How to Pay for College and Survive
The major expenses that most people face include buying a house, saving for retirement, and paying for college. The numbers have become so large that a multi-year savings plan is required for each goal. The average American who is not living from paycheck to paycheck must prioritize. There is not enough money to save for all goals at once. College and retirement are more distant objectives. The house is normally the most urgent priority.
The most common result of this dilemma is that the more distant goals are neglected. Unfortunately, the funding problem is compounded because starting later requires larger monthly savings to accumulate the necessary nestegg to retire at the desired age or the retirement age must be deferred. College expenses may require huge loans for the parent and/or child that often take many years to repay. Fortunately there are alternatives for consideration that may potentially soften this dilemma for those willing to compromise.
The art of resolving all financial planning objectives involves judicious compromises to achieve the lion’s share of your most important goals without completely ignoring the other less urgent but still important priorities. For example, buying too much life insurance could result in failing to save enough for retirement. But if all savings go toward retirement without buying life insurance, the family could be devastated by an untimely death. This is perfect if you can predict the future, but a disaster if your forecast is wrong.
A less than perfect plan is usually better than one that risks failure in one of life’s desirable goals. Discretionary, but not essential expenses, such as driving an older car, eating out less often or in less expensive restaurants, and deferring or taking cheaper vacations, can be used for higher priorities without imploding the foundation of a financial plan.
Let’s look at today’s costs for a college education, various funding methods, and potential compromises to minimize future debt.
Paying For and Selecting the College are Both Important
Many times students select their favorite colleges without thinking about the cost. Parents hesitate to limit the choice of school based on the cost because they want the best for their child. The better approach is to discuss finances in a mature manner so everyone understands the reality that huge debts may require deferring the parents’ retirement or restricting the child’s spending options for decades until the loans are repaid. In the September 21, 2015 Wall Street Journal article entitled “Questions Families Need to Ask About Paying for College”, the author Jillian Berman asked the following five pertinent questions:
1. What does the student want to get out of college?
The list of schools should begin by listing the top three criteria they want from a college. For general majors like education, sociology or psychology, most schools provide a decent education. Less prestigious undergraduate colleges are more affordable so less debt is required, leaving flexibility for graduate school.
2. How much are parents willing to contribute?
Most parents would like their child to be able to attend their dream school, but many are not financially able. A family meeting to discuss the costs and sacrifices required may be helpful, especially where finances have not been openly discussed. Naively embarking on a long-term debt could unravel if the parent loses his or her job, becomes disabled or faces a financial emergency. Smaller sacrifices may assure success until graduation.
3. How much longer might parents have to work?
Are the parents willing to work longer to pay back the loans? Can they realistically assume that they will have a job for the extended period? For example, if a couple earns $100,000 annually and funds $120,000 over four years of college, they may have to work up to 12 years to repay the loans plus interest. To the extent that expenses are paid by cutting living expenses, deferring vacations and buying a new car, the loans can be reduced.
Colleges and universities are required to have a net-price calculator on their websites to estimate the net price of attendance. This is an important tool to help rank schools by affordability.
4. Should the student help out by working?
Part-time jobs are available in industry and on campus. Financial-aid packages often include offers of work-study jobs. The hours should be limited to 15-20 hours per week so the student can graduate in four years and maintain grades. Also, financial aid rules have limits for annual earnings.
5. How much debt should the student take on?
A good rule of thumb is that the total loans should not exceed the student’s expected earnings in his or her first year out of college. Federal loans must be paid back within 10 years. If the student borrows $35,000 and expects to earn $35,000 annually, the repayment over 10 years will require about 12.3% of his or her monthly income (including 4.29% interest at the current federal rate). Income-driven repayment programs could extend the lifetime of the loan and require decades to repay the debt. This would severely limit the student’s future lifestyle choices and quality of life.
The above questions are all important but there are other options that those who are persistent and creative should pursue. Once your family agrees on priorities, many strategies and resources are available to control and fund the cost of college. Note clearly that the below suggestions may not be your first choices but the objective of a college education and degree will be achieved and the sacrifices will be reasonable.
The combination of a community college for two years, followed by a state university, is an attractive option for a great education followed by limited debt. If a prestigious college is a priority, consider attending for years 3 and 4 to reduce the total cost. The most important future question is “where did you get your degree? “
Debt for college and in life should be assumed very carefully. For college, there are sources of “free money”, more accurately called scholarships and grants, because they do not have to be repaid.
Available Sources of “Free Money”
Many businesses, charities, and private individuals offer grants for people that are not financially able to attend school. Some of these grants may be based on field of study, location of the school, location of the student, or even religious beliefs. The first thing that any potential student should do is start looking for grant opportunities in their home area and with businesses and organizations they are familiar with, and then move to a broader scale search.
