Archive for ‘paying for college’

May 20, 2015

How much to save each year for college

by Grace

How much do you need to save each year to pay for your child’s college?

NerdWallet calculated the amounts based on average costs of college and expected increase in annual costs.

Do you want to fund 50% of your child’s college costs?  If your child is ten years old, then you’ll have to save almost $6,000 a year to pay half his costs to attend an in-state school.

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If you’d like to fine tune your calculations, try using the World’s Simplest College Cost Calculator from SavingForCollege.

May 7, 2015

Life insurance is usually not a good choice for college savings

by Grace

Sometimes life insurance is marketed as a college savings vehicle, primarily based on the fact that it is “typically not counted in the formula used to determine financial aid eligibility”.  But it’s usually better to avoid it since it is a relative high-cost option, and withdrawals to pay for college can be problematic.

“First, parents will have to pay income tax on the difference amount if they withdraw more money than the premium they paid, as well as a potential 10 percent penalty if they are under age 59 1/2,” says Joyce Garner, an insurance broker with Zimmerman & Ray Associates in Roseville, California.

Lessard says that there are also issues if parents decide to take a loan against their policy, as opposed to a straight withdrawal, as policy loans charge interest and require a payback schedule. There’s also the fact that, if a parent takes a large sum of cash from the policy and still needs the death benefit, the policy may lapse from the lack of cash.

It’s usually better to stick with 529 plans or other savings options that lend themselves to the logistics of making withdrawals over the time a student is attending college.

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Andrea Williams, “3 Reasons to Avoid Life Insurance Policies for College Savings”, U.S. News & World Report, April 3, 2015.

April 21, 2015

Evaluating college financial aid award letters

by Grace

Among its “tips for deciphering financial-aid letters”, the Wall Street Journal includes information that can be useful in evaluating student loan offers.

Difference between subsidized and unsubsidized federal student loans

The federal government pays interest charges on federally subsidized loans while a student is in school, for example, which can help borrowers substantially. Such loans are generally given to students who demonstrate some kind of financial need, but students don’t need to come from low-income families to qualify.

Just over 34% of undergraduates with family income of at least $100,000 received subsidized Stafford loans at colleges where total annual costs, including tuition and room and board, were at least $30,000 in 2011-12, according to an analysis by Edvisors of the most recent federal data available. Just 12% of such students received the loans when attending less-expensive colleges.

Unsubsidized federal loans can be less desirable because interest accrues while the student is in school, which—if unpaid—could result in a significantly larger balance by the time the student graduates. Some colleges don’t include unsubsidized loans in financial-aid offers.

Colleges and universities also may offer their own loans, which may or not be preferable. Compare and contrast the terms on offer, including the interest rate and when interest charges begin to boost the outstanding balance.

Check out this link for the full article:

Annamaria Andriotis, “How to Play the College Financial-Aid Game”, Wall Street Journal, April 17, 2015.

April 14, 2015

A college financial planning timeline

by Grace

Don’t wait until your child’s senior year of high school to begin planning how to pay for college.  The first 18 years go quickly, and it’s never too soon to begin preparing.

Here’s one simplified approach showing some important steps along the timeline to college, with a focus on the financial planning aspect of the process.

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Before High School

Start saving for college ASAP:  This is the relatively uncomplicated part.  Although we can’t predict the costs of college over a child’s lifetime, it almost always makes sense to begin saving early on.  Even if MOOCs or other innovations make higher education more affordable in the future, there’s usually not much of a risk in saving too much since there are options for dealing with “left-over money in your 529 plan”.

Before Junior Year of High School

  • NMS potential:  If your child tends to score in the 95%ile of standardized tests, he may have a shot at earning a National Merit Scholarship.  A little test prep can make the difference in qualifying for significant merit financial aid.
  • Base Income Year (BIY): If there is a chance your family may qualify for need-based financial aid, you should explore ways to minimize income during the BIY, the 12-month period that begins January 1 during your child’s junior year.  Since the BIY is used as a snapshot for determining financial need, you may want to consider strategies such as not selling stocks or property that will create large capital gains, refrain from converting to a Roth IRA, or defer bonus or other income.

Junior Year of High School

  • Create list of schools:  Get serious and make a realistic list that includes academic and financial safeties.
  • Can we afford it? 1-2-3:  Determine affordability by using the 1-2-3 Method or something similar.

Senior Year of High School

Senior year is the busiest time for families as they handle the many details of the college application process, including final determination of how they will be paying.  Some important acronyms:

The two main forms used in determining financial aid eligibility are the FAFSA and PROFILE.
FAFSA is the acronym for Free Application for Federal Financial Aid. It is a form submitted to the government that collects the financial information needed to decide your eligibility for federal FA. It’s also used by many colleges to determine institutional aid.
PROFILE is a financial aid application service offered by the College Board, used by about 400 colleges to learn if students qualify for non-federal student aid. There is a fee to submit a PROFILE, whereby the FAFSA is free.

