by Tom O'Hare | May 5, 2019 | College Planning, Financial Aid, Paying for College
I hear my son/daughter can get a loan to pay their college tuition bill. I even hear they can be the primary borrower. Yes! True enough, however, there are a few more details.
The average student and family bound for college in September may find themselves in need of a way to assist in paying the remaining Net Educational Cost. College loans are part of the resource available to student and families to help supplement one’s ability to pay for school.
College Loans
Federal Direct Student Loan
Loans, specifically the Federal Loan Programs have been a long-standing resource for students and families. Born out of the 1960s, updated and revised as the years have gone on, students and parents have been able to access the Federal Loan Programs as part of applying for financial aid. Today, the filing of the Federal Free Application for Student Aid (FAFSA) determines a student and family’s eligibility for need-based aid. The Federal Direct Student Loan (also known as the Federal Stafford Loan) is one resource awarded to students via this process. Packaged and disclosed on a student’s Financial Aid Award, 99.99% of all undergraduate and graduate students, dependent and independent receive some amount of Federal Direct Student Loans. Based on a student/family’s demonstrated need, a portion or all of the loan may be interest-free (subsidized) or interest due (unsubsidized) while the student enrolled. 4.53% is the interest rate for 2019-2020 with a 1.06% origination fee for undergraduate and graduate students. A Direct Student Loan is awarded a six months grace period after a student graduates or separates early and a wide range of repayment benefits to choice. Not a bad gig.
However, when the Federal Direct Loan is not enough, students and families must turn to other resources, including additional Federal and Private sponsored loan programs that require credit approval and are generally more expensive.
Federal Direct PLUS Loan
Offered to parents and managed primarily by the Financial Aid Office, the Federal PLUS Loan Program is a credit-based loan available to parents of dependent undergraduate students. Known in some circles as the Parent PLUS Loan, creditworthy parents can apply for a loan to help pay for school. Applicants must demonstrate good credit with no adverse credit for 90 days before the loan applications as well as no loan default, discharge, lien, and bankruptcy. The loan interest rate, set by the Federal Government is a fixed rate valid from July 1, 2019, to June 30, 2020 -7.08% with a 4,24% origination fee. Loan repayment begins with 30-45 days following the full disbursement of the loan and can be scheduled to run between 10 – 20 years.
Federal GradPLUS Loan
Grad PLUS loan is a credit-based loan available to independent graduate students. The loan is a credit-based loan with the student demonstrating creditworthiness, no adverse credit for 90 days before the loan applications, default, discharge, lien and bankruptcy. Applicants for these loans are required to complete the FAFSA, access their maximum Federal Direct Loan benefits before borrowing under the GradPLUS Program. An applicant can borrow up to their remaining net educational costs. The loan interest rate, set by the Federal Government is a fixed rate valid from July 1, 2019, to June 30, 2020 – 7.08% with a 4,24% origination fee. The loan is generally placed in an in-school deferment unless otherwise requested by the borrower. All GradPLUS Loans are eligible for a six (6) month grace period following their separation from school to establish a repayment schedule amortized between 10-20 years.
Private Education Loans
The rise in educational cost in the 1990s and throughout recent years opened up the need for alternative, private educational loans. Designed as a loan of last resort private educational loans fall into two categories, a private loan for students and one for parents. A private student loan is a credit-based loan available to a student who is enrolled at least half-time at 4-year public or private college or university*. Students who have no credit or minimum credit may be required to obtain a creditworthy co-signer. Interest rates are set based on variable and fixed rates, ranging from as low as 3.8% to 14%. Varies repayment programs are available including deferring the loan payment until six (6) months after the student separates from school. Most loan programs provide a co-signer release, which generally discontinues a parent’s (or other co-signer) financial obligation after 24 or 36 months of on-time. Loans are available through a national, regional lender and other institutions like AAA Northeast Bank.
