After College: Look for Employers Offering Student Loan Repayment Assistance

You have or soon will complete your college commencement. Unless you’re about to begin graduate or professional study, you’re no doubt job hunting. If you have college debt, be sure to learn whether prospective employers offer student loan IMG_2287repayment assistance among their employee benefits.

Currently, only a few employers help employees pay down student loans. A recent survey found that just 4% of companies were doing this in 2017. But the number of companies offering this benefit is expected to grow in 2018, and some of America’s leading corporations — Aetna, Fidelity Investments, New York Life, Pricewaterhouse Coopers, Prudential, etc. — already provide it. So do some nonprofits and local governments such as the City of Memphis, Tennessee.

IMG_2288How does repayment assistance work on postsecondary debt? Your employer contributes a certain amount above and beyond the monthly payment you’re required to make. It’s contribution generally occurs on a monthly basis, although there may be annual and/or lifetime caps on its total contributions.

Employer-provided loan repayment assistance means your loans will be paid-in-full faster. Also, since the interest you pay is a product of how much you owe and for how long you owe it, it’ll also lower the amount of your lifetime earnings that you’ll devote to repaying your debt.

The Internal Revenue Service treats employer college debt payments as “taxable IMG_2289income” for the employees receiving this benefit, so put some money away to cover the increased federal income taxes you’ll pay on this amount. Nevertheless, any additional taxes you pay will be considerably less than what you’d spend if you paid 100% of your debt without employer assistance.

Why would an employer spend money to help repay its workers’ student loans? Think about it. Businesses in need of highly educated workforces gain a competitive advantage when recruiting the world’s most knowledgeable and skillful people — U.S. college graduates — 70% of whom borrowed while in school. Also, college educated employees are among the most mobile workers in today’s workforce but, being young and healthy, they often gain more from repayment assistance than medical, dental, or other types of benefits. So a company offering repayment assistance over a numbers of years also gives itself an advantage in retaining them.

You’ll likely earn less early in your career than at any other time. Employer-provided student loan repayment assistance can help resolve this while reducing your student debt, so carefully consider it as you evaluate prospective employers.

College Affordability Solutions brings 40 years of student loan experience to the table when consulting with ex-students about ways to manage their college debts. To arrange for a free consultation, email collegeafford@gmail.com.

Advertisements

Before and During College: Prepare for Rising Student Loan Interest Rates

The Federal Direct Loan Program (FDLP) provides 89% of all postsecondary educational loans. Unfortunately, FDLP loans will soon become more expensive to borrow.

FDLP interest rates are set every May for loans made from July 1 through June 30. The 2018-19 rates will be 0.6% higher than in 2017-18, making this the third year in aIMG_2154 row during which they have risen.

Note: FDLP loans are “made” from July 1 through June 30 if, during this period, any portion of their initial installments go directly to students or are applied applied to what they owe their institutions.

Higher rates increase borrowing costs. For example, what if the lower 2017-18 interest rates versus the higher 2018-19 interest rates were to remain in place for the next four years? Depending on the borrower’s choice of repayment plan, the total amount repaid to the FDLP under the higher rates would jump by up to:

  • $2,755 for undergraduates borrowing the maximum amount each year for four years;
  • $7,144 for parents borrowing the national average of $10,226 per year to help their undergraduates earn four-year degrees; and
  • $7,338 for two-year master’s degree students borrowing $25,000 per year.

Why are rates rising? Federal law ties the interest charged on each FDLP loan to the rate at which the government auctions off 10-year Treasury notes every May. The rates at which such Treasury notes are auctioned rises as the economy improves, which it’s been doing since late 2015, so FDLP interest rates have been rising, too.

And assuming there’s no economic recession for the next few years, future FDLP interest rates will climb even higher.

Good news? Federal law fixes FDLP interest rate until loans are totally repaid, so their interest rates never rise. This helps make FDLP loans better than the “variable rate” educational loans offered by many private lending institutions.