The SAR (Student Aid Report) is a summary of your FAFSA responses and provides “some basic information about your eligibility for federal student aid”.


It’s important to get started.

While this outline only hits the highlights along the road to paying for college, it can be used as a springboard for further research and action.  It makes sense to start with an outline, and then fill in the details as you go along.

April 8, 2015

How to ask for more college financial aid

by Grace

College financial aid letters have just been sent, and you may want to think about how to negotiate for more money.

Many families don’t realize it, but there is often a little wiggle room in financial aid awards. FAFSA, the form the government and colleges use to determine need- and some merit-based aid, doesn’t capture all circumstances that might affect a family’s ability to pay for school. For instance, there’s no line to include the cost of caring for an elderly parent or special needs child, the kind of expenses that could warrant more aid, said Mark Kantrowitz, publisher of Edvisors.com, a college planning Web site. So if you weren’t able to share that kind of information with the school, now is the time to bring it up to see if that shakes free some more assistance.

You can request a professional judgement review.

If you do decide to negotiate, you can appeal to the school’s financial aid administrator for what’s known as a professional judgment review. Gather up every piece of documentation of any changes to your family finances or special circumstances that could impact your ability to pay for school. If the financial impact is significant enough, the school may adjust your child’s award.

Don’t attempt to haggle.

“Colleges are not car dealerships, where bluff and bluster can get you a better deal. Very few colleges will make a revised financial aid offer when a student gets a more generous financial aid offer from a competitor,” he said.

But some schools, like Cornell and Carnegie Mellon, will consider matching offers of peer institutions.

You “should be careful in the language and manner” of your approach.

“We won’t ‘negotiate,’ but we might ‘review.”

Looking for more tips?  “Want to appeal your college financial aid? Go for it”

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Danielle Douglas-Gabriel, “How to negotiate a better financial aid package”, Washington Post, April 2, 2015.

April 6, 2015

Stanford just became free for more students

by Grace

Stanford University just got more affordable for upper middle-income families.

Stanford University announced last week that tuition will be free for students whose families earn less than $125,000 a year. The standard had been $100,000. Students whose families’ annual incomes are lower than $65,000 will also be exempt from paying room and board, up from the current $60,000 cutoff.

Wealthy students help pay for the free ride received by other students. 

… Stanford is able to fully subsidize the tuition of these students because of the high number of wealthy students who attend….

Cost of attendance at Stanford before financial aid is “roughly $65,000” per year.

Of course, before getting the great tuition deal, students will have to gain admission at the “Toughest College to Get Into in the United States”.

… Stanford University is the toughest college to get into in the nation. Yes, harder to get into than Harvard.

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Fred Imbert, “Stanford just made tuition free for these students”, CNBC, April 2, 2015.

Liz Dwyer, “What’s the Toughest College to Get Into in the United States? Hint: Not Harvard”, TakePart, April 01, 2015.

March 25, 2015

Tips for older student loan borrowers

by Grace

How can older Americans sidestep student debt trouble?

With the need to retool career skills or pursue new vocations, more Americans are taking on loans to finance education later in life — for new degrees, certificates or course work called continuing education units to improve knowledge in demanding professions.

According to the Government Accountability Office, student debt held by those 65 and older has risen significantly in recent years, growing to about $18.2 billion in 2013, from about $2.8 billion in 2005. While it’s not known how much of that is the result of college loans co-signed for children or grandchildren, a good portion is for continuing education. Before the last recession, the working-age population pursuing “re-entry” courses jumped 27 percent over a decade, according to the Education Department.

The New York Times’ advice for senior citizens seems to be the same that younger student loan borrowers should follow.

… “Do a cost-benefit analysis. How will it maximize my earnings? Will I be able to service the debt?”…

“Evaluate your postgraduate payment plan,” Mr. Weber suggests. “What will your salary be after graduation? Will there be an immediate payoff in terms of a higher salary?”…

You can overpay for a degree or certificate that will yield little career advancement or salary increases. Mr. Weber warns against for-profit colleges that market aggressively and says their programs and graduation rates should be carefully vetted.

The federal government offers some flexibility in paying back loans, including income-based repayment (IBR).

But what happens after you’re out of school with continuing education debt if you can’t increase your income or don’t start earning money right away?

If you have federal loans, you can qualify for a break from payments until you can start paying them down. See the Education Department’s federal student aid website to explore the options.

Another option is income-based repayment, available only for federally guaranteed loans. Private loans are the least flexible in terms of repayment.

Retired borrowers may be more likely to qualify for IBR.

“If you’re at or near retirement, your income may be lower, which may affect your ability to repay your loan,” she said. “There is income-based repayment available, which can make repayment more manageable, but can also extend the repayment period, leading to more interest accrual. It’s something to keep in mind as you plan for the future.”

Since assets are not counted in determining eligibility for IBR and similar debt relief programs, senior citizens with substantial home equity and retirement accounts may find it easy to qualify.

