10 Conventional Ways to Pay for College…

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What follows are ten conventional ideas about paying for school.

These ideas are propagated by Wall Street, financial advisors, and the media day-in-and-day-out until you are conditioned to believe they are your only options.

Following those ideas, I’ll mention the one that truly works, the one we use for the benefit of our client families.  We know it works because we embrace the idea ourselves.

The ten conventional ideas that don’t necessarily serve the family:

1.      Grants.  Free money available from the federal government, the state, even the schools themselves.  Often, you must meet eligibility requirements and apply.  The application is considered and you will be notified, if awarded.  The grant may not cover the full cost, as the awarding body may have evaluated your family’s financial circumstances.

2.      Ask the school for money.  Following your award letter, if it isn’t a fair offer, it may be possible to negotiate for a better award.  We utilize this strategy with our clients who have applied to our recommended 6-8 comparable schools and who may not have received a fair award. 

3.      Part-time employment.  An offer of work-study aid will be included in the award letter, if the family has the requisite financial need.  If not included, part-time employment off-campus is an option, as is starting a side business.  Of course, this may take valuable time away from studies. 

4.      Private Scholarships.  Companies, non-profit organizations, and community groups may offer these scholarships.  However, they may be highly competitive.  In fact, such scholarships are roughly 3.1% of available financial aid each year.  Placing a high percentage of your efforts in this arena could prove to be a waste of valuable time and energy. 

5.      Loans.  Loans likely will be part of every college planning campaign.  Conventional scenarios will result in a long, expensive repayment process.  Our non-conventional scenario, perhaps half or less of that repayment period.  It may be a good idea to contact our financial coaches for assistance. 

6.      Claim tax credits.  While not really an idea on how to pay for school, this should be done every year you have a child in an undergraduate institution.  Your accountant, or your tax software, should have covered this option automatically. 

7.      Live off-campus.  Perhaps as an upper-classman.  But, doing so as a freshman or sophomore can have a negative effect on developing the relationships that will benefit you long after you’ve graduated.  For our clients, the cost-benefit analysis favors on-campus living the first few years. 

8.      Enroll in community college.  Always an option due to lower fees and off-campus living arrangements (e.g., stay at home), it may be the best option for the family.  However, this also can have a negative effect on developing those beneficial relationships. 

9.      Complete the FAFSA.  This is a no-brainer for ALL families, regardless of assets and incomes, as most schools will not award money from their coffers until they know for certain a family will not qualify for federal or state aid.  This includes merit-based scholarships, grants, and awards. 

10.  Start a 529 plan.  Typically a long-term option, there are tax advantages to this account.  However, there are many more negative impacts of which a family should be aware.  While a 529 may be right for a certain family, it is not the right option for most families. 

While everyone should have the opportunity to obtain a college education, most people have no idea how to cover the cost of one.  While we may help families implement one or more of the above ideas, we favor the unconventional means of funding an education that guarantees a return on the savings, that guarantees against loss, that leaves the family in control of the funds, that provides immediate access to the funds, that has no restriction on how the funds may be used, and that has no negative impact of eligibility for financial aid.

Contact our professional college planner for a free analysis of your college planning campaign.

We await your call…

Unleash a Better Life!!!
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The Parent Portion of the College Education Expense

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The expense of a college education rivals, and often surpasses, that of a residential mortgage, especially if the cost involves more than one child.  Yes, costs are steep, and with 43% or more of the cost covered by the family (according to Sallie Mae), parents tend to be the principal source of college funds.

According to a February 11, 2019, article in Credible, the average annual: in-state cost-of-attendance on campus at a public university was $25,980; on campus at an out-of-state public university was $41,950; and, on campus at a private non-profit college was $52,500.  Thus, the average 4-year cost-of-attendance for one child, assuming no increases (yeah, right!), ranged from $103,920 to $210,000.

Conventional thinking suggests parents have several options available to them.  Technically, they do.  But, none of the options actually benefit the family.  Four conventional means of savings include the following:

1.       Start a savings account early. 

While it’s never too late to start a savings account, the earlier the better.  Suggested accounts include those at a bank or credit union, as they are insured and safe.  However, the return on your money is negligible.  Even were you to begin an account at conception, the likelihood of having the money needed to cover your portion of the expense is low.

