Key Points to Consider When Saving for College

Late this past summer, earlier this fall, millions of students made it back to their college or university of choice; others made it, but maybe not to the school of their choice.  Millions of parents hope their younger children might one day do the same.

Most, if not all of those families, might be thinking about how to save for that expense.  Others may not yet have begun saving.  And, yet others, perhaps most, feel hopeless. 

They have debt – mortgages, credit cards, auto loans, medical bills, maybe even their own student loans – but have no hope they can one day be free from debt and able to help their children cover the expense of an undergraduate education.

As with much of life, it’s never too late to begin saving. 

The favored saving vehicle of the day is now, and has been for some time, the 529 Plan.  It is the vehicle of choice, providing the best odds of having the money when needed.

Sure, it’s an immensely popular plan.  Why wouldn’t it be?  Everyone writes about them, the media pushes them.  It must be the right vehicle to use!

But, is it really a savings plan???

After all, the investments (?) in these plans are tied to your risk tolerance – low, moderate, high.  If it’s really a savings plan, why is risk attached to it?  If there’s risk, isn’t it possible you’ll have lees when needed then the amount you invested?

Sure, there’s tax-free growth and tax-free withdrawals (when the money is used for qualified education expenses).  And, then there’s the published disadvantages – limited investment (there’s that word again!) options and a 10% tax penalty if the money is used for non-qualified purposes.

Basically, you lose most control over the money when you contribute to 529 Plans and you subject it to market forces (i.e., possible loss). 

Why utilize 529 Plans when there is a better option, an option they do not promote.  It’s not a Roth IRA, as once again you lose control of the money and subject it to risk of loss.

Contact us about a properly designed and implemented college planning campaign.  We’ll show you the best options for the money you were going to invest in a 529 Plan.

Co-Signing a Loan and Your Finances

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When it comes to federal student loans, the loans that are included in the award of financial aid, a co-signer is unnecessary. 

Parent PLUS loans can be taken to help your child cover the cost of their education.  These loans, taken in your name, definitely obligate you to repayment.

Unfortunately, there are times when a co-signer is needed.  Such times are when private student loans come into play.

The question(s) to consider are whether you should co-sign on student loans for your child and whether you should co-sign on any loan for your child?  While you are helping your child cover the expense of an undergraduate education they would otherwise be unable to afford, if you haven’t planned properly, you are doing so at risk to your financial well-being.

  • You are obligated to repay the debt.  Certainly, if you’ve taken a Parent PLUS loan, you’re obligated.  And, if your child cannot afford to repay the private student loan, you’re obligated.  The difference between the two is that the private student loan typically has a lower interest rate and a number of repayment options the PLUS loan doesn’t.
  • Student loans are rarely dischargeable in bankruptcy.  This is true whether it’s federal student loans, Parent PLUS loans, or a private student loans.  Taking the loan isn’t the issue with which to be concerned; having a specifically-designed and implemented repayment plan is the issue.
  • There’s no “free-look” period with student loans.  Once signed, you’re on the hook.  While finances maybe fine at present, will they be so 5-10 years down the line?  Will you be nearing retirement and responsible for repayment during your retirement?  Will you still be in good health?  Proper planning with a professional college planner takes these possibilities into consideration.

A properly designed and implemented college planning campaign addresses the above risks and others that may arise.  Make sure you have peace of mind when it comes to college planning and your finances.

We look forward to your call.

Student Loan Mistakes Most People Make

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Student loans are par for the course for most attendees.  In fact, due to the projected expense of an undergraduate education, they likely had no choice but to borrow.  And, according to studies/surveys, they borrowed more than necessary due to one or more of the following strategic errors…

Borrowed more than necessary.  Studies suggest that students who borrow more than necessary fail to exhaust all other options (e.g., financial aid, grants, scholarships).  Or, they failed to identify other means of reducing the expense.  Perhaps, both.  The reality is, however, that if they have borrowed more than necessary, neither they, nor their family, have properly run a college planning campaign, assuming there was any planning whatsoever.

Failing to pay the monthly interest while in school.  If you can pay the interest while in school, it will help reduce the amount to be repaid over time.  The reality is, however, that most students cannot afford to make the monthly interest payments while in school because, again, neither they nor their family have properly run a college planning campaign, assuming there was any planning whatsoever.

Improperly using deferment or forbearance.  While useful tools that help prevent default on your loans, there are only so many options for their use.  Loans continue to accrue interest, therefore resulting in ever-increasing balances.  The reality is that, if the student and family had properly run a college planning campaign deferment and/or forbearance would be unnecessary.