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John F. Waskimarch, “Managing Student Loan Debt as an Older Adult”, New York Times, March 19, 2015.

March 19, 2015

New ‘Student Aid Bill of Rights’ makes it easier to pay back student loans

by Grace

The Obama administration’s new “Student Aid Bill of Rights” will “simplify the process to apply for income-based repayment”, a move likely to shift more of the burden for paying back student loans from borrowers to taxpayers.  That is just one of the new benefits for the 40 million borrowers holding $1.3 trillion in student debt.

President Barack Obama announced a new “Student Aid Bill of Rights” Tuesday, directing the Department of Education and other federal agencies to undertake initiatives in three areas to help improve affordability for the estimated 40 million borrowers with federal loans. “We’re going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you’re falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama said during his speech at the Georgia Institute of Technology Tuesday afternoon.

This is the government’s rather magnanimous promise:

A Student Aid Bill of Rights

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Summary of changes:

1. Create a centralized website that makes it easy to file complaints and to see all your student loans in one place….

2. Try having federal employees collecting debts instead of private contractors…

3. Make it easier for borrowers who become disabled to get their student loans discharged….

4. Ensure that the private debt collectors hired by the Department of Education apply prepayments first to loans with the highest interest rates, unless the borrower requests a different allocation.

5. Make it easier for students to get IRS information to qualify for income-based student loan repayment.

6. Clarify the rules under which students who declare bankruptcy can get their student loans reduced or eliminated….

While I disagree with some of the federal student loan program’s fundamental policies, it’s nice to see the government take the initiative for more clarity and transparency.

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Kelli B. Grant, “Student loan initiatives could benefit 40M borrowers”, CNBC, March 10, 2015.

Kim Clark, “6 Ways the New ‘Student Aid Bill Of Rights’ Will Help Borrowers”, Money, March 10, 2015.

March 16, 2015

Most borrowers take more than 10 years to repay student loans

by Grace

The standard maximum repayment time for federal student loans is 10 years, but in reality most borrowers take longer.

The vast majority of former students entering repayment on their federal student loans in 2012 picked 10-year plans. The numbers were higher for former students from two- and four-year programs, up to 90 percent of which picked the standard 10-year plan.

Recent history indicates that many of those borrowers will be repaying their federal student loans for far longer than 10 years. With a lackluster economy, tepid wage growth and vast numbers of Americans still looking for full-time work, some federal policymakers fear current borrowers will need more time to repay their loans than previous generations.

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Just last month the Obama administration predicted “the increased use of student loan forgiveness programs will cost taxpayers $22 billion next year”. Student loan forgiveness programs allow reduced monthly payments that typically extend the repayment period beyond ten years.

Here’s a listing of federal student loan repayment time frames.  Click the links to find more details. 

REPAYMENT PLAN TIME FRAME
Standard Repayment Plan Up to 10 years
Graduated Repayment Plan Up to 10 years
Extended Repayment Plan Up to 25 years
Income-Based Repayment Plan (IBR) Up to 25 years
Pay As You Earn Repayment Plan Up to 20 years
Income-Contingent Repayment Plan Up to 25 years 
Income-Sensitive Repayment Plan Up to 10 years

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Shahien Nasiripour, “These 9 Charts Show America’s Coming Student Loan Apocalypse”, Huffington Post, 08/20/2014.

March 4, 2015

Can we afford this college? The 1-2-3 approach

by Grace

One of the most basic questions during the college planning process is often one of the hardest for a family to answer.

Can we afford this college?

The hard part is usually not in knowing what you can afford to pay, but in trying to find what the net cost of attendance will be for your child.  Here’s a three-step process that may help you answer this question.

  1. Run the Net Price Calculator
  2. Check the college website to find answers to the College Board “dirty dozen” questions
  3. Contact the school’s financial aid administrator


1.  Run the Net Price Calculator (NPC)

The NPC is an online tool that is a useful first step in comparing affordability.  Every college website has a calculator, which typically requires entering family financial information such as income and assets before the estimated net price of attending is generated.  Remember, this is an estimate and may not produce accurate results for business owners and other situations.  Proceed with caution, and check for online resources like the CollegeBoard tip sheet to help in the process.

2.  Check the college website to find answers to the College Board “dirty dozen” questions

A list of 12 questions to get you started on gathering information about a school’s financial aid policies is provided by the CollegeBoard.  In my experience, the answers to most of these questions can usually be found on college websites.  Going through these questions often prompts families to consider other important questions about college costs.

3.  Contact the school’s financial aid administrator

Okay, so not all your answers about costs and financial aid were easily found on the college website or other online resources?  Contact the college’s financial aid office and get the information directly from them.  They should be able to give you information rather quickly, and if they don’t it might be an indication of how transparent and helpful they are in other situations.

For organized families, it’s not a bad idea to create a spreadsheet that can capture important information and allow for efficient comparisons.

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