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Tips for Minimizing Student Debt

Tips for Minimizing Student Debt

From guidance counselors and parents to your soccer coach and nosy neighbors, everyone seems to be interested in where you’re planning on going to college. And with good reason — there’s a lot to consider when making this important decision, beyond just picking the right university or vocational school and figuring out your major. Education costs money … a lot of it. But with some practical planning, there are ways to rein in college costs even if your college fund hasn’t caught up with your dreams quite yet.

Figure out What You’ve Got to Work With

Have the “money talk” with your parents. Find out if they — or your grandparents — have funds put aside for you like a tax-advantaged 529 college savings plan. If they do, know that the impact on your financial aid is different based on whether your parents or your grandparents started the account. And don’t forget to ask for money toward your college fund for birthday presents and holiday gifts to bolster your savings.

Stretch Your Budget

Rather than going straight to a four-year school, consider spending your first year or two at a community college. Community college can cost much less — plus, you could potentially save on living expenses by commuting. You can then transfer to the school of your dreams in a year or two to dig into your major.

Plan Your Way Out of a Jam

Talk to your college advisor about the feasibility of graduating early. Look into concurrent enrollment programs that allow you to take reduced-cost college classes while in high school. AP testing and CLEP tests can also help you receive credit at a reduced rate and speed up your graduation date. Graduating even one semester early can save you thousands of dollars in tuition, housing and other expenses.

Scholarships Are Free Money

In addition to academic and sports scholarships, there are also community-based, gender and subject area scholarships. Once you’re in college, you can work with your major department or honor society to take advantage of these programs. Look into smaller scholarships as well. Sometimes they’re easier to get, and a lot of small scholarships can add up to more money. And don’t forget about grants if you have financial need. Many states and colleges offer their own need-based grant, research and scholarship programs that you can apply for.

Work-study and Summer Jobs

Instead of taking out more student loans, look for opportunities to participate in federal work-study. These are programs that provide you work during the semester and can help you reduce the need for debt. A summer job can build up your resume and help toward paying your college expenses for the coming year.

Get Ahead of Debt

Make sure you fill out the Free Application for Federal Student Aid each year to take advantage of grants, work-study and some scholarships. Speak with a financial professional to help you take steps now to sidestep serious debt and make your transition into life on your own as smooth as possible.

 

Finance 101: A Lesson in Helping your Student Pay for College

Finance 101: A Lesson in Helping your Student Pay for College

You think back fondly on those halcyon collegiate days--studying in the quad, late-night pizza, tailgating for the big tailgating game, dorm living, tossing your graduation cap in the air...beyond the lifelong friends and the parties and fun, college helped you get to where you are today. Looking ahead, your student is planning on following in your footsteps and will be receiving that admissions letter of acceptance sooner than you think.

Unfortunately, it’s getting increasingly more difficult to afford college. Formal higher education is the institutional stamp of approval that will grant your child the entrance into the workforce, but that stamp comes at a steep cost that has increased more than 500 percent since 1985. The average cost of tuition and fees for the 2015-16 school year was $9,410 for state residents at public colleges, $23,893 for out-of-state residents attending public universities, and a $32,405 at private colleges. These average tuitions mark a 2.9% increase in tuition over the 2014-15 school year (before adjusting for inflation). Student loans end up being the solution for most college-bound students which come tied to their own set of issues; 43 million Americans hold student loan debt at a collective total of $1.26 trillion as of Q1 2016. Plus, approximately 43% of Americans who took out federal student loans are not making any payments.

There are scholarships and grants that lower the price tag of higher education, but they also make navigating the complicated world of financing college even more challenging.

Take these tips into consideration as you help your student apply and prepare to pay for college:

Know your budget.

Like purchasing many large, expensive items like a car or a house, it’s wise to know your budget going into the search for the right fit. If you don’t, you run the risk of test driving luxury cars out of your budget or touring houses outside of your price range and then what you can actually afford seems not good enough. The same goes for schools. If your family cannot realistically afford Harvey Mudd College (the most expensive college in the country as of tuition year 2015-16), then don’t tour the campus. And sure, a full ride scholarship would be great...but isn’t likely. Narrow down choices within a reasonable range (and with 4,726 degree-granting institutions in the U.S. there are indeed plenty of choices), and then help your student decipher what’s important to them in relation to what’s offered at the options from there.

Start acknowledging affordability by running the numbers through the Expected Family Contribution (EFC) calculator to learn what colleges are likely going to say your contribution should be. If you calculate a high EFC number (meaning you are wealthier), you still won’t want to pay full price for school. In that case look for schools that are generous with merit scholarships for students (regardless of financial need). If you calculate a low EFC rate, look for schools that have substantial financial aid.

Understand the financial breakdown.

Your student likely won’t be paying the total sticker price for a year’s tuition at college. That means you’re looking at the total net price (sticker price minus total aid). When your child receives the acceptance letter with the financial aid award breakdown (scholarships, grants, etc.), it can be difficult to decipher what means what. For example, the line item “financial aid” can be used in the place of what are actually loans. Then there’s often a question around how much Expected Family Contribution there is and how it can be applied to what--is it just tuition or does that include room and board? Avoid confusion preemptively with a secure online tool like College Abacus allows for the comparison of net price estimates, given your personal situation, before financial aid is actually determined.

Expand the search.

Don’t be afraid to expand the search parameters for colleges. Some colleges are so popular they see such high applicant numbers they can afford to be selective in who they accept and who they offer money to, resulting in less generous overall financial aid. Schools with lower application rates are usually small, lesser-known, private colleges who may have higher reserves of financial aid to grant.

Learn from an expert.

Make an appointment with the financial aid offices at the colleges your student is considering to gain a better understanding of they will calculate financial contribution. They’ll be able to tell you if elements like home equity will be factored in. (This is not information required for the FAFSA, but is required information at some private colleges.) They will also be able to answer any specific questions that apply to your situation that a general college financial FAQs webpage cannot answer. Additionally, a meeting with your financial advisor well before your student pays that first semester bill is wise to ensure you won’t be met with any surprises when taxes comes due.

  1. https://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fees-and-room-and-board-over-time-1
  2. http://www.bloomberg.com/news/articles/2013-08-26/college-costs-surge-500-in-u-s-since-1985-chart-of-the-day
  3. http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064
  4. http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064
  5. http://www.marketwatch.com/story/every-second-americans-get-buried-under-another-3055-in-student-loan-debt-2015-06-10

Tags: student loans, finance


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