A Mixed Bag of Tricks & Treats in the College Board’s 2016 “Trends” Reports

College data nerds love late October.  Why?  The College Board releases its annual Trends in College Pricing and Trends in Student Aid   These reports, much like Sallie Mae’s How America Pays for College, are chock full of  data and analysis to understand important trends in how American families plan and pay for college.   At the very least, be sure to read the Highlights and Introductions in each report.

As in years past, it’s a mixed bag of results with sprinklings of good news, bad news and news that can be used to support seemingly contradictory arguments.

Good news from the reports:

  • College loan borrowing declined for the fifth consecutive year.
    • Undergraduates and their families borrowed 18% less than 5 years ago.
    • For undergraduates, federal and non-federal loans constituted 36% of funds used to supplement student and family resources – the lowest amount in 20 years
    • Only 10% of undergraduates leave college with more than $40,000 of debt
  • Total grant aid now exceeds $125 billion having increased almost 90% from 1995-2005 and then another 79% in the next decade.
  • Institutional grant aid has almost doubled over the past 10 years from $29.1 billion in 2005 -06 to $54.7 billion in 2015-16.
    • Grant aid accounts for the highest level of funds used by undergraduates to supplement their own resources over the past 20 years.

Bad news from the reports:

  • Pell Grant expenditures for the nation’s neediest student continued to decline from $39.1 billion at the peak in 2010 to $28.2 billion in 2015 (but is still more than 80% greater than pre-financial crisis spending).
    • The number of Pell Grant recipients declined for the fourth consecutive year (but the percentage of undergrad recipients is up to 33% from 25% a decade earlier.
  • Public funding (state and local appropriations) peaked in 2007-08 at $85.2 billion and declined 9% to $77.6 billion for 2014-15.
    • We’re spending less on public education than 30 years ago: funding per FTE student is 11% lower than it was 30 years ago
    • Declining state revenues per student are resulting in the rising prices at state schools.

Mixed news from the reports: could be better or could be worse

  • Tuition and fees continue to outpace inflation — rising from 2.2% to 3.6%, but the rate of increase is less than previous years
  • The favorable trend of net price declines from 2008-2010 reversed. Net prices paid are now increasing again, but – and it’s a big but – the net price paid at 4 year private and 2 year public schools in 2016-17 is still less than what was paid in 2006-07.
  • Total federal grants to undergraduates nearly doubled from 2005-2015 to $41.7 billion in 2015-16, but $10 billion less than the peak in 2010-11.

Facts from the reports that we’ll all be using in the coming year:

  • Total federal aid to undergraduate and graduate students: $240.9 billion
  • Total non-federal borrowing: $11 billion
  • More than 70% of full-time students receive some grant aid.
  • In-state college costs vary widely (from $5,060 to $15,650) depending on the state of residence
  • Undergraduates received an average of $14,460 per FTE student in financial aid
  • Default rates are highest for borrowers with balances less than $5,000 and decline as balances increase
  • 14 million students took $18 billion in tax credits and tax deductions. Nearly 25% of these recipients had incomes between $100,000 and $180,000.
  • The federal work-study program is relatively small: 632k students earned $982 million

Here’s what struck me when considering the reports and their context.

  1. The College Board does a painstaking job of presenting apples-apples analysis for consistency, but be careful when comparing these data to data in other reports – particularly data related to cost of colleges (i.e. know if it’s 2 or 4 year, in-state or out, all-costs or just tuition and fees, etc).
  2. With a glass half-full approach, the data on loans is most encouraging to me: total amount borrowed is down considerably and most students are not over borrowing. The obvious conclusion: future college graduates will feel less strain than their predecessors.  A less obvious question:  is borrowing down because students are choosing less expensive schools, are they receiving more aid or is it a combination?
  3. The financial crisis is now nearing its 10th Anniversary.  We’ve seen how the market (students, parents, governmental entities and colleges/universities) reacted and now how it is normalizing.  In the teeth of the crisis and the subsequent recession, tuition and fees increased significantly when compared to inflation but families actually paid less because the federal government stepped up and provide more grant aid and tax credits.  That trend has reversed as increases in aid no longer exceed increases in college costs — hopefully families will not fall into the trap of therefore increasing the amounts they borrow to reach for a school they cannot truly afford.

