It’s Never Too Early! Start Creating Your Financial Future Now!

Erasing Debt on a ChalkboardI am the ultimate warning to ANY college student or college graduate!

The big news story over the past few years has been about the student loan debt crisis and how so many college students are graduating in the red.

Well, I was not one of those students, because I was fortunate enough to graduate from college DEBT FREE with $10,000 in the bank! Most college students would look at me as the “one who made it!”, but they would have to understand that life doesn’t end at college graduation, but it is actually just starting!

Life started happening to me fast and not long after graduation I married my high school sweetheart. Shortly after we said “I do” I found out that he had $25,000 in student loan debt for just one year of college!

This number took my breath away because the entire time that we were in college I thought he was there on a basketball scholarship, but come to find out that the basketball coach convinced his parents to pay for the first year and that his scholarship would pick up the next three. There was one problem with that plan, the college cost $25K+ a year!

We were already married so I told him that was “his” student loan which meant “his” money needed to pay the bill each month. We had already been married a month so it was time to build us a house! Not just any house, but I built us a house that was bigger than both of our parent’s homes combined.

I had fallen quickly into the microwave generation where I had to have everything my parents had right now! I convinced myself and my new husband that it made sense for us to move out of our $750 a month apartment with all utilities into a $1500 a month home where will pay ALL the utilities and trash pick-up!

We moved into the house and within the first year my husband’s car began to need repairs. Since we are part of the microwave generation, instead of getting it fixed, we traded it in for a brand new $23,000 Chrysler 300!

As we were driving our brand new car off the lot I let my husband know again that it was “his” car which meant “his” money would pay for it! I still had not grasp what the preacher meant when he said “now you are one”, because that also meant “OUR” debt.

So to recap I graduated college debt free with $10,000 in the bank and within a few years I was more than $48K in the hole! I’m not going to lie I would have kept going further into debt because as long as the bills were being paid I thought we were fine.

We were not fine, life changed quickly and I was laid off from my job. Now I was $48K in debt, income cut in half, and we had a one year old at home! That’s when we woke up and took the necessary steps to get out of that debt in 2 1/2 years!

I now show college students all over the country those same steps and principles so that they can avoid the debt nightmare that I found myself in!

This post was provided by Ja’Net Adams, a Professional Speaker at DreamGirl, who was a guest on College Smart Radio “Tackling the Runaway Costs of College,” on May 3rd 2014.  Listen to this broadcast on YouTube here.

Photo Credit: Images Money

Where to Save for College? Part 2

Putting money in a piggy bank529 Plan, Stocks , Mutual Funds, UTMA, UGMA, Coverdell, Roth IRA, Cash Value Life Insurance… How do you decide which savings plan or combination of plans are right for you?

There are many components that should be considered in the decision of where to save your valuable college funds. In “Where to Save For College? Part 1”, we discussed how to calculate how much you’ll need to save and the basic (yet key) factors to keep in mind when taking into account different college savings plans.

Most commonly, I hear parents worried about taxation when deciding on their specific savings strategy. Taxation can be a big deal in a good way and a bad way. As an example, 529 Plans have the tax advantage that earnings are not taxed if the money is withdrawn for a qualified education expense. That’s the good taxation. The bad taxation arises if you need some of that money for a non-qualified education expense or if your student decides that higher education is not for them. In either case, you’d have to pay the tax plus a 10% penalty to get access to the money.

Another frequently discussed feature is whether the college money should be in the parent’s name or the child’s name (UGMA or UTMA). The tax decision will depend on the child versus parent’s tax rate, when the money will be accessed and the kiddie tax rules. The other central feature that parents sometimes forget is access to that money. It is essentially the child’s asset and they gain control of it at age 18.

The Roth IRA’s taxation rules allow money to be taxed when earned, but not taxed during accumulation or withdrawal (subject to some limitations). Roth IRA limits contributions and these limits are dictated by family earned income as well as IRS rules (only $5000 per year for an adult under 50).