Protecting the Co-Signer
Parents, grandparents, sibling, and relatives called upon to serve as a co-signer to assist a college student to secure education financing. The co-signer assists with determining eligibility and the interest rate. Typically, there is a co-signer release provision built into the terms of the loan. The release, generally after 36 months of on-time payments, allows the co-signer to be removed from the obligation. Unlike the Federal Direct Student Loan, a private educational loan does not carry a cancellation for death. If the unthinkable were to happen, the co-sign is held liable and will be called upon to pay the loan. Having worked on many in my career, attempting to overturn the lender’s policy is a hard road to travel. To protect the co-signer, all parties involved should consider the use of term-life insurance policy. The policy protects the co-signer during the in-school and initial stages of repayment. With the watchful eye of the holy spirit, a student has protection and resources as they grow old.
* Private loan programs for community college, continuing education, and professional development are available, but individuals need to check with their school for resources.
A private education loan specifically for a parent is also available through some national and regional lender. This loan program is similar to a standard consumer loan, credit-based in nature and where the parent enters repayment within 30-45 from disbursement.
Be a Wise Borrower
Before diving into a private loan application, consider a few things. As stated in another article on creating a payment strategy, this is an annual exercise that is part of a four-year experience. It warrants forecasting one’s four-year needs, the total cumulative cost of borrowing and how it factors into one’s career outcome. Adjusts and changes based on a student’s enrollment status, modifications in educational expenses and changes to a family’s financial profile may require less or more resources. Education Loans can be an expensive resource and should be used as a last resort. Buyer beware and when in doubt …ask questions, inquire and of course, call me
by Tom O'Hare | May 2, 2019 | College Planning, Financial Aid, Paying for College
I’M IN!!!
- ACCEPTED
- RECEIVED FINANCIAL AID
- BALANCE DUE THE COLLEGE – WOW, THAT MUCH!
National Decision Day (May 1) and Open Enrollment commitments have come an gone and now it’s time to figure out how to pay. The deposit was sent in but there are remaining college costs. Referred to as the “net educational costs,” these charges will soon appear on the college tuition bill hitting the mailbox in July. Costs that unless “resolved” will prevent access to a dorm, the start of classes and earning the right to call oneself a college student. Arrangements need to be satisfied before the billing due date generally in August.
The average student and family bound for college in September may now find themselves in a new stage of stress, figuring out how to pay their remaining educational cost. Like during the search and select stage of one’s college plan, developing a payment strategy is an immediate task for all students and families. A good payment strategy requires a plan that is based on the availability of resources for not one year but the financial needs over the course of a student’s four-year enrollment.
What Was I Awarded?
Double check the Financial Aid Award Letter to determine what has been provided in the form of tuition assistance. Resources from programs administered through the college, state agencies and the federal financial aid programs. Included can be merit scholarships, Institutional Grants, a Federal Direct Loan and/or Federal Work-Study. A state grant or private scholarship may also be included in the award letter is reported to the school. The difference is known as the “net educational cost”, the amount due to the school.
- Cost of Education
- minus College and Private Scholarships
- Need-Based Grants and Self-Help (Federal Direct Student Loan or Federal Work-Study)
- the “Net Educational Costs” – I’m what’s owed to the school!
What Are My Resources?
Looking beyond the programs disclosed on the Award Letter, students and families have four primary resources to use to pay the net costs. They include savings, monthly discretionary funds, earnings on investments/insurance and education loans. A strong Payment Strategy may include one or more of these resources. Resources that when used will resolve the tuition bill.
Savings – Investments – Discretionary Funds
Savings, funds accumulate over time, as part of a 529 Plans, education savings accounts, insurance and investments programs can be used to assist in meeting college costs. Conversations with a financial adviser prior to taking a distribution are step number one when thinking of using a resource from this category.
Home equity is another valuable resource for parents looking to capitalize on the value of their home and how it can turn into a low-interest rate and resources for their student(s). Parents in putting their home to work should consult with their local lender or credit union.
Another choice, some time overlooked is the use of a monthly tuition payment plan. When consulting with parents the question I usually ask is have you been paying out of pocket for ice time, AAU sports, sports, dance or other enrichment type programs? Did you just pay off a car loan? Or do you have a relative or family member interested in supplementing the cost of school? If the answer is yes, a Tuition Payment Plan is a great payment strategy.
A Tuition Payment Plan is an interest-free program administered by the college or university and requires ten (10) monthly payments during an academic year. Payments are made from July to April, can equal the entire or a portion of the remaining net educational cost due to the school and many times carry a small application fee. A payment plan allows extended family members to also participate in making tuition payments without assuming any direct responsibility for a student’s educational cost.
