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.

How do I save for retirement AND college?

Finding balance between retirement savings and college savings represents a challenge most families need help managing. If you feel overwhelmed, you’re not alone. Consider some eye-opening statistics from Roger Michaud’s recent article “Financing Education is a Retirement Issue “

  • When it comes to financing a college education, 21% of parents would delay their retirement and 23% would withdraw money from their retirement account to help fund college
  • 94% of parents believe college savings will impact their ability to save for retirement
  • 56% of parents with children in the home are currently saving for retirement

The struggle is real, especially when parents would actually withdraw from their retirement savings to help fund college. Early withdrawals face taxes plus potentially a 10% early withdrawal penalty making it less of a financial plan and more of a knee-jerk reaction.

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Find Your Balance

Why? Let’s consider the circumstances. Retirement is most often cited as a goal for long-term savings, but the rise in college costs has emerged as a financial challenge as well. Retirement planning extends beyond the typical 18 years leading up to college attendance, and parents may have started saving for retirement before they got married and had kids, giving them a head-start. This creates a false sense of security where a parent may simply feel comfortable pulling money for retirement to help fund their child’s college dreams, but this is unsustainable. Here’s how families successfully manage both.

Start with retirement savings: Securing your long-term financial goals puts you in best position to help your children over time without unnecessary financial sacrifice. Every dollar counts, and the tax benefits provided by Traditional and Roth IRA’s, 401(k) and 403(b) really help long term savers. While you cannot predict the future of your child’s academic plans, you do know and understand your own future financial needs better than anyone else. Once you’ve mastered your retirement plan you can more confidently pivot the remaining income towards college savings.

Play the long game with college savings: Take a big picture perspective, developing your patience and putting value on consistency. This is a relaxing exercise far removed from an overly busy day-to-day life, so enjoy it and you’ll thank yourself many years down the road. Stay motivated by reviewing savings progress as consistently as you would review your child’s report cards every semester / quarter. You’ll notice that as the savings grow, your child’s academic progress will help you zero in on admissions criteria for various colleges, further motivating you to stay the course. Maintain active engagement by using simple online tools like Invite Education’s Passport for Success that outlines college savings and academic planning all on one platform.

Enfranchise your child: Help your child develop their role as an active saver for college. During the key early years, its expected parents and perhaps relatives will make the lion’s share of deposits in college savings accounts. Once the child begins some part time work, have a portion of those earnings added to the college savings account to help them get involved. This helps develop an all-important habit of saving, a key lesson often overlooked but sorely needed for financial literacy education.

Forecast Financial Aid: Savings are accounted for as part of financial aid eligibility calculations, but the way the money is saved makes an impact. For example, cash in a checking account in the student’s name can weigh against financial aid eligibility by as much as 20% of full value on the Free Application for Federal Student Aid! There’s a better way. If you’re worried about financial aid eligibility, just remember;

  • It’s cheaper to save long term than to borrow and pay back loans later
  • On the FAFSA (Free Application for Federal Student Aid) money saved in a 529 plan owned by the parent is weighed against financial aid eligibility at 5.64% of full value, a great reduction from cash found in a checking account.

In other words, college savers are not punished for their efforts. It’s the income from work declared on the FAFSA that can reduce financial aid eligibility more dramatically. Always use a financial aid estimator to forecast and plan ahead, but you may quickly determine that your income would remove eligibility for Pell or State based grants. This reinforces the need for college savings with an early start date to allow greater time to compound, putting your family in better position to handle college expenses as they arrive. This is especially important for families considered “middle class” as they may have just enough income to reduce financial aid eligibility, but lack the actual cash to pay college outright. A dedicated college savings strategy is critical in such cases.