One lesser known savings vehicle is to save money is cash value in a permanent life insurance policy.  Savings will accumulate tax deferred and, if the policy is designed correctly, are available to being spent… tax-free!  Contributions can be high and money from the cash value in the policy can be accessed for any need (not only college).

When it comes to college savings and funding, a chief element for many familiesmay be whether the savings are visible or invisible to the financial aid calculation. Every family should assess whether it’s possible that they may qualify for need based financial aid, and if they do, then the financial aid visibility becomes all-important.

To give you a clear visual, the chart below compares different savings plans and the possible benefits of each.

Possible Benefits
Guaranteed Growth Tax Deferred Accumulation Tax Free Use for College High Contribution Limits Investment Choices Transferable (beneficiary) No Income Ceiling for Contribution Access to Money Financial Aid Invisible
529 Plans NO YES YES YES Some Limitations YES YES NO NO
Coverdell NO YES YES NO Some Limitations YES YES NO NO
UTMA / UGMA NO NO NO YES YES NO YES NO NO
Stock / Mutual Funds NO NO NO YES YES YES YES YES NO
ROTH IRA NO YES YES NO YES YES NO Some Limitations YES
Permanent Life Insurance YES YES YES YES Some Limitations YES YES YES YES

When we work with a family to design their college savings plan, it typically will include a combination of these different plans. This allows a family to take advantage of the benefits of each, but lessen the disadvantages. Give us a call to help design your unique college savings plan.

Listen to the April 26th College Smart Radio show to understand the pros and cons of different savings plans, so you can determine which savings plan or combination of savings plans will integrate best with your family’s needs.

This post highlights information discussed during our College Smart Radio “Tackling the Runaway Cost of College” April 26th broadcast where Beatrice Schultz and Mark Guthrie discussed the pros and cons of different college savings plans.  Listen to this broadcast on YouTube here.

Tax advice is not offered by Beatrice Schultz or Westface College Planning. Please consult your tax professional for additional guidance regarding tax related matters.

Photo Credit: Images Money

Where to Save for College? Part 1

Broken Piggy BankWhether you have dreams of sending your newborn child to Harvard, UC Berkeley or San Diego State, you have a lot of savings ahead of you if you plan to foot part of the bill.

You need to come up with a savings plan EARLY – and stick with it for many, many years.

 

Various types of savings plans exist. In fact there are a few specific ones that are commonly adopted by parents to save for college.  Those include:

  • Traditional investment savings accounts.
  • UGMA (uniform guest to a minor’s accounts in their name).
  • UTMA (uniform transfer to a minor’s account in their name).
  • 529 College Savings Plan.
  • Coverdell Education IRAs
  • US Savings Bonds.

But before deciding where to save, the first question most parents ask is “How much do I need to save?”

As an example, let’s calculate how much you need to save for your newborn to afford 4 years at a UC. Today, a UC will run you about $32,000 per year or $130,000 for four years. Tuition cost as well as room and board continually rises about 4-8% per year.  If we assume a 5% inflation, these parents will be faced with a $300,000 to $350,000 college bill when their child reaches 18 years old.

These parents of a newborn would want to stash away $1,000 per month, equaling $12,000 a year (assuming an average 4.5% rate of return over 18 years) to accumulate ~$320,000 to fund that one child’s college education. Wow – that’s a lot of savings and may be overwhelming for many new parents to consider!

So now that we know how much we need to save, the next question is how and where should these funds be saved for the next 18 years?

There are 4 key components that should be considered in the decision of where to save these college funds. Those 4 factors are the savings plan, the investment strategy, having access to your money and the spending plan.

