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.

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.

 

Early college savings strategies for children

Parents are inspiring their kids to learn financial literacy with a simple message: save for college! It’s a worthwhile goal helping to build healthy financial habits for life and also to reduce the need for student loans in the future. Here are some ways that parents can help their children get on the right track early and stay the course.

  • Learn by doing: The number one way for students to begin saving early for college is to actually do it. The very act of taking money and putting it into a specific account for college savings is instrumental, not just for growing education funds but also learning a healthy financial habit for life. For early savers, it’s simply a matter of motivation.
  • Encourage financial literacy: Embrace financial literacy and learn about money: how to save it, how to spend it, and how to make it work for you. Even with digital money and payment platforms becoming more common, parents can begin to encourage their children to understand financial literacy by explaining about the different coins and dollar bills, and help them put money into a piggy bank or a savings account. As they mature, you might begin talking to older children about investments and different kinds of savings. The key is to have open conversation about personal finance, so that kids learn early that money is something to be managed properly. If that didn’t happen for you, it’s never too late to learn.
  • Learn to budget: This is a great exercise for students and parents. Take a week or two to record all of your purchases and see how much you spend. Record all of your income. Categorize your expenses and determine how much of your income can go into savings. Though “expenses” may be limited, kids should get into the habit of doing this so they can manage a personal budget as they mature. The 50/30/20 method of budgeting suggests breaking things into percentages in the categories of fixed costs, financial goals and flexible spending, but there are many ways to do this.
  • Put a percentage of gifts away: Gifts from birthdays and other holidays are great opportunities to boost college savings accounts. The trick is allocating it to savings before it is spent! Put a percentage of each gift into that account and watch the money grow. One of the most fundamental aspects of starting early is that thanks to interest, your money will be worth more years down the line when you need it.
  • Getting a job: The best way to increase income is to make money on a regular basis through work. A student’s first priority, especially in high school, needs to be their education, but flexible jobs give you the opportunity to earn money of your own. Babysitting is a great job for high schoolers, because it’s flexible and families often need babysitters on the weekends. When the kids go to bed, you often can do homework, accomplishing two things in one go. Other jobs that have weekend shifts include being a cashier at a grocery store or convenience store, working in a bakery, working as a golf caddy, or serving in a restaurant. Students with an entrepreneurial streak might start their own dog walking business or make things to sell.
  • Be consistent: Having a good plan in place is important, but what’s more important is putting that plan into action. If you plan to save $100 a month, continue to do that. It’s important to stick with it until it becomes second nature. You’ll be grateful that you did when you approach college and have a sizable savings account to help pay for it.
  • Parents and children work together: Financial literacy brings families together with a shared goal of greater prosperity. Parents can help set up the paperwork for a college savings plan while their children follow through with their consistent plan to earn and save money.  
  • Keep parents or grandparents as 529 account holders: Make sure to maximize savings in relation to potential financial aid eligibility by making the parent (or even grandparent) the account holder of 529 savings. It turns out that savings in a student’s name can reduce financial aid eligibility, by increasing the family’s “Expected Family Contribution” Money in a child’s name (like in checking/savings accounts) is counted as a student asset on the FAFSA, with as much as 20% of it’s value weighed against financial aid eligibility. This presents an unfortunate situation when it comes to college savings and financial literacy; you want your child to learn about saving money, but you also want to get the best value for college savings. There are significant benefits to keeping the majority of college savings in the parent’s name. A 529 in the parent’s name counts as a parent asset, and is assesses 5.6% of its value against FAFSA eligibility, a lower rate than a student asset. This comes into play during the need analysis process, which shelters parents’ assets more than it does those of their children. There are a number of strategies that you can use to maximize your aid eligibility. For students who are saving for college, it could be helpful to have them save the money but put it into this account under the parent’s name. That way, you are maximizing the potential for aid.

The idea of getting students to start saving for college early isn’t just about growing their contribution to their education savings, though that’s important. It’s also about children learning to manage their money and starting off strong so that they can grow up to be independent adults. It’s important because having them pay for a portion of their college costs gives them more ownership over the process because they’re investing their own money. Financial literacy is a skill for life; by starting young, children are are set up for financial success early.

 

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.