With data showing both advancements and set-backs in the college financing market, I continue to strongly believe that:

What do you think?

______________________________________________________________

John Hupalo is the Founder of Invite Education and co-author of the recently released book: Plan and Finance Your Family’s College Dreams: A Parent’s Step-by-Step Guide from Pre-K to Senior Year

Paying for college with early admissions

Have you looked into getting admitted to a preferred school much earlier than standard admissions deadlines?  Then you’re probably considering an “early decision” or “early action” where the student chooses to attend a specific college much earlier than standard admissions deadlines.

early-bird
Early Bird admissions and financial aid

Know the difference: Early decision (ED) refers to a binding decision to attend a specific school.  Students taking early decision commit to one specific school as early as the fall semester of senior year, foregoing admission to any other institution.  Early Action (EA) is a non-binding admissions process where students are notified very early of their acceptance but may choose to attend a different school.

Early decision: How’s it paid for? Going forward with an early decision requires organization and a clear path to covering the balance.  Traditionally, the biggest challenge associated with early decision was affordability, since the choice was made without comparing actual financial aid offers from other schools.  Gaining early admission with the means to pay the bill outright regardless of financial aid and scholarships works for some, but not all families. If the financial aid offered with an early decision application is too low, families have the option to appeal the decision and ultimately reject if proven unaffordable.  Going through early decision only to end up not attending is an avoidable stress through realistic college planning, so unless the school is an absolute “must attend” situation, it may not be worth applying this way.  It’s expected that students only submit one early decision application to one school, but may also submit standard applications to other schools by agreeing to withdraw those applications if accepted for the early decision school.  There is a wide gap from early admissions beginning in November to when standard admissions deposits are due in May, so be aware of deadlines to know when a final decision is required.

Early action: What are my options? Early action admissions allow students the benefit of immediately applying to several schools instead of just one.  This allows for families to compare financial aid offers without being bound to just one institution. Early action has become much more common to help students zero in on their final college choice after recognizing all their best options. Early action does require a pro-active approach to make sure each school has all admissions and financial aid information available allowing for clear comparisons between offers.

Financial aid applications are early too: The FAFSA (and CSS Profile) has been available since October 1, 2016 for college students beginning their freshman year in Fall 2017.  This is 3 months earlier than the traditional January 1st FAFSA date, allowing more time for schools to begin sorting through many financial aid requests and early admission applications.  Since this is the first time FAFSA is being made available so early, most schools are still following  regular deadlines like in March, April and May.  But for families handling early admissions, this earlier date hopefully provides more breathing room to compare options.

Merit based vs need based funding: Remember the differences between college funding. Grants are need based financial aid awards provided by federal, state and school programs considering  income and asset information on the FAFSA and/or CSS Profile.  Merit based scholarships are awarded to students considering high test scores, grades, sports, community service and other student qualities and achievements.  When making a final choice about early admissions, make sure the financial aid award letter accounts for both need based and merit based funding eligibility.  You want a complete financial picture when comparing school options, which is why all your financial aid documentation needs to be filed as early as possible.

 

How financial literacy helps with college affordability

There’s no doubt that college is expensive.  Just ask any parent helping their son or daughter enroll this fall, or even file the FAFSA in preparation for next year.  College affordability is at the heart of the issue, but real potential solutions to the problem can be swept away under the daily sound bytes generated during this aggressive political season.  But politics aside, there is no easy fix for college affordability regardless of voter preference, leaving families to decide on their own how to navigate.  Let’s consider how financial literacy helps manage decisions about college affordability.

