by Tom O'Hare | Apr 25, 2023 | College Planning, Paying for College, Uncategorized
The average amount a family can anticipate spending for one year of the post-secondary cost will range from $15K (public), $25K (private), and $30K (for-profit trade school). Keep in mind that four key variables can affect the range:
- The family’s overall financial profile
- Household size
- Demonstrated financial aid need, if any, and
- A college’s interest in the student (recruitment) and if they will discount the cost, OR
Keep in mind selecting an alternative education to career pathway that meets a student goals can result in a reduction in cost and time.
- Enrolling in a Community College
- Utilizing a 2+2 degree completion pathway
- Enrolling in work and learn apprenticeship program (IBEW, Teamsters)
- Employment with OJT
Why Is the Current Approach Wrong?
80% of families unfortunately look, select, and then consider how to pay. For many this approach can result in unforeseen debt, excessive borrowing, strained family budgets, and ultimately the wrong pathway to a successful career.
I have written before, to some claims (that I’m preaching) that families of college-bound students need to apply a different process. An approach that first calculates the anticipated spend (budget), then turns to the purchase (shopping). The exercise assesses a family’s funding capabilities, including accumulated savings, dependency on financial aid, and potential scholarship eligibility. What’s left is net costs (the expense) for one or more schools in the running. If borrowing is necessary, does the ability exists, and what is the debt tolerance? The result does not limit the search and evaluation of school options but strengthens the selection of affordable schools that meet a student’s authentic academic and personal profile.
Financing September’s Enrollment
Congratulations, May 1st, College Decision Day is in the rearview mirror; the school choice has been made for September. Orientation, the Summer Checklist, and moving in is left. Oh, Ya, let us not forget that a bill will be coming, and the balance will need to be resolved before access to dorms, dining halls, and classrooms will be granted.
Four financing vehicles
1 – Lump Sum Payment – using accumulated savings, investments, or available insurance programs, reduce the education bill by semester or for the whole year.
2 – Monthly Tuition Payment Plan – using disposal monthly resources spread payments over ten months. Perfect for families with rental income or previous expenses like a car payment, high school sports, or dance expenses. Work with the school’s Student Account Office and plan administrator.
3 – Borrowing – using credit-based home equity and private education loan programs are available to credit-worthy borrowers. A co-signer is generally needed, interest rates have a range, and repayment can begin during the in-school period or be deferred until graduation or early separation. A family can finance a portion or all of the remaining balance due to the school.
4 – Wildcards – vary based on a student’s high school resume, the family financial profile, and school selection. Hunting for scholarships, student employment, chatting with relatives, and following the classic Oliver Twists ask, “Please can I have some more,” should be pursued throughout the summer and after school starts.
Note: programs can be used separately or combined. The first bill will be in the mail on or before July 1.
College planning begins with understanding financing capabilities (budget), then continues with shopping and evaluating options, and culminates in wise financial, academic, personal, and career-focused selection.
It all starts now; you need help calming the waters, getting started, or addressing technical questions before, during, or after college; everything begins with a conversation. Whether living with a pre-teen, on doors steps of 11th grade, scrambling, or questioning post-high school options, consider adding resources to your team.
Start a conversation today – 617-240-7350 or learn more about the Tom O’Hare at getcollegegoing.com
by Tom O'Hare | Jun 18, 2021 | Financial Aid, Paying for College
The evaluations, comparisons, campus tours, and conversations are over. Hundreds of family’s and students have made their choice. We’re off to college.
Oh, what a minute…. Have got everything done? One being the tuition bill… and it’s on its way!
Parents of Sophomore and Juniors – read our article on Pre-Qualifying for College Costs
College tuition bills are on their way!
When scholarships and financial aid don’t cover every, students and families need to have a Plan B
- Continue to investigate and apply for scholarship programs; deadlines continue right through the summer and restart in the Fall. If you missed one or didn’t get selected, reapplying in the second, third, and fourth year of school.
- If there is any doubt or questions regarding the information reported when completing the FAFSA, parents should contact the Financial Aid Office.
- Family’s whose financial status profile has changed since the FAFSA (or CSS Profile) filing to the present needs need to inform their college or university. Reductions in earnings, loss of income, unexpected medical bills, and caregiving responsibilities may qualify for an appeal under the extenuating circumstance guidelines.
- Consult with the Student Account – Bursars’ Office regarding the use of a 10 Month Payment Plan. Plans generally require an initial administrative fee payment – consider it an interest-free short-term payment program.
- Then there are the loan programs!
Federal Direct Student Loan a loan that 99.9% of all financial aid awards include. The loan that has quietly been remained by some parents is the FAFSA loan. A low-interest, non-credit-based loan for undergraduate and graduate/professional students. Loan limits are staggered, starting at $5,500 for year one students and progressively higher in upper-class years. Projected fixed interest rates effective July 1, 2021, for the academic year 2021-2022 will be:
Direct Subsidized and Unsubsidized Undergraduate Loans – 3.73%
Direct Unsubsidized Graduate and Professional Loans – 5.28%
These loans also carry a yet to be announced Origination Fee (2020-2021 fee was 1.05%)
Federal Direct Federal PLUS Loan is the second education loan offered by the US Department of Education and US Treasury. Federal Direct PLUS Loan is available to creditworthy parents of undergraduate students. The loan can cover all or a portion of the remaining cost of education, and projected fixed interest rates for the upcoming academic year will be 6.28% (origination fee yet to be announced). Note this loan is subject to repayment and does not carry all of the benefits that the Federal Direct loan offers.
