During College: Helping Your Student to Manage Money

Today we are pleased to present a guest article by Linda Matthew on a particularly timely topic for the parents of current college students . . .

Towards the end of his first semester in college, my fiercely independent son let drop that he was feeling worried about his finances. He couldn’t get a handle on just how much was coming in, and his money seemed to be going out much faster than it had before.

It was a good opening, to actually be asked to help a young person, and I was happy to have it. If your own child has recently gone off to college, this could be a good time to check in and see how they are doing with their finances. There can be a wide variation in what expenses the student covers versus how much mom and dad provide, but even if you are paying for every penny right down to an allowance, the student will be managing some of the money.

If the child has questions (or you do), the first thing that can be very useful is a spending summary for the semester so far. Have them take their bank statement for September and total up their spending for that month by category (food, phone, laundry, outings, printing, transportation etc.) Then have them do the same for October. It can help a lot for them to see how much they are spending on each thing.

I remember that my son was stunned to see how much he was spending on the little green scooters that the kids zoom around on. They didn’t seem like much at $2 to $3 a ride, but apparently they added up. Once they have categories done, they can find the grand total of their expenses for each month, and compare that to their income. This will help them see whether they are going over their income, and why. (If categorizing is too complicated, it can still be very useful to do the second part. Our spending rarely feels as if it’s much each day, and the grand total for the month can be a much larger number than we might have expected.) Either way, the key is to find out the numbers – putting specific numbers to things is the only way to get beyond that stage of just feeling vaguely uncomfortable.

Sometimes, the problem can be that strange things are happening, and this is a good time to try to get to the bottom of those. With our older son, his meal plan was disappearing much faster than we had anticipated. A little digging turned up the fact that he had been using it at Starbucks, which took his meal card, and we had to explain to him that we were not paying for fancy coffees. While he was welcome to buy those, he needed to do it out of his own earnings, not the meal plan that we were covering.

It is worth noting in this category also that some college meal plans can be very confusing, and it’s hard not to think that it’s intentional.

One son had “free” points that he could use at specific meals on the weekend. The meals were at times that he could never make, and finally I realized that we were actually paying for those unused “free” points, and that there was a plan we could buy without them, listed at the very bottom of the page. Things got a lot cheaper after that. Other schools have “dining hall bucks” that are supposedly discounted, but looking at the numbers shows that there is no savings. For example, you might pay $10 for 4 meal bucks, only to find that 4 meal bucks buys – yes – $10 worth of food.

The last point I will make is that I am not a fan of credit cards for college students. When there is money in a bank account and a debit card on that, it is very easy to tell when you have hit the limit of your budget – your account is at zero. Then you know that you are in trouble, and it is time to make another plan.

Using a credit card is basically spending the money before you earn it, and it is very difficult to understand exactly where you are relative to your budget. People worry about “building credit”, but why not build savings instead? “Building credit” is really just building debt, and we do our children no favours by loading them with debt so early in life.

About Linda Matthew

Today’s guest author is Linda Matthew, an Accredited Financial Counselor® and the owner of MoneyMindful Personal Financial Coaching, with which College Affordability Solutions has partnered since 2016. Linda has clients throughout the U.S. and Canada. She is also the parent of one college graduate and one current college student.

Linda’s new book, Teach Your Children About Money, describes age-appropriate methods for helping youngsters learn about themselves and different ways to manage their money. It also has a special section just for college.

Go to the MoneyMindful website for more about Linda, to arrange a free consultation and to order your copy of Teach Your Children About Money.

After College: Can and Should You Use Income-Based Repayment?

Did you read last Wednesday’s article about Federal Direct Loan Program’s (FDLP’s) conventional repayment plans? Hopefully, you even checked out those plans. If they don’t meet your needs, you’ve got other options called “income-driven repayment plans.”

These plans work well if your federal college loan payments are high compared to your income. They can even set $0 monthly payments if your income’s low enough. But they also drag out repayment, so it’ll take longer and cost more to eliminate your federal college debt.