Still, rising FDLP rates make college less affordable unless borrowing is reduced. Fortunately, there are ways to do this and still get a quality education, including, but not limited to:

So make plans now, because it’s going to be more important than ever to minimize college debt for 2018-19!

College Affordability Solutions brings 40 years of personal college finance and student loan experience to it’s no-cost consultations with customers. Contact it at (512) 366-5354 or collegeafford@gmail.com for such a consultation.

Before College: 5+2+9 = A Great Way to Invest for College!

IMG_2130How to best save money for your child’s college education? We asked this of Kevin Wood, who recently retired after many years as a professional investment advisor. His answer was simple and enthusiastic — start a 529 plan!

These plans are specifically designed to help Americans in all income ranges save for college. Kevin affirmed that they’re simple, safe, and they grow tax free.

Kevin also offered three ground rules to have your 529 plan generate as much as possible for your child:

  1. Open it as early as you can. The longer it’s open, the longer your plan earns money and the more college costs it’ll pay. So start contributing to a 529 plan as soon as possible after your child’s birth.IMG_2132
  2. Authorize automatic monthly withdrawals from your bank account into your 529 plan. This way you’ll never forget to contribute to your plan.
  3. Grow your contributions as your income grows. Most parents earn the least they’ll ever earn while their children are young. But if you can only contribute a few dollars at this point, do so. Then, grow your contributions as your career progresses and your income grows.

Got relatives who want to help out with college costs? Have them make monetary gifts to the 529 plan you open for your child. Student aid rules don’t count payments from parent-owned 529 plans as student income, but they do count payments from other 529 plans this way.

You can find 529 plans that accept initial contributions of $50 or even less and subsequent contributions that are just as small. So you don’t have to be wealthy to use a 529. If you can only afford to make small contributions for starters, do it! Then raise your contributions as you begin to earn more. This will go a long way toward generating the money your child needs to go to college.

Risk for 529 plans involves suffering losses without having sufficient time to recover IMG_2135those losses as 529 investments bounce back. So Kevin recommends you go with 529 plans that employ age-based approaches to investing. As your child gets to closer college, these offer more protection from market fluctuations.

You’ll pay fees to your 529 plan’s manager, but don’t let this deter you. Kevin stresses that a good manager who meticulously watches and adjusts your 529 investments is well worth the money.

You can get information about 529 plans from most licensed investment brokers, or from the College Savings Plans Network website.

So open a 529 plan soon, one that uses an age-based investment strategy. Contribute regularly, and increase your contribution whenever you can. Your student will thank you for his 529 plan at commencement, if not before!

Need some advice from an experienced investment professional? Call Kevin Wood at (512) 900-0688.

For information on other strategies to keep college costs manageable, contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for free consultations.

Before College: Get Ready for What It’ll Cost . . . Now!

Parents and students are often shocked by college costs, especially late in high school, when there’s little time to generate significant amounts to help cover these costs.

It’s well known that postsecondary institutions charge tuition, and that there’ll be expenses for books and class supplies and room and board while students attend college. There are other charges, too. But it’s the total cost that seems to catch families by surprise.

So let’s look at the most recent data about the average cost of college attendance for an academic year (fall through spring). And for a sense of how these costs grow, look at what they were 10 years ago:

IMG_2078

Yes, over the last decade the average cost of a year at college rose 25% at public 2-year institutions, 38% at public 4-year universities, and 36% at private 4-year universities.

At this rate, if today’s 8-year old begins college in 10 years, her freshman year will cost approximately $22,000 at a public 2-year, $35,000 at a public 4-year, and $69,000 at a private 4-year institution.

She may be able to reduce expenses by, for example, living at home while taking classes. But she’ll still encounter 5-figure costs:

IMG_2116

Sallie Mae’s most recent How America Pays for College report indicates that nearly 90% of 2016-17 families know their children are college-bound in preschool. But in 2016-17 only 13% of college parents had 529 plans to help cover postsecondary expenses and just 8% could devote parental savings to these costs.