Private Educational Loans, commonly known as alternative student loans, are available to eligible students with many similarities to a standard consumer loan. A credit-based consumer loan where the student serves as the primary borrower along with a creditworthy co-signer. Loans rates are variable, and fixed interest rates starting as low as 1.22% (variable), 3.0% (fixed), and can range as high as 12% depending on the lender. Rates are set based on the creditworthy status of the student and co-signer and whether repayment begins immediately or payment is deferred while the student is in school. Before utilizing any loan, a family should exhaust all other resources and be highly concern with debt tolerance and excessive borrowing.
Spoiler #1 – a student with little or no credit will require a credit-worthy co-signer. No co-signer, no private loan!
Grandparents can contribute to 529 Plans but should not co-sign private loans
Find more program details and download the Education Loan Program Chart
Spoiler #2 – No matter how dreamy the college or university is; no matter how many tears – never touch Retirement Savings!
PLUS: Food for Thought
- Protect your first-year student and family from unforeseen liability and losses by putting in place important legal and medical documents.
- Agree to a routine of communicating and monitor warning signs. Loneliness and issues associated with being a first-year student are not just study habits and academics. Talk, don’t hover, listen, don’t’ preach, call, don’t just text, and find a time when both are not rushing to get something done.
Learn more information, before, during, and after college at Pivotal College Years
Have Questions – Calm the Waters – Consult an Independent College Counselor
An experienced college counselor (who can fault me for banging my own horn) can help families develop and manage a customized college plan. Each plan should address a student’s individual needs, expectations, and abilities, plus a family’s capability to finance the educational costs. A college counselor can considerably cut the stress by laying out clear timelines, unbiased guidance, and accountability for managing the overall experience. Using a holistic lens, a good counselor will connect all aspects of the college experience, finding, selecting, and financing the right college to career choice.
by Tom O'Hare | Jul 16, 2020 | Paying for College
COLLEGE PAYMENT PLAN
On July 1, most colleges and universities sent their first-semester bill of the upcoming 2020-2021 Academic Year- Freshman, Transfers, and those returning to the campus.
For incoming Freshman, the bill signals the culmination of a student and family’s hard work to find, select, and enroll in the college or university of their choice. Now its time to pay up!
The bill sent from the Student Accounts-Bursars Office may look like the financial aid award but includes other charges making up the total cost of attending.
While appeals for additional tuition assistance may still be in the process due to COVID-19, it is essential for each student and their parent(s) to finalize their payment strategy. Resolving the bill now will eliminate stress and anxiety going into the final part of the summer and with earlier than typical move-in dates scheduled.
How Will You Pay the Bill?
Financing resources at this time of the year generally shift from the institution, federal, and state aid to personal resources, external scholarships, and self-help (loans and work), and relatives. Financing resources will depend on the availability of immediate savings, eligibility for private education loans, or the ability to work & study during the school year.
College savings accounts, 529 Plans, or other investment programs, when available, are perfect resources to use to meet college costs. There specific use, when, and how much should be with the family’s financial planner, reviewed with the family’s financial planner. Note: The use of retirement savings is NEVER recommended!
Tuition Payment Plan
Interest-free payment plans offered through the college or university allow a student/family to pay all or a portion of the net tuition. Regular monthly payments are made to the college or university during the semester. All payment plans require a one-time application fee. Programs are administered on behalf of the school by a third-party provider—information on a school’s specific payment plan found on each institution’s website.
Federal PLUS Loan
PLUS loans are available to parents of dependent students who are attending on at least a half time basis. A parent can borrow to fund a portion or all of the remaining balance due to the college. A PLUS Loan is a credit-driven loan program that requires no income, asset, or collateral requirement. Repayment begins within 45 days of the full disbursement with repayment factor over a five to ten year period. The interest rate for the academic year 2020-2021 will equal 5.02%. To apply for a Federal PLUS Loan, go to https://studentaid.gov/app/launchPLUS.action and start your loan application. Once approved, loan funds are a credit to the student’s account by the school who manages the disbursement of the loan during the academic year.
Private Alternative Loan
Many colleges work with specific lenders to provide private education loan referral information. Students and their parents can also go directly yo a lender to begin the application process. Alternative education loans historically referred to as a loan of last resort, is a credit-driven loan program—eligibility criteria, including interest rates, credit criteria, and repayment provisions. Interest rates range as low as 4% to 7% based on the borrower’s (co-signers) creditworthy status and if repayment will begin immediately or deferred. Most, if not all, first-year students will require a creditworthy co-signer who can be a parent or grandparent. Students and their parents should check their school’s website for recommendations on prospective private education loan lenders, including the AAA Advantage Loan offered by AAA Northeast.
Personal Saving and Resources
All financial experts recommend that families do not touch retirement savings to meet educational costs.
Ongoing Financial Aid Appeals – Students and families should consult with the Financial Aid staff at their college to discuss eligibility for assistance under extenuating circumstances.
Need help with options, financing strategies, and meeting college costs, call to schedule a conversation.
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.
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
- 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.
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.