“It’s cheaper to save than to borrow”: Parents that recently started a family, and even more recently paid off their student loans are very debt conscious, perhaps spurring the trend of greater college savings.  The “How America Saves for College 2016” report from Sallie Mae shows that a full 57% of families are now saving for college, a 9% swing in just the past year.  screen-shot-2016-10-05-at-9-54-01-amIn particular, it’s millennial parents taking the lead on goal setting and developing a plan to pay for college, all hallmarks of financial literacy teachings.  It’s inferred from these findings that new parents recognize the importance of education, but are wary of student loans.  While Washington needs to work out the student loan mess, families are taking control of their savings plans to make a smarter and more affordable investment in higher education.

Using college financial calculators: It’s easier now than ever to make and compare estimates on college costs, student loan repayment and savings, helping families look at the big picture first.  Before zeroing in on a college choice, it’s wise to take a look at a wide variety of options for perspective.  Consider questions like potential financial aid eligibility versus the sticker price of select schools, or if the lowest priced option is really the best fit.  These questions are simplified with use of financial calculators as reasonable comparisons are grounded in logic, ensuring informed decisions on college choice.

Power of compound interest: Long term savers know one big secret. Over time their money can grow with the power of compound interest.  Financial literacy helps families harness the power of compound interest through simple knowledge, like demonstrated with the “Rule of 70”, to show how money can double over time.  While financial calculators help with the details, the impetus behind saving begins with the motivation to start early, rather than later, to make college more affordable.

Identify college value: Know thyself! If financial literacy can teach us one thing, it’s that everyone needs to make their own choices based on their own needs.  Financial literacy helps with perspective on this issue, recognizing that college value really depends on individual factors managed on the personal level.  When weighing the many variables, from majors, school reputation, and internships and compare them to facts like costs, student loan debt and out-of-pocket expenses a pattern is revealed.  Some colleges will be too expensive while others may be a bargain relative to the needs of the student.  Using practical teachings from financial literacy promotes sound decisioning through the process to make the college experience an affordable one.

Families focus on key criteria for college choice; Here’s how

With the new FAFSA arriving October 1, families are getting ready to make earlier decisions about college. This is positive, as it gives schools more lead time to manage incoming admissions and financial aid requests, providing more space for families to make a final choice.  But how are families deciding? College selection can be very emotional, but it’s rooted in logical factors that lead to a final decision.  Here are some criteria points.

Cost: We all know college costs are high but may be offset by merit based scholarships and/or need based financial aid.  But even with some “free” money, a college can remain financially out of reach for middle class families making just enough to pay their bills, but not enough to cover an entire semester balance.  Student lending has often filled this funding gap, but families are getting much more pragmatic about debt, using loan calculators early and often so they will know what they owe in advance.  College savings also plays a key factor to broaden school choice and affordability.

It’s a basket of several funding resources that help cover the bill, but this is where confusion can set in.  It’s easy to miss steps with so many variables, like starting early with college savings, applying for enough scholarships to qualify for at least one and maintaining strong credit to qualify for low rates on student loans (Parent Plus is an option for families with limited credit, but locks in at 6.31% with 4.276% origination fees)  To help manage all of these variables, Invite Education’s Family Financial Center accounts for financial aid estimations and savings goals on each potential college choice.  Using cost calculators and savings estimators simplifies the process, making it easier to compare choices.

Major / Career Goals: The economy is always changing, and while college degrees are valuable, some end up working in a different field than they may have figured just a few short years ago. But there are simple ways to forecast your career trajectory based on skills and aptitude that should reflect in choice of major.  Psychology, for example, is a very common major but also one of the lowest paying after graduation.  Science, technology, engineering and mathematics, or STEM, are often cited as creating graduates with high salaries, but global competition keeps the market constantly shifting.  Majoring in pre-med but failing to carry on to medical school is a large investment without a big return.  It’s recognized that there is no perfect hand-off from college success to career success. Instead, look at the big picture. Consider how certain majors or classes can accentuate talents, and how the knowledge can be adapted to new opportunities.  Even Steve Jobs commented that during his brief time in college, he was able to learn the importance of calligraphy and directly applied it to the font-types in personal computers. He learned how to adapt his knowledge to create something new after learning some fundamentals in the classroom.  This maybe the greatest gift an education can give you, but it’s not so obvious when first getting started.