Another suggested option is the 529 College “Savings” Plan.  The drawback that most parents and grandparents overlook is that these are investment accounts, not savings accounts.  Even though there may be some tax benefits, the money can be lost, it’s outside your control, and subject to access and use restrictions.  And, if used for non-qualified expenses, taxes and penalties are imposed.

2.       Complete the Free Application for Federal Student Aid (FAFSA). 

A critical step with respect to federal student aid, it provides access to “free” money (i.e., grants, scholarships, and awards) and qualifies the student for federal student loans.  Be sure to submit the FAFSA, as it may make available aid of which you were unaware.

3.       Take Out a Parent Loan.

Both Parent PLUS loans and private student loans typically are available to parents.  Parent PLUS loans come with one of the highest rates for federal loans, as well as an origination fee exceeding 4%.  Repayment begins within 60 days following distribution of the loan and, as you must apply for a new loan each academic year, you may have four or more loan payments for the better part of a decade.

4.       Take Out a Private Student Loan. 

Private student loans for parents are in the student’s name, but cosigned by a parent.  Typically, they have lower interest rates than the Parent PLUS loans and multiple repayment plans.  And, they can assist in establishing good credit for your child.

Do not withdraw retirement funds from your retirement savings account(s).  Likewise, do not take out a Home Equity Line of Credit or refinance your residence for the cash.  Doing either can have a variety of negative impacts, not only on your retirement plans, but on the amount of financial aid for which your child may qualify.

While many of our clients do utilize one or more of the above options, not one of those options address the financial vehicle we recommend for college savings purposes.  The vehicle we recommend: leaves you with access to and control of your money; is protected from market downturns; has a guaranteed return, compounded annually; and, will not have a negative impact of eligibility for financial aid.

If you’re interested in learning more about the vehicle we recommend, please contact us to schedule your no-obligation evaluation.  We are here to help!

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The Parent Portion of the College Education Expense

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The expense of a college education rivals, and often surpasses, that of a residential mortgage, especially if the cost involves more than one child.  Yes, costs are steep, and with 43% or more of the cost covered by the family (according to Sallie Mae), parents tend to be the principal source of college funds.

According to a February 11, 2019, article in Credible, the average annual: in-state cost-of-attendance on campus at a public university was $25,980; on campus at an out-of-state public university was $41,950; and, on campus at a private non-profit college was $52,500.  Thus, the average 4-year cost-of-attendance for one child, assuming no increases (yeah, right!), ranged from $103,920 to $210,000.

Conventional thinking suggests parents have several options available to them.  Technically, they do.  But, none of the options actually benefit the family.  Four conventional means of savings include the following:

Start a savings account early. 

While it’s never too late to start a savings account, the earlier the better.  Suggested accounts include those at a bank or credit union, as they are insured and safe.  However, the return on your money is negligible.  Even were you to begin an account at conception, the likelihood of having the money needed to cover your portion of the expense is low.

Another suggested option is the 529 College “Savings” Plan.  The drawback that most parents and grandparents overlook is that these are investment accounts, not savings accounts.  Even though there may be some tax benefits, the money can be lost, it’s outside your control, and subject to access and use restrictions.  And, if used for non-qualified expenses, taxes and penalties are imposed.

Complete the Free Application for Federal Student Aid (FAFSA).

A critical step with respect to federal student aid, it provides access to “free” money (i.e., grants, scholarships, and awards) and qualifies the student for federal student loans.  Be sure to submit the FAFSA, as it may make available aid of which you were unaware.

Take Out a Parent Loan.

Both Parent PLUS loans and private student loans typically are available to parents.  Parent PLUS loans come with one of the highest rates for federal loans, as well as an origination fee exceeding 4%.  Repayment begins within 60 days following distribution of the loan and, as you must apply for a new loan each academic year, you may have four or more loan payment for the better part of a decade.

Take Out a Private Student Loan.

Private student loans for parents are in the student’s name, but cosigned by a parent.  Typically, they have lower interest rates than the Parent PLUS loans and multiple repayment plans.  And, they can assist in establishing good credit for your child.

Do not withdraw retirement funds from your retirement savings account(s).  Likewise, do not take out a Home Equity Line of Credit or refinance your residence for the cash.  Doing either can have a variety of negative impacts, not only on your retirement plans, but on the amount of financial aid for which your child may qualify.