The income-driven plans offer you up to 20-25 year repayment periods. And they forgive whatever you might owe when such repayment periods end. They can also help you qualify for Public Service Loan Loan Forgiveness (PSLF) in 10 years.

They’re called “income-driven” plans because you reapply for them every 12 months, when they reset your monthly payment amount based on your documented Adjusted Gross Income (AGI).

Unfortunately, these plans use overly-complicated criteria and formulas to determine eligibility and monthly payment amounts. They’re so byzantine that we can’t fully describe all of them today. So today we’ll examine the most popular of these plans — Income-Based Repayment (IBR).

Under IBR, your monthly payment amount will never exceed one-twelfth of:

  • 10% of the difference between 150% of the federal poverty line for your family size and your AGI if you’re a new borrower with a partial financial hardship; or
  • 15% of this difference if you’re not a new borrower but have a partial financial hardship.

You can use IBR to repay your FDLP Subsidized, Unsubsidized, and Graduate PLUS Loans. You can also use it to repay your FDLP Consolidation Loans that repaid federal loans made to you as a student. But IBR cannot be used to repay FDLP Parent PLUS Loans, or FDLP Consolidation Loans that repaid Parent PLUS Loans.

Using the Federal Student Loan Repayment Estimator is the easiest way to see if you’re IBR eligible and what your IBR payments would be. The Estimator employs the following definitions to make these determinations:

  • AGI: Your AGI equals what’s listed on your most recent federal tax return, plus your spouse’s most recent AGI if you’re married and the two of you filed a joint tax return;
  • New Borrower: You’re a new borrower if you had no outstanding FDLP or Federal Family Education Loan Program (FFELP) debt on July 1, 2014; and
  • Partial Financial Hardship: If you’re a new borrower, you have this hardship if what you’d repay over 12 months under the FDLP’s 10-year Standard Repayment Plan — either when you began repayment or when you select IBR, whichever amount is greater — would exceed 10% of all you borrowed from the FDLP or FFELP. If you’re not a “new borrower,” you’ve got a partial financial hardship if this percentage exceeds 15%.

So use the Federal Student Loan Repayment Estimator to see if you’re eligible for IBR and if IBR meets your needs. More about other income-driven repayment plans October 30.

College Affordability Solutions offers 41 years experience in administering student loans and their repayment. Contact us for free consultations at (512) 417-7660 or collegeafford@msn.com if you need help in managing and paying off your student loan debt.

After College: Is a Conventional Student Loan Repayment Plan for You?

Most or all your college debt is probably from the Federal Direct Loan Program (FDLP). Last Wednesday, we suggested you ask and answer two questions to help select strategies for repaying this debt — (1) what are my current career, financial, and personal circumstances; and (2) how will these to evolve over time?

Your answers will help you determine which FDLP repayment plan you should select. Four of these are what we call the government’s “conventional” repayment plans. We use “conventional” because these are the oldest federal student loan repayment plans, and the first of them mimics the repayment blueprint for most other consumer debt. Here they are:

Standard Repayment Plan

This approach requires you to pay the same amount (no less than $50) every month for up to 10 years, when your federal debt is paid-in-full. It usually features the highest monthly payments of all federal repayment plans, but requires you to devote the lowest share of your lifetime earnings to FDLP repayment and helps you eliminate your federal loans faster — unless you consolidate them, in which case you can get from 12 to 30 years to repay depending on your total college debt level.

This plan works best if you have a high salary and/or low FDLP debt and want to eliminate that debt within a decade.

Graduated Repayment Plan

Graduated repayment also eliminates your FDLP debt in 10 years — or more if you consolidate — but your payments start small and increase every two years. No payment will ever be more than three times higher than any other.

Graduated repayment is best if your salary’s low now, you expect pretty significant annual salary increases, and you want to eliminate your federal debt in 10 years.