School reputation / Network: An important reason why students want to attend schools like Harvard and Stanford is the reputation for producing students from particular areas of study.  Additionally, alumni networks can open up further opportunities after graduation.  For many, this is enough justification for a high price tag associated with some institutions.  Take a look at the track record for alumni to get an idea of potential opportunities.

  • Biggest majors: Look at the production of specific majors at certain colleges to learn more about their programs.  Compare this to data from the Bureau of Labor statistics to see how certain majors mesh with career opportunities that are expanding today.
  • Industries where alumni are most common: Prospective schools may provide info on careers of graduates demonstrating concentrations in fields like education, finance, technology or any number of areas.

Location: Choice of environment plays a crucial role for potential internships and concentrations of industry.  There are many different school locations to consider ranging from urban to suburban to rural.  Each offers their own unique advantages that may (or may not) match up to your overall goals for an educational experience. For some, a bustling city is the perfect place.  For others, a campus nestled near nature and low population density is all they need.  This choice comes down to student personality, but college does provide an opportunity for some students to break from their comfort zones to experience an environment unlike their home or high school.  Just remember, a long distance from home means more time spent traveling to get back and forth when necessary.

Choose Words Carefully & Improve Business: A Lesson from the State Treasurer’s Conference

Conference sessions tend to blur together but not this one:  “New Word Order – It’s Not What You Say, It’s What They Hear.” Gary DeMoss from Invesco Consulting blew the doors off of the Treasury Management Training Symposium with a riveting 50 minute discussion on how financial institutions can obtain substantially better results by paying attention to the language they use with customers and prospects. Screen Shot 2016-06-21 at 8.43.40 AM For the skeptics out there, I don’t know Gary and have no relationship with Invesco so this is not an inside commercial message disguised as a social media tip.   It was simply one of those light bulb moments that I want to share with you. It was that powerful.

So what’s the secret?  Words matter. A lot.

Gary presented the science behind learnings with regard to word and phrase choices that make our customers receptive to our message — or angry.  None of us intentionally intends to infuriate our customers, but we might well be doing so unintentionally.

He handed out a deck of nine cards with words/phrases on the front and back, and asked us to signal the phrase or word we thought best registered with our customers.  Here are the pairs:

  1. Knowledgeable vs Experienced
  2. Minimize my losses vs. Maximize my gains
  3. Works as advertised vs. New and improved
  4. Financial freedom vs. Financial security
  5. Voluntary contributions to my retirement plans vs. Automatic contribution to my retirement plan
  6. Transparent fees vs. Straightforward fees
  7. Long-term strategy vs recovery strategy
  8. Diversified vs Not correlated to the market
  9. Investment Strategies vs. Investment solutions

Not one person in our entire group of more than 150 correctly selected all nine preferred words — in fact, half the group of financial professionals was knocked out after the very first pairing (which was not necessarily the one above — I likely mixed up the cards on the way home).  Only five people were left for the last pairings before they too were tripped up.   Thankfully, Gary said we’re not alone; only a handful of people over many thousands correctly identified all nine.  I’d like to meet at least one them to help me with next year’s NCAA basketball pool!

Here’s what I learned — Gary’s Four Ps when communicating financial language. Apologies if my cryptic notes didn’t capture all of the concepts but there’s enough here for you to consider.  If you need more (and I do), consider  his book “The Language of Trust: Selling Ideas in a World of Skeptics.”   My copy is in the mail.