  1. Savings Plan
    1. Should be easy – auto withdrawal.
    2. Flexibility.
    3. Contribution limits.
    4. Outside help – choose a convenient way for family to help.
  2. Investment strategy
    1. Choose your risk and expected return.
    2. How will taxation impact our rate of return (tax now, tax every year, tax later)?
  3. Access to the money
    1. Would you like access to this money during the saving period?
    2. Access if you have an emergency.
    3. Access for a great investment opportunity.
  4. Spending Plan
    1. Spending Plan
      1. Flexibility. Timing.
      2. Do you want to have all your money in a plan that must be used for college funding?

When it comes to college savings and funding, a vital 5th component may be whether the savings are visible or invisible to the financial aid calculation.  Every family should assess whether it is possible that they may qualify for need based financial aid, and if they do, then the 5th component becomes all-important.

Listen to the April 19th College Smart Radio show to start to run the numbers of how much to save and why these 4 or 5 components should be serious considerations for your savings plan.  Listen in to next week’s show to understand the pros and cons of different savings plans, so you can determine which single plan or combination of plans is right for your family.

This post highlights essential information pulled from our College Smart Radio “Tackling the Runaway Cost of College” April 19th broadcast where Beatrice Schultz and Mark Guthrie discussed the factors of where to save for your child’s college fund.  Listen to this broadcast on YouTube here.

Photo Credit: Images of Money

Secrets for Cutting the Cost of College

Bellevue University LogoIf you are thinking about returning to school the issue of finances has likely come up. You’ll hear a lot about affordability and the cost of school interchanged, but affordability is different than cost. Think of it this way: cost is just the baseline; affordability can be considered how you’re going to manage that cost. In order to best figure the true cost, you must get a clear picture of all the expenses, and look for ways to reduce them when possible.

 

Take a look at the following seven factors when conducting your research:

1. Cost per credit hour based on the academic calendar. Don’t just pay attention to the cost per credit hour – this can be different due to variations in academic calendars, leading to extra fees and valuable time spent. There are two factors to consider here. What is the baseline cost per credits and how are credits figured? Make sure you look at all the factors involved when you determine affordability.

2. Length of program. How long will it take you to complete your degree? Are you starting brand new, do you have some credits? What is the pace of the program? When you know how many credits you need, that can help you figure cost based on how many credits are included in tuition, or if you are paying per class.

3. Transfer credits. If you have previously earned credits how will they transfer in? Are you able to save time and money if you get credit towards graduation for previous coursework? When credits don’t transfer, you could be spending more to retake classes.

4. Books and supplies. For first time students the average cost of books and supplies was more than $1000, according to The National Center for Educations Statistics. Books can get expensive, but are required. Take advantage of shopping strategically to try to land used books, renting textbooks or selling back books when possible, and research how other savings opportunities can be found. Does your school offer text book grants or scholarships to alleviate the burden of this expense?

5. Fees. Get a comprehensive list of all fees that you are required to pay as a student. Are there student fees, semester fees, lab fees, parking fees, etc.? Determine how fees are figured in. Are they included in tuition, are they separate, how often do you pay them?

6. Housing and transportation. Once you have figured out the cost of credits and fees to complete your program, explore this sometimes costly expense. Will you be living on campus? How much will you be spending commuting to campus? What is the value in the convenience of being on campus? Is online an option for you?

7. Other ways to earn credits. Can you test out of classes to earn credits? For example if you can take a CLEP or DSST test in place of a class you could save money on the cost per credit hour as well as the cost of books. According to collegeboard.org, CLEP tests are accepted by over 2,900 colleges and Universities, so explore if the school you are considering accepts them, and work with an advisor to see how they would fit your needs. Also ask how corporate and military training can count towards your degree plan.

College can be expensive, but planning and research can ease the burden without sacrificing the integrity of earning a respectable, accredited degree. Utilizing previous credits, and finding a school that works on your timeline to help you make the most of your funds can reduce costs and make college more affordable.

This post was provided by Dr. Mary Hawkins, President of Bellevue University, who was a guest on College Smart Radio “Tackling the Runaway Costs of College,” on April 12th, 2014.  Listen to this broadcast on YouTube here.