Contributions from grandparents and relatives are also a very useful means of paying the educational cost, however, impacts on financial aid eligibility must also be considered.
The college loan game is the process of looking to last resort resources to assist with meeting educational costs. They include loans that students and parents can seek to obtain including a home equity loan, Federal PLUS Programs and Private Education Loans.
Federal PLUS Program
Offered through the Federal Student Aid Office of the US. Department of Education, the Federal Direct PLUS Loan, commonly known as the parent PLUS loan is a credit-based loan available to parents of dependent undergraduate students.
Private Education Loans
Typically referred to the loan of last resort, a Private Education Student Loan is a credit-based loan available to a student to meet the net educational cost to attend school.
Creating Your Strategy
Before diving into using a private loan application, consider a few things. As stated, this is a four-year process requiring annual calculations and the forecasting of four-year financial needs. Adjusts and changes based a student enrollment status, modifications in educational expenses and changes to a family’s financial profile may require less or more resources. Multiple options can be used to establish and maintain a payment strategy. Unique family resources including offers to help from extended family members (i.e., grandparents) may require more in-depth conversations and decision making. A payment strategy can be call for using one or more resource or program outlined in this piece. Ultimately a student and family should put all of their resources to work to ensure the best financial decision that minimizes excessive and long-term debt and provides the best college option for the student.
Disclaimer
This piece is intended to provide education and guidance on strategies to pay the remaining “net educational costs.” We recommend that students and families always consult with their investment, wealth manager or tax professional to determine the impact on any and all financial decisions.
by Tom O'Hare | Apr 9, 2019 | College Planning, Financial Aid
The roller coaster ride is about to come to an end for many aspiring high school seniors. Acceptance and financial aid award letters have been arriving as part of the final leg of the college search and selecting process. This is it, who wants me and how much will they help me to meet the cost of attending? It is a pivotal point in the process. Students and parents need to work together to make a decision. A decision that will catapult a student to their next level of academic and personal growth. This should be an exciting time, one not overshadowed by stress. Good communication, honest conversations and a lot of self-reflection can calm those tears.
Acceptance Letters
Each college or university will communicate their interest in welcoming a student to their campus through this letter (or email announcement). The communication will acknowledge the offer of Acceptance (general and/or honors) and guidelines on how to submit one’s deposit and deadline (generally on or before May 1). Many communications will also acknowledge the awarding of Institution Scholarship. These are tied to a student’s academic, personal character or talent. They’re referred to as President, Dean and/or by a Specific College. All questions related to the acceptance process should be communicated to the school’s Admissions Office. It is critical to adhere to specific deadlines requested by the school.
Financial Aid Award Letter
Here the college or university will communicate their offer to assist a student/family who has demonstrated ‘need” after filing the FAFSA (and other documentation). The Financial Aid Award Letter communicates all merit (talent) scholarships and all estimated financial aid, including institutional need-based grants, federal work student and federal loans. In many cases the structure of the award letter also services a pre-bill, disclosing the cost of attendance, aid awarded and the remaining Net Costs to Attend (see example).
Comparing Award Letters
Although some award letters may appear to be similar, many will be ever so slightly different. The cost of attendance will be different, public, private, small, large institutions, while that actual awarding maybe night and day. Each institution has its own arsenal of resources to use to reward and recruit a student. The most important part of comparing award letters is to examine the distribution of aid between merit scholarships and need-based aid. Remember, Scholarships are awarded for academic and talent and are generally communicated as part of the Acceptance Process.
So, how do they compare? Is one school heavier on scholarships while another has none? Does another school offer a mixture of both scholarships, grants (need-based) and self-help (work and loans)? Using a Net Education Cost Worksheet, you can map out the different awards like the sample below.
Note: If an award letter includes a Federal PLUS Loan, one should be aware. This is a credit-based loan which requires credit approval and is not automatic!! The practice of “pre-packaging” a Federal PLUS Loan into an awarded may present the appearance that the balance has been resolved, however, that is not guaranteed. Before a student and family commit to a college there needs to be a hard look at the net tuition costs and what if any resources are available before locking into private education loans.
