Save Money: Return Excess Federal Loan Funds

Hanging onto unnecessary federal loan funds is a losing proposition — even if your student is “saving” them to use next term. At current interest rates, no savings account will pay more than the interest building up on those loans, and federal loan funds can’t be safely invested to earn as much as they cost in interest.

So as your student gets a feel for his or her fall college expenses, here are some tips for saving money on federal loan funds borrowed to pay those costs:

(A)  Return unneeded loan funds within 120 days: If your student figures out he or she won’t need them, he or she may contact the financial aid office and ask about how to best return the loan funds not needed for the term*. When this is done within 120 days of the funds being disbursed — i.e. paid toward tuition and fees or turned over to your student, whichever is earlier — Washington cancels its 1% loan fee, plus any interest that piled up on the returned amount. It’ll be as if those funds were never borrowed!

If your student received funds from multiple federal loans, the returned amount will pay them down in the following order — (1) Federal Direct Unsubsidized Loan, (2) Federal Direct Subsidized Loan (3) Federal Perkins Loan; and (4) Federal Direct Parent PLUS Loan.

(B)  Reduce next term’s federal loan(s) if that’s affordable: If your student is scheduled to get federal loan funds for the next term, this is a good time to consider whether or not all those funds will be needed to cover that term’s tuition and other expenses. If not, advise your student to tell the financial aid office to downsize that term’s loan(s).

(C)  Amounts returned can usually be re-borrowed if necessary: What if your student’s expenses turn out to be higher than expected? He or she can always go back to financial aid and request more loan funds, generally up to the amount that was returned. And interest won’t begin building until the new disbursement date for the re-borrowed funds. Note: Your student needs to request these funds at least two weeks before they’re needed. It sometimes takes that long for the funds to arrive from Washington.

 * Sometimes financial aid offices will return unneeded loan funds for students and sometimes they will give students guidance on how to return such funds themselves.

College Affordability Solutions offers 40 years of experience with federal student loans. Call (512) 366-5354 of email collegeafford@gmail.com if you’re interested in getting its advice on your federal loans.

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A Degree in 4 Years: The Best Way to Limit College Costs

The new school year is here! Fall semester is beginning on campuses all across America. You may have just dropped your student off at college. If you did, chances are a few tears were shed as you pulled away from campus.

Yes, the college years generate many opportunities for parental tears. One of the most common occurs every time you pay those college-related bills — for tuition, fees, books, room, board, and the other expenses your student incurs. The latest data available from College Board show that, for two semesters in 2015-16, all these expenses added up to an average of $24,062 at public in-state institutions and $47,831 at private schools.

Higher education costs are particularly subject to escalation, so every year your student’s college expenses are likely to grow faster than inflation. They’ve increased an average of 5.5% per year at public colleges and 5.0% at private universities since 2005-06. At this rate, 4 years at public and private institutions will average $110,226 and $215,938, respectively, for this fall’s entering freshman class. But only about 40% of American undergraduates complete their degrees within 4 years, so it is important to remember that, in 2020-21, the average cost of extra time in college will cost approximately:

                                                                           One Semester        Academic Year

Public College or University                           $15,725                    $31,450

Private College or University                         $30,380                    $60,760

Clearly, the best way to reduce college spending and borrowing is to get a degree within 4 years. To help reach this goal, here are five things you should coach and coax your student to do:

(1) Complete the heaviest possible course load every semester. The math is simple. Let’s say your student is in a degree program that requires 120 semester credit hours for completion. Absent transfer or credit-by-exam hours (see below), he or she will need to enroll in and successfully conclude an average of 15 hours per semester in order to graduate in 4 years.

Some colleges offer what might be called “flat rate tuition” to students who register for more than a certain number of credit hours. Under such an arrangement, your student would pay the same amount to take, for example, 15 or 18 hours per semester as 12 hours per semester. Urge your student to check into this with his or her academic advisor.

And remember, the objective is not just to register for courses, but to successfully finish them. Dropping a course not only lengthens time to degree but, even worse, you pay for it again if your student must pass it to graduate. So urge your student to avoid dropping courses if at all possible.

(2) Take courses that fulfill requirements for graduation. Yes, college is a place for exploration and self-discovery. But it’s a mighty expensive place to explore and discover to much. So you may want to urge your student to forgo courses that “might be fun” or “sound interesting” unless they also apply to core (i.e. out-of-major) or major (i.e. within major) requirements. Fortunately, many colleges and universities offer a broad menu of courses that fulfill such requirements.

(3) Transfer college credits in. While in high school, did your student successfully finish any “dual credit” courses through a community college? Did he or she pass any AP tests? If so, many colleges will accept those credits — especially as substitutes for their core requirements. So if your student has not already transferred them in, suggests that he or she go to the registrar’s office and arrange to do so.

Likewise, one way to stay on track for a 4 year degree is to transfer summer courses from local community colleges back to the schools at which students are seeking their degrees. Tuition at community colleges is lower than at 4-year institutions and, since your student can live at home, there’ll be no room and board to pay during the summer. Also, community college students can usually complete 6-10 summer credit hours even as they work part-time to save money for the rest of the school year. But note — it is important check with an academic advisor ahead of time to ensure that community college credits transferred in will count toward core or major requirements at the 4-year school. Otherwise, all summer enrollment does is generate extra tuition costs.

(4) Don’t transfer your student out if you can avoid it. Remember, if your student transfers to another college or university, chances are he or she won’t get credit at that institution for all courses completed at his or her current school. This creates another situation in which your student will have to take (and pay for) some of the same courses multiple times. Of course, if your student’s current school turns out to be a horrible fit, it may be necessary to transfer elsewhere but, if he or she can stick it out until graduation, urge your student to do so.

(5) Test out of courses if possible. Many colleges and universities have on-campus testing centers. For a relatively small fee, your student may be able go to this center and gain credit-by-exam in certain subjects. Credit-by-exam substitutes for full-tuition classroom courses — especially those applicable to core requirements. This can help your student lighten his or her semester course load while speeding time to degree.

It may not be easy for your student to implement these strategies. Extra effort and sacrifice is often required. Your student may not have as much time to socialize as much as others do. He or she may need to spend extra night and weekend hours studying. And he or she may have to persist in some difficult situations.

You’ll probably need to provide lot of encouragement and support, so don’t forget those “care packages,” phone calls, and visits! But it’ll be worth it — for both you and your student. Those who graduate within 4 years, save tens of thousands of dollars by forgoing extra college expenses and, not surprisingly, at least one study shows that such students incur  35% less debt than those who finish in 5 years.

A 4-year graduate starts his or her career 12 months earlier than 60% of his or her peers, leading to a much faster yield of college educated wages – which currently average more than $1,100 a week or $59,000 a year. So there are definite and tangible payoffs to graduating within 4 years. You’re most likely the person to whom your student listens the most, so you can help those payoffs become realities!

College Affordability Solutions brings 40 years experience to coaching families about these and other higher education affordability measures. Call (512) 366-5354 or email collegeafford@gmail.com to learn more.