Yes, these are unusual times for everyone, including millions of college-bound high school seniors and their families. Within the last two months, everything has turned upside down, affecting even the greatest of plans. Or so, one might think.
Financing one’s college education has become one of the top five most significant financial investments an individual will make in their lifetime and that of their parents. Choosing to go to college should be treated as an investment, one that doesn’t put the student or their parents at a financial risk.
Depending on where a student and their parents are in the college planning process, multiple strategies can apply. Plans should take into consideration college choices, financial resources, dependency on financial aid, and future goals. Wise steps are needed next today.
Seniors: Unfortunately, you are under the microscope, experiencing the most significant impact. You and your parents may have chosen a college, submitted a deposit, or you have been narrowing the list and were ready to pull the trigger. However, now as you compare financial aid awards and calculate the net cost, the gap has grown. In both cases, filing an appeal is your next step. Deposited or not, if your ability to meet the cost of one or more college on the list, a request is in order. You must convey the new, current financial status of the household and the specific reason (loss of or drop in income). The appeal is sent to the Financial Aid Office and copied to Admissions. Then give them time, monitor emails, and follow up.
Deposited Days Extended: By now, most college-bound seniors know that the official May 1 Deposit Day is on the move. The vast majority of colleges and universities are moving their deposit date to June and a few even, July. For students and families who are evaluating the cost side of choosing, enrolling this is a helpful sign.
New Recruitment Practices: I’m not referring to athletics, all though they too are affected by the current COVID-19. I am speaking about potentially new recruitment practices coming to the forefront of higher education. The idea of schools reaching out past the deposit date to have a conversation about considering their campus. A practice generally unheard in higher education, but one that this Adviser feels its time has come. Maybe call re-inforces second or third might just be the best fit. A call the student can also make!!
Financing Resources: Traditional funding resources are still here. As is typical for this time of year is the exercise of finalization of payment strategies. What current savings or income as part of the financing plan and what if any future income, loans were going to be needed. Of course, now, for many families, learn if an adjustment to merit and financial aid awarded will accrue and if it will be enough.
- Family savings: Potentially hit the hardest due to the COVID-19; families may continue to have resources through 529 Plans, other college savings programs, and investment programs. It may be too early to learn of the overall effect COVID-19 has had on families.
- Monthly payment plans: A program offered directly through the school, providing 5, 7, 10 installment payments over a semester or year. Most plans require a small application fee and are interest fees, a very cost-effective loan program. The question becomes, what resources within the current budget are available?
- Federal Direct Student Loans: A loan extended to the student directly as part of the completion and filing of the FAFSA, awarded based on grade level and academic progression. A first-year student may be eligible to receive up to $5,500 with payments are due six months after graduation or early separation from school. The loan carries a fixed interest rate, which, based on current projections, maybe as low as 2.89%* for the coming academic year.
- Federal PLUS Loan: A credit-based loan available to parents of a dependent student. This fixed-rate loan (projected to be as low as 5.44% for July 1, 2020, to June 30, 2021*) allows a parent to borrow a portion of or the entire remaining balance owed to the college or university. Payments begin 30-45 days following the disbursement of the full loan. The loan is repaid monthly between 5-20 years. Although not recommended, loan payments can be postponed during the student’s enrollment period. Interest accrues during the postponement and is either paid or added to the balance at the end.
- Private Education Loans: A credit-based loan is provided through a small nucleus of lenders and credit unions and may be available to an eligible student and parents. Interest rates are based on the creditworthiness of the borrower and co-borrower if required (90% of undergraduate students require a co-borrower) and whether the loan will is repaid or deferred while the student is in school. The average fixed interest rate today can range from 3.99% to 12%. A private loan has become prevalent resources, but one that can be the most costly. It should only be one’s last resort!
Alternative Decisions: Looks like I will be the one to address the elephant in the room. Students’ first choice may not be their choice today. The decisions to select a top runner from the second or third row may be in the best interest of the student and their family. Shouldering the cost of high-interest private loans, allowing a parent to (never) think of using retirement savings to enroll in a school that yes, is the dream, but an investment risk needs to be studied, evaluated and questioned. Moving to a top second and third choice may be the wises decision, a new first-year college student will make in their life!!
In such trying times, we are here to serve as a resource and provider of useful content from the college industry. Our team has walked thousands of families through the college process over the last few decades. Please feel free to call, text, or email your questions. We hope you find value in our information and welcome you to join us virtually.
Reference: Mark Kantrowitz March 11, 2020, Savingforcollege.com