Appeals
Appealing an award, merit and/or need-based is a consideration that all families should evaluate. In essence, asking for more tuition assistance is not out of the question. However, an appeal should be done based on quantifiable (tangible) factors. recent changes in a student’s academic and/or personal accomplishments at school or in the community. Changes to current and/or projected income since the filing of the FAFSA are valid reasons to appeal a financial aid offer. An appeal should begin with a phone call from the student and follow up with a letter detailing the specific reason(s) for the request.
The Final Decision
Ultimately the bottom line, choosing a college for an 18 years old student with wide eyes and the world at their feet is not an easy task. It requires a strong evaluation of the students wants, needs and expectations. It requires an honest discussion and evaluation regarding which choice will be the best for the student. Which choice will offer a student the greatest personal growth, strengthen one’s academic foundation for a career and yes, be affordable? It should not be based on one single variable or consideration. It is about where and how will the investment prepare a student for their next level in life. For if the investment hits the mark, then the selection will be a student’s “right fit”!!
Next Step – Developing a Payment Strategy
by Tom O'Hare | Mar 23, 2019 | Before, College Planning
Which major investment do you think individuals do not get pre-qualified, pre-approved for?
$400K Mortgage? $35K Car Loan? $250K College Education?
The correct answer is “college”! But why?
Since the notion of going to college was invented, students and parents have been taught to search, visit, make their selection on what I call the “hope and dream” mindset. Students and parents are told, everyone can go to college? You can go anywhere you want. Unfortunately for many that are not realistic?
Higher education today costs between $120K to $250K for a four-year public or private education. Although most never pay that much, it is still a very expensive consumer purchase. Higher education is the only industry where the average consumer does not fully understand their buying and spending needs and capabilities up front.
Although the “hope and dream” mindset is not wrong, today it is important to be financially prepared as it is academically and personally before going about one’s search. We search for large consumer purchases like buying a home, looking for a car and even remolding a kitchen, by first getting pre-qualified and pre-approved!
Getting pre-qualified, pre-approved should focus on two important areas, the readiness of a student to attend college (written about in a separate piece, Am I ready and what path to follow) and by knowing one’s buying needs and capability. Both are critical to the college planning experience.
When Should I Get Pre-Approved
As early as the freshman year of high school, parents of students considering college should learn their spending and buying capabilities. Understanding what constitutes college costs, how financial aid is determined, and what a family will be expected to pay, all need to be in the forefront of college planning. A student and family should analyze their financial profile and build a list that includes the quest for the “best school for my child”, but is based on reality. Looking for schools and ignoring the ability to pay results in April tears, co-signing private loans and excessive debt.
College costs vary between institutions, public and private, in-state or out-of-state and typically increase on an annual basis. Colleges and universities offer tuition assistance in the form of scholarships and need-based financial aid to those who qualify. Understanding the range of awards based on student high school resume and institution admission criteria need to considered with size, majors and extra-curricular when building a list of college options.
What Does Pre-Approval Look Like?
Digging into the process of determining what one can/could afford requires a few calculations. Number one; Expected Family Contribution, commonly known as the EFC. This mystical number that stimulates a love-hate relationship is used by everyone who awards need-based money. The Feds, state Board of Higher Education, colleges, universities and many who award private philanthropic scholarships. The EFC is derived from the Free Application for Federal Student Aid, the FAFSA!! It analyzes an individual family’s income, assets, and household size to determine what that specific family can be expected to contribute towards their student’s educational cost. The difference between a college’s cost and student/family’s EFC is what is known as “need”.
This example looks at two colleges, different costs with the same EFC and demonstrates what the unmet need will be prior to seeking out and applying for financial aid.
Hold on. I can’t pay the “EFC”, never mind the balance! Understood, but for the purposes of getting pre-approved, you should have a benchmark, a line in the sand. Using one’s EFC, a fixed number, a student/family can examine what an initial need will be school by school.
Now with this new powerful information, it’s time to go shopping. Time to explore colleges and build a list of college options built based on a student’s high school resume, the classics (size, location, majors) and new information, need.
Knowing one’s financial need (and EFC) earlier shifts the college search from a “hope and dream mindset” to “I know” what is needed to make the match. A search should identify a wide range of options. A search for colleges should also look for institutions that award aggressively and those who don’t.