The federal government has several grant programs, most of which are based on the awarding of money to students and their families who cannot afford the entire cost of college tuition, room and board, and supplies. The federal Pell grant is one of the most well-known grant programs offered by the U.S. Government. The Pell grant application is relatively simple and is completed by submitting a Free Application For Federal Student Aid, or FAFSA. Once the application is reviewed, the student will be sent a special form called the EFC, which stands for Expected Family Contribution. A Pell grant application should be sent in long before the fall quarter or fall semester deadlines.
Students can apply for Pell grant funding at any time of the year, but there is a cut-off date for the start of any college academic year. Students who apply for Pell grant funding can also apply for other federal grant programs.
After applying for Federal aid, students attending a college in the state of which they are a resident should also apply for state financial aid.
Students can apply for grants from local companies or corporations that hire students with special skills. For example, high school students can ask their class advisor about how to apply for a grant from a software company that hires directly from college. In other words, grants are awarded to students intending to study the very material that qualifies them for a position with the company offering the grant.
Private colleges and universities also receive grant money from corporations and are willing to pass it on to students with excellent academic records. Private colleges have a special admissions department section that can advise students asking about how to apply for grants.
How to find sources for grants: Start with the internet
http://www.csac.ca.gov/ - for California residents attending an in-state public college
There are also specialized grants for women, students majoring in technology, or other areas where corporations provide funds to help fill a shortage of qualified employees.
Veterans and Their Dependents
Another source of aid is available to military veterans, their spouses, children, and stepchildren from the Montgomery GI bill. Students may qualify for aid issued on a monthly basis through this program. Students or their parents should visit or call the Veteran’s Center at their school for more information on how to qualify and what assistance may be available.
California Community Colleges
California community colleges have a program called the BOG (Board of Governor’s) Waiver that may waive tuition in part or entirely for students below a certain income level. Other forms of Federal and State aid assume that anyone under the age of 24 is a dependent of their parents and requires parental tax return information, so this is a great resource for those independent students who can prove independence through their own personal tax return.
College scholarships are a form of grant money. Schools offer many different types of scholarship programs in an effort to attract the best students. These scholarship programs may include tuition costs or living expense, or both. You can qualify for these scholarships based on academics, sports, or other contributory programs like drama or band. Never overlook the opportunities that these scholarships provide. All students, regardless of income level should look into the scholarship opportunities offered by their school of choice.
Although grants and scholarships do not have to be repaid, it is important to remember that many scholarships and grants require that the student carry a specific grade point average (GPA) throughout their schooling, and if the scholarship is based on a specific industry, remain in that field of study throughout school. Students may be requires to submit grades to keep the scholarship or grant. Students receiving Federal and State financial aid are required to maintain a minimum GPA of 2.0.
Attending college can be costly, and many people believe that they are unable to attend school because of the expense. They fear the large debts that are associated with loans, and they believe that their dreams of attending college are simply unattainable. This, however, is not necessarily true. There are different programs available for college grants that can help cover the expenses associated with going to school.
Students who feel they are worthy of a grant – whether it be a scholarship or a hardship case – must first prepare themselves by putting together an educational resume. Before becoming concerned about how to apply for grants, students should draw up a resume that highlights all academic achievements, leadership roles, community involvement, and any talents that are noteworthy.
Letters of recommendation from teachers and civic leaders is always a good thing. These people should be presented with a copy of the resume drawn up by the student. It’s important to ask for recommendation letters long before any deadline for a grant application approaches.
It is also a good idea to write up an extensive essay that is separate from the education resume. This essay can be presented along with all applications. An essay of this type contains not only achievements and awards details, it also clearly defines what sets the individual apart from the competition.
The bottom line is that wealth is a circumstance of life that can be overcome by persistence, creativity and commitment to reaching your goals. For college and in life, industriousness is a valuable skill for success. If the dream of a college education is worthwhile, a little elbow grease to make it happen is a small price to pay. All colleges have a financial aid office to answer questions and help students find the financial aid required to attend the school.
Financial help is available for those willing to do some research. In some cases, the result could be a free ride. In others, it may make the difference of going to college or minimizing future debt. While not guaranteed, financial opportunities are available for those willing to spend time seeking the not so hidden treasures. Good hunting!
With best wishes,
Marv Kaye, J.D., CFP®
Kaye Capital Management
Berman, J. (2015, September 21). Questions Families Need to Ask About Paying for College. Retrieved from www.wsj.com: http://www.wsj.com/articles/questions-families-need-to-ask-about-paying-for-college-144280093