As we’ve reported in previous blogs (7-7-08 and 3-23-08), the economic crises has, unfortunately, ‘infected’ the private college lending industry. Moreover, as most of the media (present company excluded!) has failed to report sufficiently (or, in some cases, at all) is the fact that the Federal government has guaranteed that there will be enough Federally backed college loans (at least this academic year) for students and their families who need them. So, the bottom line for most families is the following: check with and apply for private college loans – which often offer better rates than Federally backed loans – but DON’T count on them. Rather, be certain to line up enough Federally backed loans to cover your college expense needs. Two good places to start researching Federally backed college loans are the websites www.finaid.org and www.studentaided.gov . (Additionally, for information on college lending and financial aid in general – including numerous additional relevant links – check the BestMoneyinfo site’s “College Savings and Financial Aid” page. To access, go to the www.969wtkk.com homepage, and click on the “Best Money info” icon.)
Despite (or maybe, even more importantly because of) the pinch in sources for college financial aid (of which, at least 60% remains in the form of loans), it is more imperative than ever that college students and their families adhere to the following dues and don’ts:
First, the things families should do:
-- No matter how much or how little money your family has or makes, apply for financial aid. There are at least two higher education loans – the Stafford loan (www.staffordloan.com) and the PLUS loan (http://www.parentplusloan.com/) that virtually every family is eligible for, no matter what their income level.
-- If possible apply for financial aid early – before the high school senior is accepted into college – and be sure to apply to at least two “dual safe schools” – colleges that they’re likely to get accepted into and that your family can afford.
-- Always include state colleges and universities – both in the state you live and in other states – amongst the schools you apply to. State colleges and universities are almost always more – and in many cases, much more – affordable than private ones. (Moreover, despite a lingering belief that state colleges and universities offer lesser quality education and training than do private colleges and universities, such is not the case. State colleges and universities, by in large, offer just as good education and training as do their private school peers, invariably at a much more affordable price. (Indeed, what a student gets out of college – both from an educational basis and a cost benefit analysis basis (i.e. how much their college education can/will further their career choices and money making possibilities and – is ultimately tied to what and how much the student puts into their college educations, wherever they end up going to school.)
Those are the things that you should do. Now, today, especially given that we are in a period where college financial aid sources are being squeezed, you will find an even larger number of so-called college funding/college financial aid “experts” out there giving poor – and in some cases, potentially disastrous advice – to the increasing number of ‘desperate’ college students and their families. Accordingly, it is more important than ever that college students and their families be fully aware of, and make certain that they avoid the list of things college students and their families are often urged to, but should never do:
--Never make any drastic changes to your retirement plan, and, never take out a larger mortgage (i.e. a loan secured against your home), in the belief that doing so will increase your family’s chances of acquiring more financial aid. These tactics virtually never work, and in the few cases where they do, the cost is not worth the benefit (especially given the fact that, as noted, the majority – if not all – of any financial aid your family qualifies for will likely come in the form of a loan or loans, rather than scholarships or grants).
--With the exception of 529 and Coverdell education plans (plans in which money is automatically invested in the child/student’s name – for more information on 529 and Coverdell plans, see www.Savingforcollege.com), don’t invest college savings in or switch college savings into your child’s name. In most cases, the tax benefit is very small while the damage to your family’s ability to acquire (or acquire greater amounts of) financial aid can be very large.
--Don’t pay anyone to fill out financial aid forms for you, or help you search for financial aid. All of this information is available free of charge from college financial aid departments, federal and state financial aid authorities, and online.
--Last but not least, be certain to save for your retirement first. It may sound harsh, but you have to make sure you’re saving enough for your retirement before you save anything (other than gifts given to or money earned by your children) for your children’s college education. Your goal should be to save 20% of your gross income each year towards retirement (15% if you’re a teacher, fireman or in another profession that guarantees you a pension when you retire) before you start saving for college. Unfortunately, the harsh reality is that the overwhelming majority of middle class families in this country can no longer afford to save enough for retirement and for their children’s college education. Accordingly,
in most cases, families (mainly kids) today will be paying for college via financial aid, most of which will come in the form of repayable education loans. If you’re fortunate enough, have a high enough income (or both) so that you get to the point where you have excess money (over the amount you should first be trying to save for retirement that you can save for your child’s college education, invest it in one of the tax beneficial 529 or Coverdell programs (again, for more information, see www.SavingForCollege.com ).
[NOTE: Much of the above information was gleaned from various portions of Rick Shaffer’s e-book, “Your Bottom Line – Fifty Steps to Firm Financial Footing”. (For more information, access the Best Money info icon via the www.969wtkk.com homepage.)]