Consolidating student loans.  While it smacks of common sense, it may have negative consequences for the student.  On consolidation, accrued interest becomes part of the new loan’s principal, with interest accruing on a larger balance.  While consolidation may be right for a particular student, but a properly run college planning campaign will better address consolidation as a repayment strategy.

Failure to find the right private student loan.  Federal student loans are part of the financial aid packages offered by the schools.  Private student loans cover the difference between the projected cost-of-attendance and the finalized financial aid award.  These loans can take the place of Parent PLUS Loans.  There are a variety of lenders with varied rates, and a variety of repayment options.  A properly run college planning strategy will encompass this option.

A variety of additional mistakes can be made.  But, like those above, a properly run college planning campaign will not just prevent, it will eliminate both the common and uncommon mistakes families make when funding their college planning campaigns.

For assistance with your family’s campaign, we await your call.

Parents Report: Saving for College is not Easy

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With tuition costs soaring ever higher, parents have discovered that saving for a college education is tough, much tougher than expected. 

According to a recent Student Loan Hero survey, less than one-third of parents believe they’ll be able to cover the cost.  The vast majority of those polled are finding it tough and more than half wish they had saved more.

The survey found that:

  • Nearly 80% say saving for their child’s education is much harder than anticipated.
  • 43% feel guilty they haven’t been able to save more for their child’s education.
  • Nearly 36% are currently paying off their own student debt while trying to save for their children’s education. (My note – they likely have a mortgage, credit card balances, auto loans, and possibly medical bills as well.)
  • Nearly 57% of parents plan to help their children pay off their student loans.
  • 39% say saving for their child’s education is a bigger priority than saving for retirement (17%).
  • For 57% of parents, their financial support comes with strings attached.

Falling short of goals creates massive feelings of guilt.

How are parents saving? 

  • 73% of parents use savings accounts.
  • 23% are setting aside cash.
  • 17% are using savings bonds.
  • 16% are using 529 Plans. (My note – for the record, there is a safer savings strategy.)

As many parents feel their savings will fall short, they are considering other options…

  • 32% plan to take out a personal loan.
  • 21% intend to co-sign a loan in their child’s name.
  • 19% will use a credit card.
  • 17% intend to utilize a Parent PLUS loan

If and how you choose to support your child and the expected expense of a college education is a personal decision.  If you are trying to save, the goal is to find the means that fit best within your family’s financial situation.

We’re here to assist you with your college planning campaign and we can help identify the means of covering the cost of an education that best fit your family dynamic.

Contact our professional college planners for assistance.  We look forward to hearing from you!

Avoid These Financial Aid Mistakes

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For families of high school Seniors, FAFSA time is almost here! 

October 1st marks the beginning of the Free Application for Federal Student Aid filing period for the 2020-2021 academic year.  The FAFSA is comprised of more than 100 questions.  Completing it will take some time.  And, yes, mistakes will be made.

Mistakes can be quite costly.  Here are a few to avoid…

Choosing not to Apply

Choosing not to apply may be the biggest and worst mistake you can make.  You may believe your family income renders your family ineligible for aid.  While that may be true for need-based aid, a family may qualify for merit-based aid. 

Before offering their own money, schools wait to see if a family first qualifies for federal or state aid.  A school won’t know whether your family so qualifies if there is no FAFSA on file.  Failure to file can leave money on the table.

Filing Late

If state aid is a possibility, filing late can result in no state-based financial aid.  State aid is limited and is awarded on a first-come, first-served basis.  Late filing could mean larger loan amounts are in the future.

Use of Incorrect Data

When completing the FAFSA, many families inadvertently include funds they consider assets but the FAFSA doesn’t.  Including such amounts generally results in a reduction in aid.  F

Furthermore, it’s possible to confuse the parent and student sections.  Doing so results in a reduction in aid, as parent’s assets and income are assessed differently than assets and income of the student. 

Surprisingly, sometimes applicants transpose numbers (e.g., incorrect social security number) or an incorrect name (e.g., nickname instead of legal name).  Doing so can delay the process, resulting in reduced or no financial aid.

If you’d like some assistance with your college planning campaign, contact our professional college planners to schedule a no-obligation meeting.  We look forward to your call!

“Surprise” Study Findings: Concerns about Cost Means Parents & Students Should Start Planning Earlier

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It’s not really a surprise.  Almost without exception, every student and family engaging our services regret not beginning their college planning campaigns much earlier than they did.  They all wish they’d spent more time.  

A national survey for Citizens Financial Group (“Citizens Survey”) showed that 63 percent of parents and 60 percent of students wished they had looked at college finance options earlier.  A Discover Student Loan survey (“Discover Survey”) found that 65 percent of parents are worried about having enough money to help cover college expenses.  In fact, only 41 percent plan of parents plan to use savings to pay for the education, with just 28% indicating they’ll manage to cover the entire cost.