College Plan
Today, the college planning experience needs to be different. It must be realistic, based on examining a students’ readiness to go and a families ability to pay. College plans focused on these two areas create options for students after high school, those that are academically and personally challenging and affordable. Students need to be coached and motivated to excel to reach their aspirations and goals, understand the value of being their own authentic self as they begin to consider their educational – career path after high school. Add in the “money talk” and now students and families can create a college -career plan that is realistic and one that will position a young adult for financial and individuals success.
In the end, it all its all about establishing a college- career plan that is designed and focused on the individual student and family. Is it easy, no. Is it doable, 100%!!
by Tom O'Hare | Mar 17, 2019 | College Planning
UNDERSTANDING EDUCATION COSTS
For many, the idea of going to college conjures up thoughts of tuition and fees. Although tuition is a high percentage of the cost, other charges are known as direct (room and board) and indirect (health insurance) make up the total cost of education. But, just like tuition assistance (merit and need-based), there are a lot of differences. Differences between colleges, regions of the country and one’s actual enrollment status. Learning the differences early in the college planning experience is critical. In-state or out-of-state cost, public or private institutions, New England, Southeast or even Canadian schools, all present different variables to the question, why are there different educational costs. Understanding the true cost of attendance and how it differs is a very important part of the college search and selection experience. Learning about college costs is important to the evaluation of institutions and their affordability for students and their family.
EVERYONE SHOULD GO TO COLLEGE
YES, BUT
Going to college continues to be a rite of passage for high school students but one must ask themselves, what path should I be following? Yes, as an Educational Adviser I endorse that everyone should advance their education after high school. However, I also believe that the path followed should match the desires and aspiration of the individual. The plain truth is that not every student is prepared or ready to take on college-level academic work or the personal responsibility of managing college life. Today, 20% of college students withdraw after their second year. For many, it is due to the cost, but for others, it is a laundry list of reasons including preparedness. The other reason to use caution when considering one’s path after high school is that many students do not graduate within 4 years or even at all. It is critical to investigate all options for students to pursue their education after high school. It takes courage and guidance to separate oneself from the pack!!
FAILURE TO PLAN is PLANNING TO FAIL
How did you go about finding your first job, renting an apartment or buying your first home? Did you dive right in or have a plan? You probably considered factors such as cost, readiness, and location. Did you seek out assistance or go it alone? How did that all work out? Could a plan have helped?
Thinking about one’s educational path after high school is a major step. These next steps are huge, overwhelming and can create stress and anxiety. It can affect everyone, a student, parent(s) and extended family. Stress can be felt at school, work, while we’re driving or even when standing in the grocery store line. It can affect one’s health, performance, and relationships. Having walked the walk with my own four students and while working with countless others, I can say it is real. Having a plan and utilizing resources can take the edge off. A good plan will keep everyone focused and on track, aware of deadlines and provide direction. It could be a plan found on the internet, the guidance department or one managed with the assistance of a dedicated college adviser. Investing in one’s educational path after high school is a major step. Plan to succeed!!
LISTENING IN LINE
AHA Moments for Parents
- I’m a parent of a sophomore in high school. Is it, too early to start thinking about paying for college?
- Never – Learning now about college cost and tuition assistance is the key to a successful and affordable college selection.
- My middle school student is interested in technology. Are there options at the high school level?
- YES- High school students can pursue an interest in technology at many technical-vocational schools and through STEM Program.
- My high school senior didn’t apply yet! Can they still apply? College and universities are actively accepting applications for Freshman and Transfer students.
- If your student is interested in attending in September call and set up a time for an introduction!!
- Our income is too high, we won’t qualify for financial aid, so why apply?
- Yes, income is part of the calculation. Other factors including household size are also part of the formula. It is important to learn and understand the Estimated Family Contribution (EFC) and how tuition assistance is determined before jumping to conclusions. Applying takes 30 minutes.
- College is too expensive, I’ll never get my degree.
- Not True – Multiple paths to higher education after high school is 100% possible. Associate to Bachelors, working and attending part-time or entering an apprentice program are just a few. Learning the paths and following the one that is best for a student and family is the key!!
Have a question, concern or have your own “AHA” moment, call, text [617-240-7350] or email tom@getcollegegoing.com