  1. Positive and hopeful.  Words like “fees” make our customers angry.  Fees are everywhere and they raise the hair on everyone’s neck.  Avoid calling your charges fees at all costs.  In fact, “costs” are more palatable because they  don’t trigger those same negative reactions in consumers. 
  2. Plausible.  Consumers want credible messages in today’s world of the incredible.  “Financial Security” rings truer than “Financial Freedom.”  Financial freedom sounds unattainable for most but security is something customers understand.
  3. Plain English.  Enough with the technical jargon and phrases we financial professionals seem to relish.  The problem:  even the best dressed white collar types miserably flunked man-on-the street interviews asking about basic financial terms.   We may believe we know what our client’s know,  but many (most?) of our clients don’t understand or  misinterpret our language.   “Strategy” is more appealing than “solution.”  Good words include long-term, strategy and diversified.
  4. Personalized.   Customers want to know we’re thinking about them — not ourselves.  Use “You” rather than “I.”  Tell what your product does, not what it is and emphasize the benefits.

I already put this to good use in some material we’re providing to our customers. I hope you find it helpful too.  This session – among a group of generally very good sessions — certainly gave me plenty of food for thought on my way home.

 

3 Tips for Smart Student Borrowing

When it comes to paying for college, the process can seem overwhelming. There are so many financing options out there and you might be feeling lost about how to choose the correct ones for your family. The key is to equip yourself with information so that you can have knowledge you need to make an informed decision.

One of the most common ways to pay for college is student loans. There are two primary sources of student loan funding: federal loans and private credit loans. The two programs differ in fundamental ways: the money for federal loans comes from the Department of Education whereas private loans come from places like banks, credit unions and other financial institutions.  Federal loans are much more standardized providing the same rates and fees to all borrowers. Most students tend to take advantage of federal loans before moving onto private loans if they still need extra money.

For some families, private loans are a good option because offer competitive rates and a cosigner option to help student-borrowers gain approval. Other families will choose federal loans, which can be easier to get and offer flexible repayment options, like income-based repayment.  Whichever type of loan you choose (and some families take out both private and federal loans), there are a few ways to borrow smart.

Don’t borrow more than you need. Many families get caught up in the availability of what may seem like free money and end up taking out a bigger loan than they need, just because the option is there. But a loan is not free money, even though it is labeled as “financial aid” on a student’s award letter. Every cent you borrow has to be paid back in the future, and often with interest, which can sometimes be up to a few thousand dollars on top of the loan principal. Don’t take out too much money from a student loan; it should be used for education costs only. Take a careful look at actual expenses and remember that interest will accrue on the total balance. You can use a Student Loan Payment Amount Estimator to get an idea of what your payments might look like once you’ve graduated. Be smart about the debt you’re taking on. Only borrow the amount you actually need, otherwise you could be quite literally paying for your mistake down the line.

Review federal loans first. They tend to have the most favorable terms and flexible repayment options, and you generally don’t need a co-signer. To receive federal loans, families must submit the FAFSA form, with the 2016 – 2017 version available beginning October 1. Even if you don’t think your family will qualify for need-based aid, you should submit the FAFSA anyway. Every family that files one, regardless of family income level, is eligible for some type of federal student loan. You never know what you might be eligible for or how your family’s needs will change before the fall. There are different types of Federal Direct Student Loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Federal Direct PLUS, among others. We will cover the specific differences between these loans in an upcoming post, but all of them are managed by the federal government. Some can be covered by debt forgiveness programs, like the Public Service Loan Forgiveness Program, but when you’re taking out a loan it’s best practice to assume that you will be paying back the entirety of the balance.

If you need more money, look into private loans. Federal loans are limited year-to-year, and if facing a tuition shortfall, you may need to look into private education loans. One of the best known private loan lenders is the company Sallie Mae, but private loans also come from banks, credit unions, and other lenders. In most cases you’ll need a co-signer. All private loans differ, but their interest rates may be fixed or variable and some require a minimum payment while still enrolled in school. You can learn more about the differences between the two types of loans at Studentaid.ed.gov.

When taking out loans, make sure you understand the terms of the loan. How will interest be charged? What is the grace period on the loan, that is, how much time will pass between graduation and when payments are due? Who will be the co-signer on the loan, if you need one? There are many factors to consider and like most aspects of the college process, the answers will differ among families. But with some research, you’ll feel more equipped to make the right choices for you. Good student loan borrowing is about being smart, making the right decisions, and doing what’s best for you and your family.