The result? Sallie Mae’s report indicates that, in 2016-17 alone, 33% of undergraduates borrowed an average of $8,835 in federal loans and almost one out of 10 of college parents took out Federal Direct Parent PLUS Loans, at an average of $10,226 per loan, to help pay postsecondary expenses.

Many of today’s postsecondary parents lost their jobs, income, and savings during the 2007-09 Great Recession. This really limited what they could save for college.

But in general, Americans are now better off. Unemployment in March was 4.1% — less than half the March 2010 rate of 9.9%. And U.S. Median Household Income has risen steadily to be almost 20% higher than in 2010.

If you’re enjoying job security and prosperity, now is the time to start saving all you can for college — even if it’s only a small amount.

Ah, you may ask, but won’t my savings reduce my child’s eligibility for federal student aid? Yes. But the reality is that 62% of that aid comes in the form of loans.

So every dollar you save today can help your student — and you — reduce college debt in the future!

Next Wednesday: Why 529 plans are the best way to save for college.
Until then, contact College Affordability Solutions at (512) 417-7660 or collegeafford@gmail.com for free consultations about issues related to financing your child’s college costs.

 

Special Bulletin: Tuesday is May 1 — A Key Deadline for Most Prospective Freshmen!

May 1 is probably a big day for your high school senior. Most likely it’s the deadline by which the colleges and universities in which he’s interested require him to accept their one of their admission offers. And many if not most of these institutions also IMG_2075require other things of him by this date. Among these:

  • Payment of a non-refundable enrollment deposit: If this deposit isn’t paid by May 1, he’ll lose his place in this coming fall’s entering freshman class. He may be able to get a place on his selected school’s waiting list, but there’ll be no assurance that he’ll be permitted to enroll in its fall classes.
  • Payment of a housing deposit: This deposit is probably non-refundable, too. Paying it by May 1 or whatever other deadline the institution has established is necessary to ensure that he’ll have a place to live in on-campus housing when he arrives at school.
  • Acceptance of financial aid offered by the institution: This offer will most likely be cancelled if it isn’t accepted by May 1 or, again, any later deadline your student’s Been given. And while any Federal Pell Grant or Federal Direct Student Loan that gets cancelled can be reinstated later, other aid he was offered probably cannot.

If your high school senior’s already selected the college he wants to attend, and if all the steps described above have been completed, congratulations!

But if you aren’t sure whether or how your student’s selected college is applying a May 1 deadline to him, contact the school right away to find out. And if May 1 is his deadline for anything, be sure all that needs to be done is done. Failing to do so by midnight on May 1 can really foul up college plans!

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a free consultation if you need assistance on any aspect of financing postsecondary study.

During College: Advise Your Student to Avoid Dropping Courses, Especially Now!

The end of another academic term is approaching, and students struggling with courses are no doubt assessing their options. Should they drop these courses? IMG_1947Probably not.

Dropping now is a bad idea for several reasons:

  • Students who drop courses late in a term usually receive little or no refund of tuition and fees paid for the courses. So they get no return on the money they invested, and repeated drops can force them to enroll for one or more additional terms, costing them thousands in extra tuition, fees, and other costs of attendance.
  • If dropped courses are necessary to satisfy academic requirements — either in the “core” curriculum or to fulfill the demands of a student’s major — the student will eventually have to retake them or similar courses. Result? The student pays twice to complete requirements once.
  • Dropping courses can also jeopardize financial aid eligibility. To get federal aid, Washington requires a student to meet institutional standards for Satisfactory Academic Progress (SAP) toward graduation. These standards — usually postedIMG_1948 on financial aid office websites — obligate the student to successfully complete a certain percentage of the courses in which she enrolls. Many scholarship providers, schools, and states apply similar requirements for their aid programs. But if dropping would put a student below these percentages, she could lose future financial aid.