 

Loan Forgiveness and Income Based Repayment Programs – How Do They Work?

8231671430_e83d55aa51_bFederal Student Loan Options
Currently the federal student loan debt has surpassed the $1.2 trillion dollar mark, and the average student loan borrower is graduating with over $26,000 in student loan debt.  This debt is now accounting for an average monthly payment of $320/month, which is higher than ever.  At the same time, defaulted student loans are also at an all time high of 11%, up from 5.4% in 2001.

Recently a study found that 33 million Americans qualify for student loan forgiveness but are not aware of the various programs that exist and are available to them. The Teacher Loan Forgiveness, Public Service Loan Forgiveness, and Income Based Repayment program are the most popular and beneficial programs.

Public Service Loan Forgiveness
This program began in 2007 and was used as a way to benefit those who choose to work in the public sector.  The U.S Government wanted to award those who take up public sector jobs, and created the Public Service Loan Forgiveness(PSLF) program. The program allows anyone working for a local, state or federal organization to qualify for forgiveness on their loan after 120 qualifying payments.  The balance at the end of those 120 months would be completely absolved by the U.S Government.

o Must work in one of the following:

  • Public sector
  • Non profit 501(c)(3)
  • Private non-profit working in certain fields

o Must have DIRECT loans

  • Loans can be consolidated into the Direct Loan program to then qualify for PSLF

o Must be in an Income Based or Income Contingent repayment plan

o Must be a full time employee (30+ hours weekly)

Teacher Loan Forgiveness
Similar to the Public Service Loan Forgiveness program, the Teacher Loan Forgiveness program was created in an attempt to drive college students into the education profession.  A Teacher may now qualify for principle reduction on their loan between $5,000 and $17,500 dollars.

  • Must have Direct or FFEL loans
  • Must not be in default
  • Must not have had student loans prior to Oct 1st, 1998
  • Must have taught for 5 consecutive full time years at a title 1 school.

Income Based Repayment
The Income Based Repayment (IBR) program probably benefits the greatest number of federal student loan borrowers.  In this repayment, the lender will calculate your federal student loan payment based on your income and family size.  Your loan balance and interest rates are not used to calculate your repayment.  In the IBR you may qualify for a monthly payment of $0.00 which counts as an actual payment on your student loans.  Every year the lender would request updated income documents and recalculate the payment based on your current income levels.  If your income does not rise, your payment will not rise.  At the end of 25 years, any balance remaining on the loan would be erased in the Direct Consolidation program.

  • Any interest that is not paid in the IBR is not capitalized for the first three years
  • Payments as low as zero
  • Payments that take into account your family size and cost of living expenses.

If you think any of the above programs can help you, give your lender a call to request information and get into the programs you qualify for and deserve!

Bio:

Spiros Mitsis graduated with a Bachelors in Finance & Economics from the University of Connecticut.  He is one of the founders of Student Debt Relief whos primary objective is to educate and assist student loan borrowers on the many federal programs available to them, including loan forgiveness.

—————————————————

This post was provided by Spiros Mitsis of Student Debt Relief, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on December 28th, 2013.  Listen to this broadcast on YouTube here.

Photo Credit: Chris Potter

What You Need to Know and Do about Paying for College: Six Essential Tips

www.edvisors.com

Edvisors

When thinking about paying for college, parents often worry most about what they don’t know. College financial aid is a complicated topic, with an alphabet soup of acronyms and jargon. They fear making a mistake that will ruin their child’s future. Despite the complexity, there are only a few things that most families must do to secure their child’s future.

1. Start saving for college as soon as possible. Every dollar you save is about a dollar less you’ll have to borrow. It’s never too late to start saving, because it is literally cheaper to save than to borrow. Every dollar you borrow will cost about two dollars by the time you repay the debt.