Let’s help college students land on their feet like Fearless Felix

Meet “Fearless” Felix Baumgartner (“Jump” image from Flickr) – an Australian daredevil. Fearless Felix participated in the Red Bull Stratos Project. He rode a helium balloon into the stratosphere – 24 miles up and should be an inspiration for all of us to ask why all college grads can’t be more like him and land on their feet after their diploma hits their hand.Felix_Baumgartner_2013 Wikipedia

After saying,  “I’m coming home,”   Felix casually leaned forward to begin his descent from the high altitude balloon. And what a descent it was:

  • He was in free fall for 4 minutes and 19 seconds.
  • Reached a speed of 843.6 miles per hour – that’s Mach 1.25.
  • He caused a sonic boom – by himself – the first person ever to break the sound barrier without the aid of a vehicle.
  • He also came out of a death spiral. The engineers who modeled his free fall realized that at some point he would start spinning out of control, which had to be stopped in order to deploy the parachute on his back. So they taught him how to right himself if this were to happen.

Watch the You Tube videos of this. It’s mesmerizing and was motivational for me.

After:

  • two years of planning,
  • 2 test jumps,
  • many visits to a sports psychologist to overcome his one fear – claustrophobia, and
  • 1 delayed jump due to bad weather

On October 14, 2012, Felix:

  • jumped from 127,852 feet
  • controlled his in-flight wobble that could easily have resulted in his death
  • and proceeded to land on his feet.

A perfect landing. An Olympic gymnast would have been in awe.

So I have to ask you: How is it that we can dedicate that kind of ingenuity to accomplish such an audacious goal, but we can’t seem to find a way to have our college graduates land on their feet: with a degree, a well-paying job and if they need some loans, with a debt burden that is manageable.   It boggles my mind.

We’ll discuss this in more detail in later posts, but here’s a start for families trying to achieve their dreams of a college education for their children.

Parents and students should recognize that colleges are a business with two primary goals  for admitting next year’s class:

  • Maximize net tuition revenue
  • assemble a diverse class that competes favorably against peer institutions, is well-balanced with a talented pool of matriculants, and will make the class, the administration, the faculty and the alumni proud.

Too often families take a “damn the torpedos” approach and borrow whatever they need for “the best” brand name college    Families that resist basing this important decision mostly on emotion and instead act like traditional consumers — in this case of education — have a much better chance of a college graduate who lands on their feet.  Here’s a simple formula for success for families:

  • Be realistic, college is not for everyone.  Is it the student’s dream, or at least strong desire, to attend college?  Is the student properly motivated to be successful or are they fulfilling what they perceive to be someone else’s dream: a parent, guardian or guidance counselor?  Sometimes delaying college of a year or two, or not attending, is a a better choice than starting, only to drop out.
  • Determine what type of school best fits the student’s needs. Cost aside for this moment, a  4 year private college may be the right answer for many, but not all – particularly the very most selective which admit fewer than 10% of the applicants. Community colleges give many students a terrific start.  Public colleges offer excellent learning environments that are the ticket to success for many students.  The key is finding the best academic and social fit for that particular student.
  • Select a school in that spectrum that is affordable.  There is no magic formula for affordability but a one litmus test:  will the student and/or parent be required to take debt in order for the student to attend?  If so, will the student’s potential post-graduate job prospects likely pay enough to repay the debt. Likewise, is parental debt affordable based on income?  Is the parent’s debt burden affecting their retirement savings?
  • Have these conversations early and over time — starting as early as ninth grade with general thoughts and become increasingly concrete as the student’s record of achievement in high school takes shape, test scores come in, college visits are made and the student’s desires sharpen.  The earlier you start and the franker the discussion you can have, the greater opportunity you  will have to manage expectations and provide our son or daughter with practical advice that they will hopefully listen to.

Following these steps will help high school seniors select a school that is right for them academically and financially ,and will substantial increase the odds that they will land on their feet with a degree, a well-paying job, and student loans, if necessary, that are manageable.

