing you to borrow a large amount at once, and will let you borrow more than you can afford.  But the interest rates on these loans are not fixed and have no maximum. If you borrow from a private lender, be sure to keep track of the amount borrowed, the interest rate, and the interest accrued as time progresses. Throughout college, students have the option to pay off the interest that has accrued and, if your kid can afford it, this is a good way to reduce the amount ultimately due after graduation. Interest payments made on education loans are tax deductible.

As a parent, you can use a HELOC loan to fund a college education as well. This is an open-ended loan paid as a revolving debt that’s backed by one’s home equity. It usually has a lower interest rate than private loans and interest paid is also tax deductible.

Things to Keep in Mind

Students are not required to start paying back student loans as long as they maintain their full-time student status. But if they switch to part-time status or take time off from school, payments will be due. So before taking out a significant amount of money in loans, students should always be sure that they will finish school. Or, if they’re considering taking some time off, be sure that they’ll be able to afford loan payments.

When borrowing money, students should keep in mind the kind of degree they’re going to school for. Your kid should try to estimate what the starting salary for their degree will be after graduation and be sure that they can afford to borrow this amount (Glassdoor.com or Salary.com are useful resources for this). Also remember that the average starting salary for degrees is no guarantee of income; recent graduates may have trouble finding a job at first, or  might need to take a job that pays less.

Most loans have a grace period after graduation, during which monthly payments are not due (but interest will accrue). This amount of time can vary, so make sure your kid knows how long this is for their  loans. Your recent grad should make payments during this grace period if they can afford it.  This will reduce monthly payments in the future and reduce the overall amount of interest paid.

More tips on how to balance college financing successfully:

10 Things Financial Aid Offices Won’t Say

Paying for College Without Loans, Scholarships or Looting Your Parents’ Retirement

The College Board

With tuition rates at their highest, figuring out how to finance a college education can be scary. But don’t skip out on sending your kids to their dream school because you think the tuition is too high. There are a multitude of grants and scholarships available to help your kid pay for school—and usually private schools with the highest tuitions are better equipped to completely meet the financial needs of all their students with large alumni endowments. This post highlights some key things to know about grants and scholarships.

Grants
Grants are free money that does not need to be paid back—so your kid should definitely apply for as many as possible, regardless of your income. The amount of money awarded varies by need, but most students receive at least some aid, and it never hurts to file and see what you’re offered. The federal government is the largest source of grant money, and the first step toward accessing it is to file a FAFSA. It’s easy to apply for a lot of grants this way–students who use the FAFSA to apply for federal financial aid will also automatically be considered for all grants currently offered by their school. This is a FREE, central source for grant money so it’s important to take advantage of it. The federal deadline can be found on the FAFSA website, but each school usually has its own deadline, so be sure to file on time to be considered.

To apply for state grants, which are usually based on need and merit, your kid will most likely need to fill out a separate application along with the FAFSA. Information on most state grants can be found directly on your home state’s government or higher education website. There are a variety of other grants out there based on ethnicity, gender, subject of study, or other individual student qualities. Chances are there’s at least one that matches your kid’s unique profile.

Scholarships
Like grants, scholarships are free money that doesn’t need to be paid back. But unlike grants, scholarships are available from all kinds of organizations and even individuals. Since there are so many unique opportunities out there, be choosy! Your kid will most likely have to write an essay characterizing herself as a match for each particular scholarship. So it’s always best to find organizations (online or through your kid’s high school) that are looking for the qualifications that best describe your kid, instead of taking chances with well-known or general programs (read: ones that everyone else is applying for too).

While it’s nice to get scholarships, they don’t reduce a family’s obligation to pay for college like grants do. Federal guidelines consider outside scholarships a resource for families to use as a means to meet financial need. So non-government scholarships ultimately increase a family’s ability to pay and could decrease a student’s eligibility for grants.

Now it’s time for your student-to-be to go out and find some money. If you have your own tips, please share! In the meantime, stay tuned for a post on student loans.

We released several new features over the weekend, which we couldn’t have built without your great feedback.

Here’s what’s new:

• Cash Flow Forecast – Ever wonder how much money you will have at the end of the month?  You can now view all of your monthly expenses on one page, from your credit card bills to everyday spending, and get a real-time forecast of how much money will remain at the end of the month.

• New Budgeting Features – We have added new tools that provide a quick snapshot of your spending that is over-budget, within budget and/or unbudgeted. You’ll know exactly where you need to cut back and where you’re doing great.

If we notice that you incur expenses that aren’t included in your budget, we’ll also recommend that you add these expenses to your budget (see “Budget this now” in example below). This is an easy way to ensure that all of your spending is accounted for

• Track Cash – Do you like using cash instead of a debit or credit card? You can now track cash across individual spending categories.

If you withdraw $100 from the ATM, for example, you’ll be able to break up the expense into as many spending categories as you choose.

As always, if you have any questions or ideas for improvement, please get in touch with one of our Community Managers at support@hellowallet.com. Thanks again for the great ideas so far!