The majority of our clients engage our services during the 11th or 12th grade years.  While we can and often do assist them with their planning, providing structure and peace of mind, our strategies have the greatest impact for families with students in 7th through 10th grade.  If families engage our services earlier than 7th grade, our strategies have an even greater impact.

The irony for most families is that the parents know that massive freight train most likely is headed their way from the day their child is born and they still wait much too long to plan properly.  And those who do take steps to plan, who try to properly prepare, unknowingly take steps that can have a negative impact on funding, specifically on prospective financial aid.

College degrees can change lives.  It’s well-accepted that those who earn a bachelor’s degree will earn at least $1 Million more during a typical working career than those who earn only a high school degree.  Of course, the degree should be earned in a field with prospects for well-paying employment.

The Citizens Survey revealed that 30 percent of parents first discussed the expense of college when their children were in 8th grade or earlier, 53 percent prior to end of freshman year in high school.  It further revealed that 44 percent of parents began saving for college before the 11th birthday, 38 percent had saved nothing.

When should parents begin saving?  At conception!  Realistically, as early as possible.  But, be sure to place that savings in the right vehicle.  And, the right vehicle for a family may not be a 529 Plan.

If you have one or more children to put through school, then you must begin saving early on in their existence, the earlier the better.  But, you must save efficiently, using the vehicle(s) that will keep that savings safe and secure.  Otherwise, you and your children may end up burdened by debt.

Start your college planning campaign now!  We look forward to hearing from you.

Conventional Wisdom & Student Loan Debt

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Student loan debt, second only to mortgage debt, accounted for $1.5 Trillion of the total debt held by Americans.  As most of those burdened by such debt will adhere to traditional and conventional means of repayment, they’ll spend years, even decades, perhaps their entire working life paying off those loans.  A few of the misconceptions they labor under include the following:

Student Loan Debt can be Avoided by Working Your Way Through School

What once may have been true remains so no longer.  It hasn’t been true for years, perhaps decades.  Trends in wages and tuition rendered this strategy impossible.

The Greater the Student Loan Debt, the Heavier the Burden

A six-figure student loan debt can be a heavy burden.  A few students graduate with such a debt load, but those are few and far between.

Typically, students with such debt are those graduating with degrees in medicine, law, or some other professional designation, including those earning PhDs.  Such degrees provide earning potential that will more than offset the debt incurred.

Statistically, those most likely to default and most likely to suffer multiple financial setbacks are those servicing less than $10,000 in student loan debt.  Defaulters tend to be older, to be African American, and to attend for-profit institutions.  Almost half never earn an undergraduate degree.

Student Loan Debt is a Youth-Centered Problem

Not necessarily.  While millennials do struggle with such debt, baby-boomers are overwhelmed.  Boomers likely still pay on their own student debt, have taken on school debt for their own children, are addressing financial issues faced by their parents, and “hopelessly” face an improbable retirement.

According to the AARP, Americans over 50 owe almost $290 Billion of total student loan debt.  While a good portion is tied to their own school debt, growth has occurred through parents and grandparents incurring debt on behalf of their children and grandchildren.

A College Degree Just isn’t Worth the Student Loan Debt Incurred

While parents and students truly may feel this to be true.  It may indeed be true should the degree be earned in a low-wage field.  However, earning a degree in a high-wage field, even just finishing the degree, increases the odds that a college degree will pay off.

Decades ago, a high school degree meant you could find a good job, support your family, and retire comfortably.  In today’s reality, the college degree has replaced the high school degree.  Studies show that those with a college degree will earn roughly $1-$1.5 Million more in lifetime income than those with just a high school degree.

Unless your child is an exceptionally-gifted individual, whether it be academically, athletically, or artistically, the dream of a “full-ride” undergraduate education likely is highly unrealistic.  More likely, based on the ever-increasing annual cost of attendance, school loans, whether student or parent, will be utilized to help cover the expense.

Rather than settle on a college or university based on “sticker price,” consider engaging our services.  We will assist your family in identifying the best school at the best price for your student, based on academics, institution size, geographic location, and family budget.  Moreover, we’ll show you how to save for the expense in the most efficient manner possible for your family.

We look forward to hearing from you.

College Planning & High School Parents

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The recent college admissions scandal served to highlight the confusion and worry faced by millions of parents as they confront the college planning process.

Confused and worried they are; confused and worried they should be. Most parents have delayed planning for a multitude of reasons, many of them believing they had time to plan.