John’s Jots #3: Helping H.S. Seniors Pick Their College

Hooray — Finally.  For the first time that they can remember,  most high school seniors (and their families) now have the power in the college selection process.  With college  acceptances having been received and the May deposit deadline looming, the shoe is on the other foot.   Applicants have morphed into accepted students and most colleges are now the ones sweating.  What will their yield numbers and net tuition dollars look like once the Class of 2020 forms?   Seniors are very close to the end of a long journey.  However, as Yogi Berra said: “it ain’t over till it’s over.”  And it ain’t over yet.

Here’s what high school seniors and their families should consider:

  • Which college is the best academic and social fit?  To get to this point, the college made some favorable impression but now it’s time to dig in a little deeper.  This is the time for a revisit, discussion with a current student or a little more research into majors offered, internship opportunities, job placement rates, social activities — is greek life important? — and other areas of student interest.  Can the student visualize her/himself on the campus?
  • Which college is most affordable?  For some, this may be the first and most important question.   No more theory about paying for college, it’s nut cutting time.  In the summer, a tuition bill will arrive.  For some with lots of merit and need based aid, the bill may be small or zero.  For most, the cost of attendance less free money (grants, scholarships and gifts) may leave a gap that needs to be filled.  Take that gap amount and reduce it by the amount of savings that can be used for the first year and any other gifts or projected income to be kicked-in.  Parents may allocate some earnings, while students may contribute from a work-study or a part-time job.  Now that all of the free and earned  money had been exhausted, the college with the smallest remaining gap is arguably the most affordable.   If a gap still exists, you will likely need to borrow from  the federal government or a private credit student loan lender.  Here are a few important tips when it comes to borrowing student loans:
    • Borrow as little as possible.  Whatever is borrowed needs to be repaid with interest.  And remember, college may last 4 or more years.  Think seriously about how much will likely need to be borrowed over the course of the entire college experience, not just the first year.
    • Pick a loan that makes the most sense for your situation.  The federal Direct Loan program is most often, not always, the very best for student borrowers.  There are up-front fees but the interest rates are relatively low and for lower-income borrowers, the government pay the interest while the student is in school.  After graduation — when it’s time to begin repaying the loans, all federal borrowers are eligible for repayment plans that are more favorable than private credit loan plans.  There are also parent loans available from the federal government (PLUS Loans) and from private credit lenders such as banks, credit unions, finance companies, and some colleges and state agencies.
    • Figure out your monthly payment NOW — before you take the loan.  How much will the required monthly payment be once it’s time to start paying?   Repayment usually begins six months after separating, i.e. graduating or leaving the college early.  Does the projected monthly payment (most loans require minimum monthly payment of $50) make sense based on what the  monthly earnings might be?  The Bureau of Labor Statistics and others offer earnings statistics by job and sometimes by major. Look them up.  One rule of thumb is that college loans should not be more than 15-20% of income.   And remember — there may be need to borrow for more than one year.  DO NOT PUT YOUR HEAD IN THE SAND AND THINK THAT EVERYTHING HAS TO WORK OUT FAVORABLY.  BE REALISTIC.  WILL THE POST-GRADUATION JOB PRODUCE ENOUGH INCOME TO PAY-OFF THE DEBT?  No one starts out with the goals of becoming the next headline of the poor student who took a ton of debt and wound up with a low paying job.

The pot of gold at the end of the rainbow looks like this: a student graduates from college in 4 years having enjoyed a great campus experience with a job offer in hand and manageable debt that will enhance their credit rating as they make repayment.  For a nation that put a man on the moon in less than decade after President Kennedy’s inspiring call to action, the goal of college graduates without mountains of debt does not seem to be much of a reach.

High school seniors should enjoy these heady days of having the power on their side but should use them wisely to set the stage for great success in college.  The decision high school students and families make in the next 20 days may well determine if the promise of their college dreams become reality.  Those who pick an affordable college that offers the best academic and social fit will be on the road to success.