Extended Fixed Repayment Plan

You can get an extended fixed plan only if you owe the FDLP $30,000 or more. Under it, your monthly payments are all equal but you get up to a 25-year repayment period. This reduces your payment amounts but increases your FDLP debt’s life and what you repay in total.

This plan works well if your salary’s already pretty high, you owe $30,000 or more, but rapid debt elimination isn’t important.

Extended Graduated Repayment Plan

Extended graduated payments also require $30,000 plus in FDLP debt, begin low, and rise every two years, with no payment being three times bigger than any other.

This is the plan for you if quick debt elimination isn’t important, your salary’s low now, but it’ll rise every year or two.

The Federal Student Loan Repayment Estimator will project the impact of each conventional repayment plan’s impact on your monthly FDLP repayment amount, length, and total. Try it out!

Next Wednesday we’ll explain the other four FDLP repayment plans.

College Affordability Solutions consults with student loan borrowers about repayment at no charge. Call (512) 366-5354 or email collegeafford@gmail.com to schedule such a consultation.

After College: Questions to Answer Before You Begin Student Loan Repayment

Did you complete college this past spring after borrowing from the Federal Direct Loan Program (FDLP)? If so, your government-hired loan servicer has or soon will contact you to arrange the repayment of that debt. So you’ve got some decisions to make.

Your servicer will send you detailed information on the FDLP’s 10-year Standard Repayment Plan (Standard Plan). It’ll use equal monthly payments to eliminate your debt within a decade. Student borrowers who earned bachelor’s degrees in 2018 owed $29,200 on average — generating Standard Plan payments of $309/month and a total repayment cost of $37,063 ($7,863 of 27% more than the amount borrowed).

But your servicer will also offer you ways to investigate all eight FDLP repayment plans, and you should do that.

Some of the other seven plans give you extra months to repay, lowering your monthly payments, and some allow you to begin working toward various forms of federal student debt forgiveness. But it’ll also take you longer and cost you more to pay off your debt under most of them.

Selecting the right repayment plan can be confusing. To clarify and simplify this decision, answer two key questions:

  • What are my present career, financial, and personal circumstances; and
  • How do I expect these to evolve in the future?

Two recent graduates illustrate this . . .

Drew

  • Career: June MBA graduate now working for large, national accounting firm. Hopes to stay long enough gain experience that’ll help him open his own firm.
  • Financial: $51,000 in FDLP debt. Earns $82,00/year. Expects steady salary increases. Wants to buy a new car and house next year.
  • Personal: Age 26. Engaged to a law student. Planning to marry after she graduates next spring.

The Standard Plan would require monthly payments equaling about 10% of Drew’s take home pay — pretty high since he’s just starting out. So his best option is probably the Graduated Repayment Plan. It’ll require initial monthly payments equaling 6% of his take home pay. They’ll rise every few years, but his debt will be gone in 10 years, freeing up capital he’ll need to begin his own firm.

Megan

  • Career: Got teaching degree in May. First grade teacher in small, rural public school. Loves teaching and hopes to spend her career there.
  • Financial: $31,500 in FDLP debt. Earns $35,00/year. Knows this will rise slowly. Hopes to someday buy a house.
  • Personal: Age 22. No marriage plans at this time.

Megan should consider the income-driven repayment plans. Whereas her monthly Standard Plan payments would exceed 16% of her current take home pay, three income-driven plans can drop them to a much more affordable 7% of that amount. They also position Megan to eliminate her remaining debt in 10 years via Public Service Loan Forgiveness.

So before you start making your student loan payments, think about where you are now and where you will be in the future. Doing this will help you pick the best repayment arrangement for you!

Next Wednesday we’ll begin exploring the terms and conditions of all the repayment plans available to you on your FDLP Loans.

If you’re looking for advice on repaying your student loans, contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before and During College: Do Your 2020-21 FAFSA in Just Six More Days!

