Alleviating the Stresses of an Expensive College Tuition

By: Claire Bendig, Recent Graduate of Chapman University

Tuition loans can be a cause of student stress, especially with enough interest accrued to require repayment well into the future. Difficult to evade, only determined hard work will eventually pay them off.

As a college graduate myself, we enter a world of endless responsibilities, unsure of what to do. The debt that is carried over from an undergraduate degree is astronomical. education-2385117_1920According to Student Loan Hero, a blog that guides indebted students, “Americans owe nearly $1.3 trillion in student loan debt, spread out among about 44 million borrowers. In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year.”

There are ways to alleviate the stresses of an expensive tuition. FAFSA, or Free Application for Federal Student Aid, is a government form that qualifies students for aid based on their particular financial situation.  The problem for many is the tedious application process. It has more than 100 questions, including inquiries about parents’ assets, taxes and net worth.

In March 2016, a group of seven students went to Washington, D.C., to help pass a bill to streamline the FAFSA process. Patrick McDermott was among those who attended. As a student working with college freshmen in dealing with these issues, he says, “The FAFSA process could be made a lot easier by not only implementing the IRS direct transfer as is done now, but by streamlining the amount of information required in determining the monetary awards.” (The IRS Data Retrieval Tool has since faced security issues, causing it to be shut down for now)

Even though the application can be overwhelming for students to fill out, it is well worth the effort to gain access to guaranteed school funding.

Credit unions can help students with financial debt as well (along with other perks like reduced transaction fees, online banking, debit and low-interest rate credit cards). Organizations such as Credit Union Student Choice lay out credit union options for students and mentor them on how loans work and ways to evade interest penalties. When joining a credit union, if the student has a co-signer, they can get a lower interest rate.

In line with their mission to help others, credit union loans will often allow the co-signer to be without obligations if the student has been consistent with payments for the past 12 months. Toni Jaroszewicz, Detroit Branch Manager of Lake Trust Credit Union says, “We offer credit counseling and work with our young folks to help get them on the right track to pay down debt and implement plans that will lead them to financial success.”

Counseling is the educational foundation that is needed to better understand the expectations of the college graduate, and because of the member-status of account holders, credit unions are willing to provide more financial guidance than they are likely to find at banks. My peers and I have graduation fears because so much is unknown. By expanding practical education, we can enter the professional world more confident in our abilities to succeed.

Claire Bendig is a contributor to the Millennial Voice column for CO-OP Financial Services, a financial technology company for 3,500 credit unions and their 60 million members. She is a recent graduate of Chapman University in Orange, California, with an Emphasis in Creative and Technical Writing.

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3 Key Points for Grandparents Funding 529 College Savings Plans

It’s wonderful to see so many Grandparents participate in college graduation ceremonies, cheering on their grandchildren!  It turns out many grandparents were also able to provide some financial support along the way which minimized their old time photosgrandchildren’s student loan debt.  If you are a grandparent (Or soon to be one) here are a few things to consider when planning to help with college costs using a 529 plan.

  1. Early savings is key: Most grandparents understand the value and importance of savings and compound interest and the resultant benefit to them and their family members of a patient and disciplined strategy.  Saving for college is a great example, since it takes patience to stick with a  college savings plan for young toddlers and children. Grandparents are already well aware that “time flies” all too fast and what is required when making a long term commitment to a financial goal.   By helping to start a college savings plan, grandparents can make a big difference for long term college savings, increasing college options and minimize student debt for their grandchildren.
  2. Utilize the special 5 year 529 gifting rule for estate planning purposes: Grandparents should consider utilizing their estate plans to kickstart college savings.  Up to $14,000/year in 529 contributions can be made without triggering any gift taxes, considering the annual gift exclusion rule from the IRS. Under the special 5 year accelerating gifting rule, grandparents can gift as much as $70,000 contribution to a particular 529 plan beneficiary in a single year, but this would require no subsequent gifts over the next 5 years in order to average out a $70,000 lump sum within the $14,000 guideline.  Utilizing this rule and infusing a large amount now would certainly make a huge difference in the amount available in the future for college tuition.
  3. Be aware of financial aid policy; Use 529 accounts in junior and senior year of college:  Grandparent assets are not directly disclosed on the Free Application for Federal Student Aid (FAFSA) since they are not the custodial parents or the student, obviously.  However, when 529 funding distributions are provided to the student, the money is treated as “income” in the student’s name for financial aid purposes in the year it was received.  This additional income may actually decrease financial aid eligibility for the student as it is weighed even more heavily against need based grants, even more so than income in the parent’s name!  Wise planners simply look ahead and determine if the student would qualify for need- based funding considering the custodial parent’s household income (Like using Invite Education’s financial calculators).  If drawing high disbursements from the 529 accounts would sacrifice financial aid eligibility, then hold off on disbursements until the student’s junior and senior years.  This way the student can qualify for maximum need based financial aid for the early years, and then use the 529 to fund perhaps the entire cost of their last two years of college.  Or the 529 funding could be used to pay for Graduate school, where need based grants are not awarded on the scale of undergraduates. If there is excess funds, the grandparents can change the beneficiary or even take the money back .  No one wants to be punished for savings, so always go back and re-evaluate the funding strategy each year for optimization.

 

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.