2. Start searching for scholarships as soon as possible. Every dollar you win is about a dollar less you’ll have to borrow. There are many scholarships with deadlines in the fall of the senior year in high school, and several that can be won in younger grades, even in elementary school. Search for scholarships for free at web sites like www.studentscholarshipsearch.com and www.fastweb.com. Answer all of the optional questions for about twice as many matches.

Apply for every scholarship for which you are eligible. Winning a scholarship depends as much on luck as it does on skill. By applying to more scholarships, you increase your chances of winning one. Students often dislike applying for scholarships that involve lower award amounts (e.g., under $1,000) or writing essays. But these are easier to win because they are less competitive, the amounts add up, and they add lines to your resume that can help you win bigger awards. It also gets easier after your first half-dozen scholarship applications, since you will be able to reuse your essays, tailoring them to each new scholarship sponsor.

Beware of scholarship scams. If you have to pay money to get money, it’s probably a scam. Never invest more than a postage stamp to get information about scholarships or to apply for scholarships.

3. File the Free Application for Federal Student Aid (FAFSA) every year, even if you think you won’t qualify for financial aid. The FAFSA is used to apply for financial aid from the federal and state governments and all but about 250 mostly private colleges. It is also a prerequisite for low-cost federal education loans, which you can borrow even if you are wealthy. File the FAFSA as soon as possible after January 1. Several states are on a first-come, first-served basis, awarding state grants until the money runs out. (California’s deadline is in early March.) Do not wait until you are admitted or have filed your federal income tax returns.

It is ok to estimate income based on W-2 and 1099 statements and/or the last pay stub of the year. You will have an opportunity to correct any errors later. You can file the FAFSA for free at www.fafsa.ed.gov. Use the IRS data retrieval tool to update your FAFSA information a week or two after you file your federal income tax return. Call the US Department of Education’s federal student aid information center at 1-800-4-FED-AID (1-800-433-3243) with questions about federal student aid and filing the FAFSA.

4. Compare colleges based on the net price, the difference between the total cost of attendance (tuition, fees, room and board, books and supplies, etc.) and just grants (money that does not need to be repaid). This is the amount you’ll have to pay from savings, income and loans to cover college costs. It is a more accurate measure of the bottom line cost. But beware of two caveats: about half of colleges practice front-loading of grants, yielding a lower net price for freshmen than for upperclassmen, and a college’s outside scholarship policy dictates whether private scholarships are used to replace loans (yielding a lower net price) or the college’s own grants (no change). Relying on the net price will help you make a more informed decision about the tradeoffs between college affordability and other considerations, such as college quality and reputation.

5. Borrow as little as possible. You can economize on college costs by enrolling in a less expensive college, such as an in-state public college or a college with a generous “no loans” financial aid policy. But tuition represents only about half of college costs. Students can also save by buying used textbooks (or selling the textbooks back to the bookstore at the end of the term), living at home with their parents, minimizing trips home from school and economizing on everyday expenses. For example, students don’t like the cafeteria food and so tend to eat out a lot. But a $10 pizza a week will cost you about $2,000 over the course of a four-year college career. If you pay for that pizza with student loan money, it will cost you about $4,000 by the time you repay the debt. So live like a student while you’re in school, so you don’t have to live like a student after you graduate.

Keep your debt in sync with your income. A good rule of thumb is that total student loan debt at graduation should be less than your annual starting salary, and ideally a lot less. If total debt is less than annual income, you will be able to repay your loans in ten years or less. Otherwise you’ll struggle to make your monthly loan payments. Parents should borrow no more for all their children than they can afford to repay in ten years or by retirement, whichever comes first.

As an alternative to student loan debt, consider a tuition installment plan. These spread out the costs over 9-12 equal monthly installments. Tuition installment plans don’t charge interest, but do have up-front fees that are typically less than $100. They are a good way of avoiding long-term debt.