October 1 is just six days away! If you or your child will need financial aid to pay postsecondary education expenses during academic year 2020-21 this date is a crucial.

The U.S. Education Department (ED) is scheduled to make the Free Application for Federal Student Aid, also know as the FAFSA-on-the-Web — the nation’s primary financial aid application — available on October 1, and you need to complete and submit this form then or as soon thereafter as possible.

Why submit your FAFSA so early? Because:

  1. Many states and postsecondary schools use FAFSA submission dates to set priorities for making awards from sources with limited funding — e.g. state and institutional grants and scholarships;
  2. It positions you for early financial aid offers from schools that make such offers, giving you more time to compare their affordability;
  3. You’ll also get more time to review, correct, and update (here) your FAFSA data on the Student Aid Report (SAR) that’ll be made available to you soon after your FAFSA-on-the-Web’s processed; and
  4. Finally, Louisiana and Texas now require almost all their students to complete and submit the FAFSA in order to graduate from high school, and more states may soon add this requirement.

Ensure your FAFSA-on-the-Web is complete and accurate when you hit the button to submit it. Toward this end, you need to know whether it’ll require parental information because you’re a dependent student. In general, such students were born after January 1, 1997, are unmarried undergraduates without dependents, and aren’t in the U.S. military or military veterans (see more here).

You’ll also need certain information to put on the 2020-21 FAFSA-on-the-Web for you and any parent who’ll sign it. This includes:

  • Federal Student Aid (FSA) ID usernames and passwords (click here to create them, if necessary);
  • Social Security numbers or, for non-U.S citizens, Alien Registration numbers;
  • Driver’s License number, if you have one;
  • 2018 Federal Income Tax Returns, W-2 Forms, and other earnings records;
  • Most current bank statements and investment records;
  • Records of untaxed income; and
  • Federal School Code for each postsecondary institution you may attend in 2020-21 (look them up here).

Forget the horror stories about how long and hard it is to do the FAFSA. It’s much faster and easier than ever if you take the steps described above. So be sure your FAFSA is complete and submitted as soon as possible on or after October 1 — you have nothing to loose and everything to gain!

Need help completing your FAFSA? College Affordability Solutions is available for free consultations at (512) 417-7660 or collegeafford@gmail.com.

Before College: Don’t Let Price Considerations Force Private Schools Off Your List of Potential Colleges — At Least Not Yet!

Anna and Nathan are twins who finished their college freshman year last spring. To protect their institutions, let’s just say that Anna attended University A — a private college receiving no state subsidies — while Nathan enrolled in state-supported public University B.

The total cost — tuition, fees, room, board, books, etc. — for an undergraduate at these universities is vastly different. Last year, it was $52,000 at University A but half that at University B.

Still Anna’s net price — what she and her parents paid after the grants and scholarships she received — was just under $12,000. Nathan’s was a bit above $18,000.

They’re from the same middle-income household, so both qualify for similar federal and state grant amounts. The difference is their scholarships — in this case, institutional scholarships. University A, with a smaller student body but significantly larger endowment, awarded Anna over $30,000 in institutional scholarships. Meanwhile, Nathan got just a $2,500 scholarship from University B. And Universities A and B aren’t the only private and public institutions where these counterintuitive price difference exist.

But there are also well-endowed private colleges and universities whose net prices are much higher than those of their state-supported counterparts. You’ll never know for sure until financial aid offers begin coming in, some of which come as late as next March or April for academic year 2020-21’s prospective freshmen.

The moral is this — don’t cross private universities off your college application list simply because their published total costs are higher than those of public institutions on that list, for private schools may surprise you with large tuition discounts in the form of significant institutional scholarships.

