Monday, March 18, 2013

College Savings & Loans: Money Smart 2013

Admission Decision Season is here!
Whether or not someone should attend college continues to be a hot topic of discussion. While some opportunities are closed to those who have not completed a four-year degree, there are many individuals (NBC's Brian Williams & Facebook CEO Mark Zuckerberg come to mind) who are immensely successful despite not completing college. A few weeks ago I posted an article by Forbes contributor John Tamny where he said, among other things, that "college doesn't make you smart or hard working as much as smart and hard working people often go to college." While he says no job requires a college degree, and I think he's on to something here, the fact remains that many employers require it.

This morning I happened upon another article from that gave me pause while researching information regarding college savings. The article gives 10 reasons not to save for your child's college expenses, and they should be considered. Among them, the reality that not all parents can afford to set aside this money, and that one's retirement should not be jeopardized to pay college tuition. Investigating college savings plans, and student loans policies and procedures well in advance will better prepare you and your student should s/he decide higher education is right for them.   

The best way to reduce the cost of higher education is through scholarships. These could be scholarships separate from the college or university, or directly from the school via merit (academic) or athletic scholarships. Doing well in high school is worth big bucks. Not only will this alleviate the burden parents face, but the student will be in a better position to save income post-graduation.

In addition to academic or athletic "full-ride" scholarships (which sometimes only cover tuition, not room & board), schools often offer lower scholarships which can be just as competitive. This is where student loans become necessary. If your student will need some additional funding, the federal government offers student loans, which are always preferable to private loans, due to their flexible repayment options and lower interest rates. Click the highlighted link above for more information. Each year, your family's financial need will be calculated using the Federal Application for Federal Student Aid (FAFSA), which you or your student completes online. It is not unusual for a tax return to be requested to verify information you provided. Depending on your financial need, you will qualify for either subsidized (the interest is deferred until graduation), or unsubsidized (interest is not deferred) loans, or both. These are the federal borrowing limits for traditional undergraduate students: 
1st Year: $5,500
2nd Year: $6,500
3rd & 4th Year: $7,500
 Student must be considered dependents to borrow these amounts, and might qualify for additional money if their parents are not qualified for Parent PLUS Loans. Notice that these loans cover only $27,000 of the total 2 or 4 year cost. For some perspective on this amount, consider that two semesters (one full year) for an in-state student at Michigan State University is currently $21,200. While tuition will surely rise over time, a college savings plan can help pay for school after federal student loan options are exhausted. 

The Financial Industry Regulatory Authority (FINRA) has a great deal of impartial information about college savings plans, and should be used when considering your options. The "Smart Saving" link above it a portal into the college savings information available from FINRA. Be sure to click on the college savings plan comparison chart, for a quick summary, and read FINRA's tips when browsing your options. Types of college savings plans include:

Please take advantage of all the information freely available as you prepare for the future. FINRA's site is easy to navigate and full of financial information of all kinds. With some hard studying on the student's part, and armed with quality information, college can be a manageable financial obstacle.

Check back for the next Money Smart post soon!

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