If you must borrow, borrow federal first. Federal student loans are cheaper, more available and have better repayment terms than private student loans. Federal student loans have low fixed rates, while private student loans tend to offer variable rates. Variable rates may initially have lower rates, but those interest rates have nowhere to go but up. Federal student loans also offer income-based repayment and public service loan forgiveness, while private student loans do not.

6. Don’t forget about the education tax benefits, such as the American Opportunity Tax Credit (AOTC), because these are claimed when you file your federal income tax return instead of when you pay the college bill. These tax credits give you up to $2,500 back based on amounts you paid for tuition and textbooks.

This post was provided by Mark Kantrowitz, the Senior Vice President and Publisher of Edvisors.com, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on October 5th, 2013.  Listen to this broadcast on YouTube here.

Photo Credit: Edvisors

Student Loan Bill Doesn’t End Controversy Over Rates

preview_campos_student_loans(1)

Photo Credit: Liberty Alliance

President Barack Obama and Congress finally reached agreement on interest rates for student loans, but the controversy surrounding the issue is not close to being over. Obama signed the Bipartisan Student Loan Certainty Act of 2013 on Aug. 9, and critics immediately went after the obvious misnomer in the bill’s name and the amount of profit the government will make for issuing loans.

The bill ties student loan interest rates to the 10-year U.S. Treasury note, a virtual guarantee that there will be no “certainty” over rates. They will change year-to-year based on the whims of financial markets. In fact, Congress was so certain that rates were going up that it imposed caps of 8.25 percent on undergraduate loans; 9.25 percent on graduate loans and 10.5 percent on PLUS Loans taken by parents to help their children pay for college.

In addition, the Congressional Budget Office, which reviews the future impact of legislation, projected that the federal government would take in nearly $185 billion in profits from student loans over the next 10 years. Nevertheless, Obama and members of Congress were thrilled with themselves for actually passing some legislation. “This is a common-sense approach to keeping student interest rates at a reasonable level so people have a better opportunity to go to college,” Obama said at the bill-signing ceremony. “They will get the education they need to better their own lies and strengthen their country’s economy.”

“This bipartisan agreement is a victory for students, for parents, and for our economy,” Republican House Speaker John Boehner said after the House approved the bill.

That would depend on how you looked at it.

This year’s rates do offer relief for the three major types of student loans. Undergraduate students will pay 3.86 percent; graduate students 5.41 percent; and PLUS Loans, which go to parents of students, will carry a 6.41 interest rate. The rates would have been 6.8 percent for undergraduate and graduate students and 7.9 percent for PLUS Loans.

However, experts predict that rates on the Treasury note will rise as the economy improves in the next few years and student loan interest rates will go up with them. Forecasts show that undergraduate loans could exceed the 6.8 percent mark within two years. PLUS Loans are expected to pass the 7.9 percent rate within three years. The caps on all three loans are considerably higher than the old rates.

The other area of concern with the bill is the amount of money the federal government is making on student loans. They CBO projected that the government will make a record $50 billion on student loans in 2013 alone and another $185 billion over the next 10 years.

The easy access to student loans is cited as one of the leading causes for tuition hikes that average 5 percent a year over the last decade. Obama made mention of that during the signing ceremony, but offered no hint as to how the government would address it.

“Even though we’ve been able to stabilize the interest rates on student loans, our job is not done,” he said. “The cost of college remains extraordinarily high and it’s out of reach for a lot of folks.

“For those who do attend, the amount of debt young people have coming out of school is a huge burden on them and their families. It has a depressing effect on our economy. We’ve got to do something about it. I’ll have more to say about that in the weeks to come.”

Bill Fay is a writer for Debt.org, focused mainly on news stories about the spending habits of families and government. He spent 21 years in the newspaper business and eight more in television and radio, dealing with college and professional sports, then seven forgettable years writing speeches and marketing materials for a government agency. 

This post was provided by Bill Fay, a writer for Debt.org, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on August 31st, 2013.  Listen to this broadcast on YouTube here.