Because of all this, students should avoid the temptation to drop in order to avert grades that are good but, for whatever reasons, aren’t considered good enough. Some students, for example, can’t tolerate anything less than an A for reasons of personal pride. Others may worry that Bs or Cs will ruin their graduate or professional school applications.

Is there ever a time when a student should consider dropping a course? Yes. SAP also requires at least a 2.0 undergraduate Grade Point Average (GPA), and most institutions have minimum GPAs that students must remain at or above in order to remain enrolled. If a student is certain her final grade in a course will put her below these minimums, dropping may be her best option.

Students may appeal lost aid if they fail to maintain SAP. These appeal processes are usually described on aid office websites. Successful appeals generally (a) document extraordinary circumstances (e.g. illness or family emergency) that undermined academic performance and (b) describe steps the student has taken to overcome these circumstances.

IMG_1949Instead of dropping, it’s usually better to seek academic assistance — and to do so ASAP. Visit with the instructor, get a tutor, join a study group, consult an academic advisor or campus counselor, etc. These actions can go a long way toward avoiding all the costly negatives stemming from a dropped course!

 

Got questions about how to avoid making college attendance more expensive than it needs to be? Contact College Affordability Solutions for a free consultation at (512) 366-5354 or https://collegeafford.com.

During College: You Should Be Protesting If Your Student’s Not Detesting Cryptocurrency Investing!

It’s bad enough that 75% of college students gamble. But now another perilous student behavior has emerged. A recent survey by The Student Loan Report indicates that 21% of student borrowers invest in cryptocurrencies such as Bitcoin.IMG_1834

As a responsible parent you of course advise your student not to gamble. But also urge him to stay away from cryptocurrency investments!

Unfortunately, these investments are easy to make. After loan and other aid money pays tuition and fees for an academic term, your student gets the remainder to cover that term’s books and other necessary expenses. Now he could have up to a few thousand dollars in hand.

He can invest these funds — hopefully in a safe and secure bank account, but also in high-risk opportunities such as cryptocurrencies. Wherever he invests, he’ll still need to pay for necessities like books, housing, and food as the term progresses.

IMG_1779What makes cryptocurrencies so dicey for college students? It’s what investment professionals call “volatility.” Cryptocurrencies can become really volatile really fast!

For example, Bitcoin’s value on January 10 was $14,890.72. But by February 5 it’s value dropped to $6,914.26 — a 54% loss! So if your student bought a $2,000 share in Bitcoin on January 10 and sold this share just 25 days later, he lost $1,080 of his investment! Meanwhile, thousands in costs for the term remain to be paid.

Some call Bitcoin the potentially biggest “bubble” in history. A $1,080 loss from his IMG_1782limited pool of funds could easily place your child among the 52% of college students facing high levels of food insecurity, or the 12% college students who are homeless.

Difficulty paying for basic needs undermines academic performance, and money shortages have long been among the most common reasons why students leave college without degrees, so cryptocurrency financial losses could also end up placing your student among the 25% who drop out every year.

Far better for your student to spend as conservatively as possible and, toward the end of the term, if he has money he doesn’t need, return it to the government. For every $100 of his spring Federal Direct Unsubsidized Loan he returns within 120 days of its disbursement, Washington will immediately cancel all fees and interest applicable to that $100. The result is that for every $100 he returns, the total amount he’ll ultimately repay on this loan will be cut by up to $191!

There’s an old saying, “Never gamble unless you can afford to lose the money.” If your student needs loans and/or other financial aid to help pay for college, he certainly cannot afford to lose money on erratic investments such as cryptocurrencies!

College Affordability Solutions has 40 years of experience in counseling students and parents on ways to manage their dollars for college. Call (512) 366-5354 or email collegeafford@gmail.com for a no-cost consultation.