While many of our clients do utilize one or more of the above options, not one of those options address the financial vehicle we recommend for college savings purposes.  The vehicle we recommend: leaves you with access to and control of your money; is protected from market downturns; has a guaranteed return, compounded annually; and, will not have a negative impact of eligibility for financial aid.

If you’re interested in learning more about the vehicle we recommend, please contact us to schedule your no-obligation evaluation.  We are here to help!

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Marriage and Student Debt

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What’s the main cause for divorce here in the USA?  Why, marriage, of course!!

All kidding aside, the majority of marriage failure is tied to one factor – finances.  Specifically, the stress tied to a couple’s/family’s financial well-being.  Marriage means learning to handle money as a team.  And, as many men have learned, it means the wife has the reins!

Marriage today likely means addressing how to handle repayment of student debt, as one or both parties to the marriage may have such debt.  The big question – are you responsible for the other’s student debt?

Quick answer – no.  Unless the loan is taken during marriage and the debt is co-signed, whether new or refinanced.  At that point, you’re equally responsible for repayment.  Living in a community property state could also result in liability for the other’s debt.

In fact, there are several ways student loans can affect finances…

  1. Student debt and credit scores.  Upon marriage, credit histories do not merge; your credit history and score is yours.  However, they can be affected if a so-signed debt is involved.
  • Student debt and taxes.  While the marriage tax break can be seen as a positive, a combined income can result in elimination of the student loan interest deduction.
  • Monthly student debt payments.  If either of you are on income-driven repayment plans, marriage could change the amount you pay on the loan, perhaps even the amount you pay in taxes.

Whatever you do, maintain communication.  Discuss your debt regularly, follow the plan, and reduce your stress.

If you might be interested in the best program for handling repayment of student debt, contact us to schedule a no-obligation meeting.  We look forward to assisting you, our spouse, and your family.

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The Benefits of Borrowing for College

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With the media focused on an “alleged” student loan crisis, parents and students fear student loans.  This fear, however, may be somewhat misplaced.  The crisis typically affects those:

  • who have failed to obtain a degree,
  • who continue on into graduate or professional schools, and
  • who have taken on the burden for those who either have failed to graduate or have obtained a degree in a field with little to no hope of employment.

With the cost of an education ever-increasing, school loans, whether by parent, student, or both, will be part of the package.  Some parents will pay for the education entirely, others will leave the burden entirely on the shoulders of their children.

Loans will be part of the package, typically federal student loans and Parent PLUS loans.  Why not consider a third, perhaps better option for the parents?  Why not consider private student loans?

These loans typically require a cosigner.  Yes, parents who cosign can be left “out to dry.”  But, the benefits outweigh the possible cost.

  1. The loan can help build credit.  As the primary borrower, the balance can be found on their credit report.  It will be reflected on the parent’s credit report as well.  But, a positive payment history can help your student establish good credit, even if you are making the payments.
  • Parent PLUS Loans typically have higher interest rates.  Don’t rush to take a PLUS loan before reviewing the private loan options.  With good credit, you might obtain a better interest rate.  Even if the private loan results in a higher rate, it doesn’t make it less expensive.  PLUS loans have an origination fee.
  • PLUS loan repayment begins when the loan is disbursed.  With private loans, ou can choose the repayment option that works best for you.  Payment can be deferred until after graduation or payment can start while the student is in school, whether a full monthly payment or interest-only payment.
  • The private loan lender may offer a co-signer release.  After one to three years of on-time payment, your child can apply to have you removed from as cosigner, thereby eliminating your responsibility.  This helps your child cover costs without burdening you for decades.
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529 Plans and Roth IRAs aren’t the Answer

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When it comes to saving money for the expense of a college education, “conventional wisdom” espoused by Wall Street, financial advisors, and the mass media drive parents toward 529 plans and Roth IRAs. 

After all, 529 plans have the best “odds of having the most money when you need it.”  Never mind the fact that your first decision is where to invest your funds.  Moreover, since the investments are tied to the market, a 529 plan could end up with less money available then the total contributed.  And, let’s not fail to mention the restrictions placed on the use of those funds. 

Parents saving in a 529 plan will see an increase in the amount they are expected to pay for an education.  Moreover, the amount of financial aid for which they qualify could be reduced or eliminated.  And, it may disqualify a family for grants and awards that need not be repaid.