The reality is they need to begin planning earlier than ever before, long before second semester junior year or the beginning of senior year in high school. Planning should begin somewhere between 7th-10th grade. The earlier, the better!

Where should parents initially place their focus?

First, remember the college planning campaign (it is a campaign) is about your child. It’s not about you. There are well over 3,500 four-year schools, many of which will be perfectly suited to your child.

It needn’t be an Ivy or other select private institution. It should be a school at which your child will flourish. A broad search is required to find the right school at the right price.

Second, remember that your money matters. While we want to offer our children the best opportunity, the education should not be one you can’t afford.

How do you know what you can afford? Have you had a professional college planner review your family’s financial situation? Do you know how to find the schools that will offer your child an excellent education and the most “free money?” Do you know that “sticker price” is rarely what a family pays?

As the financial aid forms aren’t completed until fall of senior year in high school, you should search out a professional college planner sometime during your child’s 7th-10th grade years. During that time, there are a variety of options to pursue regarding all financial obligations, not just college funding.

Third, remember college is not just about career planning. While a college education should focus on the probability of employment following graduation, the education is about much more than that. It’s about gaining life experience (independence, responsibility, exposure to those different from you, etc.), value that may not directly impact the bottom line.

Finally, remember your child’s entire high school career matters. It’s not just about academics; it’s also about extracurriculars. Your child should explore a variety of interests early on, then focus on those interests that matter most to them.

Be sure to have a plan for the high school years, not just about funding sources, but about the aspects that will most affect school admissions. And, as it is a college planning campaign, seriously consider engaging the services of a professional college planner.

We look forward to hearing from you!

 

Evaluating a Financial Aid Offer

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Though most families don’t realize it, especially those whose first or only child is now beginning the undergraduate journey, the Financial Aid Award Letter can be highly misleading.

The award letter is merely an offer; not all aid listed will be awarded. Rather, the letter lists the aid for which you qualify. It’s up to you to review the offer and to accept or reject the aid listed.

Why can the award letter be confusing?

Schools use their own form letters and their own terminology. Understanding the offer as presented can be a pivotal point impacting your financial future not just for the next few years, but potentially for decades to come.

Before making a decision on which school’s offer to accept, as well as what aspects of the offer to accept, be sure you understand the following:

1. What will be the actual total cost, not just for the first year, but projected for the next four years? Look at the school’s project cost of attendance for the first year, then increase it by at least six percent for each subsequent year.

2. Is there free money and how much? Grants and scholarships are awards that need not be repaid. Each may have specific requirements that need be met in order to retain eligibility for the grant or award in future years.

3. What is your net out-of-pocket expense? This is the amount you will have to pay, whether from savings, retirement plans, or loans.

4. Is work-study included in the offer? While this may be included in the offer, it is not available to reduce expenses due at the beginning of an academic period. Rather, it will be paid to the student as earned, provided they can find campus employment, and usually serves as spending money.

5. Does the award include loans? Usually a letter includes a variety of loans. Loans must be repaid with interest. Some require that repayment begin immediately.

Understanding the award letter remains vital to your future, whether student or parent. Like it or not, loans have a place in funding the expense of an education. If managed properly, they are a worthwhile source of funding.

Contact us to learn more about loans as a source of funding, to learn how to manage them, and to learn how to pay them off at a much faster rate than expected (without sacrificing your standard of living).

We look forward to hearing from you!

 

 

College Savings and the Market

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Just a short time ago, tuition bills arrived hand-in-hand with nightmare producing, stomach-churning market volatility.

For those with college funds in financial vehicles subject to market ups-and-downs, it may be too late to act, especially if you need to pay the bill. If payment is not yet due, then it’s a sit and hope scenario.

Sit and hope the market shoots back up and you can “recapture” the money that has been lost. Make no mistake, if your money is subject to the market, you can’t recapture what has been lost; you can only return to and exceed the value once held.

So, what can you do?

First of all, stop “saving” money in financial vehicles that are subject to market forces. That’s not savings; it’s investing. It’s gambling.

Don’t gamble with money you can’t afford to lose!

Place your money where it won’t be lost when the market shoots downward, where it will earn a guaranteed return compounded annually, where you have access to it if and when you need it, where it won’t count against you in financial aid calculations, and where you can use it for something other than college-related expenses if it’s not needed for those expenses.

Be willing to sacrifice potential gains in order to avoid horrendous losses!

If your money is invested, there exists no foolproof way to prevent that money from loss when markets are volatile and the trend is downward. However, you can plan ahead and save.

Don’t invest and hope the money is there when you need it.

Contact us to learn how to properly save for the expense of a college education.