You’ve probably seen the New York Times article “But Will It Make You Happy?” by now. It touches on quite a few blog-worthy subjects, but the gist is that Americans are beginning to focus more on the relationship between money and happiness. It’s one of a growing number of articles, blogs, papers, websites and other forms of revelation that address the connection between spending money and happiness with a critical post-recession eye. Retailers have picked up on it too, and are working a delicate balance between acknowledging consumers’ newfound thoughtfulness and their own need to keep selling stuff.

Starting with this post, HelloWallet will be joining the conversation. After all, personal finance isn’t all about asset-building. It’s also about getting the best return on investment in terms of happiness.

We all know, on some level, that money can’t buy happiness, yet that doesn’t stop most of us from feeling like we “need” new clothes, furniture, electronics and other sundries more or less constantly. The recession has provided us with inspiration and opportunity to change that. The NYT article, for instance, recounts one couple’s attempt at the 100 Thing Challenge, blogger Dave Bruno’s effort to live more simply and get others to follow. But Bruno’s is not the only method out there, nor is it the most ambitious. We’ll be talking about some of the most interesting de-cluttering projects out there on this blog in the coming months, and we’ll examine how this trend and the changes in consumption patterns it represents tie into issues of style, sustainability, psychology, economics and other topics as they arise. We’ll also profile some of the most exciting research on the money-happiness link, which has exploded in recent years.

Thinking about how to downsize is like the old game—if you were banished to a desert island and could bring just five items, what would they be? Even if you don’t think you’re ready to leave behind your carefully curated wardrobe, en suite bathroom, or other unnecessary but highly enjoyable stuff yet, thinking hypothetically about what you would keep or lose can help you realize how little you need—which is quite empowering. Leo Hickman of the Guardian thinks 10 things could suffice. How many things would it take to keep you happy? Share your list with us!

In college, I once bought a $3 toothbrush from a corner store. Two days later, I realized this little marvel of hygienic equipment cost me $38. If I’m paying that much money for a toothbrush, it better clean my teeth with gold bristles. This toothbrush unfortunately didn’t, but it did leave a sour taste in my mouth.

I got hit with an overdraft fee, that painful penalty your bank charges when your account doesn’t have enough money to cover a debit card purchase. It was my fault – I should’ve kept a closer eye on my account–but stuff happens. Last year, banks made $38 billion in overdraft fees. Clearly, I’m not alone.

Photo: BBB

It’s been common practice for banks to automatically enroll their customers in overdraft coverage plans. Under these plans, banks “cover” for customers who swipe their card for amounts that exceed their available funds. Banks pay the difference to the merchant and charge consumers for the service, usually around $30-$35 per transaction. It hasn’t been uncommon for consumers to get hit with multiple fees in a day if they were unaware that their balance was running low, and that can really add up ($38 billion!). Overdrafts have been a major source of revenue for banks and an even larger source of gripe for consumers.

But change is coming. In March, the Federal Reserve imposed new rules that will fundamentally change the overdraft game, as of next week.

What’s new?
Beginning on August 15th, banks will no longer be able to charge overdraft fees unless customers explicitly opt in to the overdraft coverage services. Banks have been required to send a notice to all consumers detailing how they will treat overdrafts moving forward–a welcome departure from years of hiding fees in the fine print. Unless you reply to your bank’s notice giving specific permission to overdraw on your account, you will no longer be able to withdraw money or make purchases that will bring your account balance below $0.

Here are the details for new and existing accounts, straight from the Federal Reserve:

• Existing accounts. If you do not opt in (agree), beginning August 15, 2010, your bank’s standard overdraft practices won’t apply to your everyday debit card and ATM transactions. These transactions typically will be declined when you don’t have enough money in your account, but you will not be charged overdraft fees.

• New accounts. If you open a new account on or after July 1, 2010, your bank cannot charge you overdraft fees for everyday debit card and ATM transactions unless you opt in. If you opened a new account before July 1, 2010, your bank will treat you as an existing account holder: you will receive a notice about your bank’s standard overdraft practices and will have to decide if you want them for everyday debit card and ATM transactions.

Note that checks and automatic bill payments are not covered under the new overdraft regulation, so make sure to keep a close eye on your checks and recurring bills (cell phone bill, utilities, etc).

As the New York Times explains, consumers are effectively charged an annual interest rate of 3,520 percent if they overdraw on a purchase of $20 and get hit with an overdraft fee. Which begs the question, why would anyone opt in to overdraft coverage?

Many banks argue that overdraft coverage makes sense, claiming that it allows consumers to make essential purchases, avoid missing payments and escape the public embarrassment of getting declined at the register.

Personally, I’m saying “No, thank you.” I’m fortunate enough to have a credit card if I’m ever in a bind. But I’m curious why anyone would opt in. If you’re planning on doing so, let me know why in the comments. Alternatively, feel free to use this space to vent about your own “golden toothbrush” story.