A 529 plan is tax-free; provided, however, the funds are used for qualified education expenses.  What if the money is not used for such expenses?  What if your child decides not to attend college?  What if they receive a scholarship that covers all or some of the expense?  It becomes an expensive proposition…

Even the Free Application for Federal Student Aid (FAFSA), the form used by colleges and universities to determine what a family can pay for an education, identifies Coverdell Savings Account and 529 Plans as investments and assets.

Roth IRAs are a bit more flexible.  If you don’t need the money, you can use it for retirement and distributions are tax-free.  However, a Roth IRA is an investment vehicle, not a savings vehicle, with certain restrictions.  Those restrictions include an age 59½ restriction and a 5-year rule.

And, while Roth IRAs may be a better choice than 529 plans, an even better option than Roth IRAs exists.  In fact, the FAFSA states the value of this financial vehicle is neither an investment, nor an asset.

What vehicle might that be?

A properly-designed, cash-building, whole life insurance policy!  Don’t believe me?   Read on…

When most people hear “life insurance,” they immediately shut down.  After all, it’s about death, and who really wants to discuss that finality? 

What most people fail to understand, primarily because they stop listening, is that, while the type of policy in question does provide a death benefit, it is designed to provide the lowest possible death benefit in combination with the highest possible gash growth.  Moreover, such policies can and do provide living benefits such as terminal illness coverage, critical illness coverage, and chronic illness coverage, as well.

Why choose a properly-designed, cash-building, whole life insurance policy over a Roth IRA or a 529 plan?

  1. Life insurance is neither an asset, nor an investment.  The growth in such a vehicle is not subject to market fluctuation.
  2. If you don’t need the life insurance cash value for college expenses, the money can be used penalty-free and tax-free for any reason, including retirement.
  3. Life insurance allows you to repay the money borrowed against the contract, thereby continuing to increase the growth for later use.  Money you may want to put back in a Roth IRA does not grow tax-free.
  4. Should a student remain in college for 4, 8, or 12 years, the cash value in a life insurance policy continues to grow and need not be used to repay school debt until that debt comes due, typically 6 months after graduation or dropping below full-time.  The money that would have been paid every month on a PLUS loan can be directed to a life insurance policy to keep your money growing tax-deferred for tax-free use.
  5. Life insurance doesn’t have a 10% distribution penalty on pre-59½ distributions; a Roth IRA does.
  6. Life insurance provides more liquidity, use, and control than one has with a Roth IRA.
  7. Upon death, the death benefit is transferred to your beneficiaries tax-free.
  8. In order to contribute to a Roth IRA, one must have earned income; such is not the case with life insurance.

While Roth IRAs are a better option than 529 plans, the best financial vehicle for college savings is a properly-designed, cash-building, whole life insurance policy.

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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.

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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.

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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!

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Student Loan Debt and Your Retirement

Student loan debt continues to rise, nearing $1.6 Trillion, forcing Americans to delay saving for retirement.

According to research conducted by the MIT AgeLab and published by the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (“TIAA”), 84 percent of Americans report that student loan debt negatively impacted their ability to save for retirement.  In fact, almost 75% delayed maximizing retirement savings to focus on student loan debt repayment.  And, 26 percent indicate they aren’t saving for retirement at all.

According to Roger Ferguson, Jr., the TIAA President:

 “To be sure, getting a college degree remains one of the smartest investments a person can make in their financial future — but saving for retirement is equally important.”

According to the survey, borrowers are prioritizing repayment of student debt and will focus on saving for retirement once the debt has been repaid.  Of more concern, 43 percent of parents and grandparents incurring debt on behalf of their children and grandchildren will focus on retirement after the student loan debt has been paid.

Based on the repayment plans available to graduates, repayment can span quite a period of time.  Moreover, when combined with other debt, such as mortgages, auto loans credit card balances, medical bills, etc., the delay in saving for retirement can have a disastrous effect.  In fact, Americans may lose hope in ever retiring at all.

What if there was a better way, a way to repay your debt and save for retirement at the same time, a way that won’t compromise lifestyle?  Would that be of interest to you?

If so, we await your call or email.  We can be reached at (317) 536-1391 or john.baird@collegeplanningstrategiestoday.com.

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