What can you do to improve your chances of winning institutional scholarships at any college or university? Here are some pointers:

  • File Your Free Application for Federal Student Aid (FAFSA) Early: The 2020-21 FAFSA becomes available October 1. Next Wednesday you’ll find out how to prepare to complete and submit it on that day or soon thereafter.
  • File the Institution’s Scholarship Application Form As Soon As Possible: Many colleges use their own scholarship applications to supplement the FAFSA. If so, be thorough but timely in submitting them.
  • Apply to Institutions That Are Good Academic Matches for You: If they’re good for you, you may be the sort of student that’s good for them. Anna, wanted to major in music, and was her high school’s leading pianist. University A’s highly rated music department was seeking talented young pianists, so some of Anna’s institutional scholarship dollars came from that department.

Never pick a school that’s unaffordable or a bad match for you. But right now is to early to narrow your options based on cost!

For more pre-college strategies to help keep the net price of your postsecondary education affordable, contact College Affordability Solutions at (512)366-5354 or at collegeafford@gmail.com.

During and After College: Prepare To Fight for Your Federal Public Service Loan Forgiveness!

The U.S. Education Department (ED) continues to block federal student loan forgiveness for public servants who qualify — i.e. those who’ve faithfully made 10 years of monthly payments toward their Federal Direct Loan Program (FDLP) debts.

Congress authorized the Public Service Loan Forgiveness (PSLF) Program in 2007 to help recruit well-educated millennial replacements for millions of baby boomers scheduled to retire from government and nonprofit jobs. But the Trump administration was running ED by 2017, when qualified borrowers began applying for forgiveness. And Trump’s ED despises PSLF. Last December, its Principal Deputy Undersecretary reportedly said PSLF is a disaster ED doesn’t support.

ED and FedLoan, its PSLF contractor, denied PSLF to thousands. Last year ED’s own statistics showed that 99.5% of PSLF applicants had been rejected. So in 2018 Congress created a fix, authorizing $700 million for a Temporarily Expanded Public Service Loan Forgiveness (TEPSLF) Program. TEPSLF qualifies otherwise eligible public servants for forgiveness after 120 monthly payments made under any FDLP repayment plan, not just certain plans as required by PSLF.

But last week, the non-partisan General Accountability Office (GAO) reported that 99% of TEPSLF applicants had been denied forgiveness. It found that:

  • Over 70% of those who requested TEPSLF by sending FedLoan the emails it requires didn’t attach their PSLF Forgiveness Applications or PSLF Employment Certification Forms. There’s so much confusion surrounding these forms that it’s clear applicants aren’t well-informed about them;
  • 12% of TEPSLF denials were because borrowers hadn’t yet spent 120 months making full, on-time payments or working the right jobs;
  • When TEPSLF applicants are denied, they’re never told how to contest their denials; and
  • TEPSLF forgiveness for the 1% who’ve gotten it averages about $41,000; but $653 million remain for TEPLSF to forgive other public servants’ FDLP loans.

So if you do or will qualify for TEPSLF, you may have to fight for debt forgiveness to which you’re entitled as long as Trump appointees run ED — and maybe longer! Here’s to prepare for that:

  1. Be sure you fully understand exactly what you must do to get TEPSLF — i.e. all TEPSLF eligibility criteria and required forms. This information is available through FedLoan’s and ED’s PSLF websites;
  2. Keep a copy of every form, email, and letter you send FedLoan. Use the Postal Service’s tracking function for anything you mail FedLoan and print, file, and keep the tracking function’s feedback to prove FedLoan received what you mailed;
  3. Keep clear, thorough notes — names, dates, times, discussion content, etc. — on every phone conversation you have with FedLoan or ED; and
  4. If you’re wrongly denied, appeal through ED’s Federal Student Aid Feedback System or Ombudsperson.

Sadly, you must assume Trump’s ED and it’s contractor are opposed to you getting the loan forgiveness you deserve under law. So these steps may be invaluable if you ever need help from your congressmen or to sue ED.

Need help understanding what you need to know about student loan repayment or forgiveness? College Affordability Solutions is available for free consultations at (512) 533-5354 or collegeafford@gmail.com.