What parents and students need to know about Higher Education and Student Loans

My Facebook feed has been filled with joyous pictures of college visits, acceptance letters & announcements, and the thrill of what lies ahead for the next wave of college bound young adults.

These posts along with conversations with some of my own family members about their impending journeys brought me to really think about the cost of college and what possibly awaits many of them; student loan debt.

When my kids were small I didn’t even think about college and what it would cost by the time they attended.  Like many of us I didn’t save over time and SURPRISE - “all of a sudden” I had children who were about to embark on that next chapter. Crap, now what?

I don’t want to be a buzz kill, but we can count on one thing - the price of higher education is always rising. Unlike inflation or gas or the price of eggs, the cost of tuition, room, board and books will beat out its previous high year after year.

The average cost for tuition, room and board at a public, in-state college is $20,770.  A private school will set you back $46,950 per year.

 

So, what do we do? 

 

Ideally, we save over time for our children’s education:

Use a college-savings calculator to estimate how much you may need to save for your child’s education.

529 Plans – Vary by state, but here is a great starting point:  529 PLANS Q&A

UGMA/UTMA Accounts – These are custodial accounts or trusts for a minor where the custodian (very often a parent) donates money or stock or other property irrevocably (no backsies) to the trust. The donor limit each year is $14,000 and you can set up an account to automatically invest a set amount each month into a fund, dividend paying stock or other savings instrument. Taxes on income are filed under the child’s social security number.

 

Here are some ways to help PAY for college:

Apply for Financial Aid – (if you have a 529 plan or an UGMA/UTMA, that will affect what you are eligible for) -- "Free Application for Federal Student Aid” (FAFSA) is the starting point for all students and parents. The FAFSA4caster can help you understand your options when paying for college and you can see estimates for eligibility. There are plenty of tools to help you get started.

Keep in mind that a first-year undergraduate who is a dependent student (receiving financial support from a parent) can only take out $5500 a year. If you are an undergraduate and have no financial help, you can take out $57,500 over the course of your whole college career.

Another option is a Parent Plus Loan, but PLEASE do your homework and understand what you are getting yourself into! The interest rates are MUCH higher and the payment plans are very different than that of a student borrowers.

Apply for Grants – Pell grants, SMART grants – Visit the U.S. Dept of Education website.

Apply for Scholarships – TONS are out there, here’s a good starting point from Federal Student Aid.

Consider College Abroad – Usually less expensive.

Live at Home – As an alternative to boarding.

One thing to keep in mind if finances are tight is that attending a local college for the first two years is a feasible and much more cost-effective option. Those credits are usually transferable if and when you choose to transfer to a university.

 

Paying Off Student Debt:

As of 2017, the Consumer Financial Protection Bureau stated the combined total of outstanding federal and private student loan debt now exceeds $1.4 trillion – the vast majority of which are federal loans. More than 40 percent of student loan borrowers leave school owing $20,000 or more.

For those who are coming out of school with a load of debt there are options for you:

There are several repayment options available: standard, extended, graduated, income-driven and income sensitive.

There are options for deferment and forbearance, forgiveness, cancellation, and even discharge in some cases.

If you do not make your payments you risk going into default, which can have serious consequences.

I like to say that they lend with a smile and collect with a fist.

Applying and getting approved for the loans are the relatively easy part. Paying it all back is when the real fun begins. And I speak from experience.

The following link below has a breadth of information about loans and repayment that can save you lots of time and MONEY: https://studentaid.ed.gov/repay-loans

 

Navigating the waters of college and student loans is challenging, but it’s not impossible.  The key is to understand your options sooner rather than later. Ignorance is not bliss when it comes to student debt or any debt.

 

Valerie Sanchez is Partner & Co-creator of Divine WealthWise.

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