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Financing a College Education
October 26th, 2015
Facilitator: Shonna Prickette - Training & Development Manager
Presented By:
Today’s objective is education; not advice.
Present the facts, your options, & the process of student financial aid so that you’re prepared to make educated
decisions when that time comes.
The Debate
Cost of food since 1978 = +250%Cost of medical care since 1978 = +600% Source = Bloomburg Business Week; 2012
“The cost of a college education is rapidly becoming one of the largest financial challenges
that Americans will face in their lifetimes.” -Steve Trumble, President & CEO of American Consumer Credit Counseling
Source: http://www.lendkey.com/the-ultimate-guide-to-student-loan-refinancing/
Source: Georgetown University Center on Education & the Workforce; The College Payoff: Education, Occupations, Lifetime Earnings. https://georgetown.app.box.com/s/ctg48m85ftqm7q1vex8y
Source: Catherine Rampell, “College is (Still) Worth it,” www.nytimes.com. Feb. 1, 2013. http://college-education.procon.org/view.resource.php?resourceID=005435
Source: Georgetown University Center on Education & the Workforce. http://americanradioworks.publicradio.org/features/tomorrows-college/dropouts/value-of-college-degree.html
Education expenses might include any of the following.. Tuition Room & Board Supplies, books, & equipment Child care expenses Transportation Personal PC Lab fees
The “Cost of College”
COLLEGE SCORECARD Basic, quick information Enter the name of the college to see:
www.Collegecost.ed.gov Average Net Price (Cost) Graduation Rate Loan Default Rate Median Borrowing
COLLEGE NAVIGATOR National Center for Education Statistics (US D.O.E) In-depth analysis Enter the name of the college to see:
www.collegecost.ed.gov Tuition, fees, net price, & financial aid Faculty, enrollment, ethnicity, & gender Programs, majors, varsity athletic teams Crime stats
NET PRICE CALCULATOR CENTER Links to Net Price Calculator on college site Enter the following info for personalized analysis of
your cost & an estimated financial aid package: www.collegecost.ed.gov ACT/SAT scores, GPA, & high school rank Student Tax info Parents Tax info Family Assets
OCCUPATIONAL OUTLOOK HANDBOOK Bureau of Labor Statistics Bls.gov/oco Guide to career info on hundreds of occupations
Highest median pay for 2012 Projected # of new jobs Projected growth rate Job Category
How will you pay for it?
$$ SAVED MONEY $$
$$ FREE MONEY $$Scholarships & Grants
$$ BORROWED MONEY $$Federal or Private Loans
Source: Sallie Mae; Go to: http://news.salliemae.com/research-tools/america-pays-2013 for this study & more information on how America pays for college.
How America Pays; 2013
Source: studentaid.ed.gov/prepare-for-college/checklists/#checklists
Save whatever you can It’s never too late to start Keep saving as long as you can Encourage good spending habits Create a budget & stick to it College = Financial Independence GET ADVICE ON HOW TO SAVE* Apply Repay
Begin Saving Early.
$100 = Initial Deposit+ $50 = Monthly DepositX .15% = Interest Rate X 18 = Years of contribution
$11,050
$10,900 (Actual) + $150 (Interest)
Begin Saving Early.
$100 = Initial Deposit+ $50 = Monthly DepositX 3% = Interest Rate X 18 = Years of contribution
$14,470
$10,900 (Actual) + $3800 (Interest)
Begin Saving Early.
Standard SavingsMoney Market SavingsCD (Certificate of Deposit)Traditional IRARoth IRA529 Savings Plan (Edvest)Coverdell Education Savings AccountCustodial Account (UGMA/UTMA)Educational Savings Bonds
College Saving Options:
Named for tax code Savings product tied to mutual funds
Return is based on performance of the market Can be used only for higher education expenses Each state has their own 529 Plan
WI 529 Plan is called Edvest or Tomorrow’s Scholar WI residents receive state income tax deduction for contributions up
to $3000 per child, per year DIY & Advisor plans offered Earnings can be exempt from WI & Federal tax
You can use ANY state’s 529 plan No income limits Contribute up to $350,000 per child Not a “short-term” investment option www.edvest.com
Saving - 529 Plan
Named for Senator who pushed through Congress Savings product tied to mutual funds/securities
Return is based on performance of the market Qualified distributed earnings are federal income tax free
No state income tax benefits Can be used for elementary, secondary, or higher
education expenses (K – grad school) Not available to high income families
$220K max joint income/$110K max single income Contribute up to $2000 per beneficiary, per year Not a “short-term” investment option
Saving - Coverdell ESA
Saving: You vs. Them“YOUR RETIREMENT TRUMPS THEIR EDUCATION
You know when you’re on an airplane and they always tell you to put your oxygen mask on first before assisting a child? Saving for long-
term financial needs is the same. If you don’t save for your own future first, you won’t be able to help your children when they need it. Worse, they may be forced to help you when they are trying to
put their own kids through school. There is no financial aid for retirement. There is plenty of financial aid for college. Don’t feel
guilty about this.”
Source: Jean Chatzky; Money Rules: The Simple Path to Lifelong Security
EXPERT TIP
PRIVATE
INSTITUTIONALGOVERNMENT
Free Money!
STUDENTS: Do your best in school SAT/ACT scores are important Colleges you apply to will offer “merit”
scholarships with your financial aid package Start looking for private scholarships early
Junior year of high school Do your research to find the best fit Ask questions Use your time wisely Pay attention to deadlines & terms
Free Money: Scholarships
USE YOUR RESOURCES! Guidance Counselor On-line Databases contain info on millions of
scholarships worth BILLIONS of dollars Cfffoxvalley.org (Local) Salliemae.com/scholarships Studentaid.ed.gov/scholarship Careerinfonet.org/scholarshipsearch
College Financial Aid Office
Free Money: Scholarships
“I’d recommend applying to 3-4 schools, even if you’re SURE you know where you want to go. It might cost a little to apply but you’ll get a better comparison of what different colleges offer for financial aid. Then, don’t take the first offer on your aid package. Negotiate
with the financial aid office if you feel the offer could be better.
Colleges will compete for your student! What’s the worst they can say?”
PARENT TIP
What is a federal student aid? Money from the government Helps you pay for educational expenses at an eligible
college, tech school, vocational school, or grad schoolWho gets aid?
Every student, regardless of age or family income Must meet some basic eligibility requirements 14 MILLION students currently receive aid
How much aid is available? More than $150 BILLION is available every year
Why Federal Student Aid?
WHY FEDERAL AID? Lower interest rates (loans) Flexible repayment options Longer repayment terms Tax-deduction of interest paid Student can borrow to build credit
When considering the options to fund a college education, it’s recommended that you exhaust federal loan funds BEFORE looking at private
loans!
Why Federal Student Aid?
HOW MUCH AID WILL A STUDENT RECEIVE? How much you get depends on:
Financial Need Cost of Attendance Enrollment Status (F/T vs. P/T)
There are limits: Annual (per year) Aggregate (total)
The limits depend on: Year in school Dependant Status
Why Federal Student Aid?
HOW MUCH AID WILL WE RECEIVE? Must complete Free Application for Federal Student Aid
(FAFSA) for official eligibility Fafsa4caster.ed.gov
Early eligibility indicator For anyone not ready to file an official FAFSA Provides an estimate
Why Federal Student Aid?
COMPLETE THE FAFSA The FAFSA determines your eligibility for
federal loans, grants, work-study, & some state & institutional aid. It’s the ONLY way to apply for federal financial aid It’s REQUIRED if you want federal financial aid Completed online at fafsa.gov Complete ASAP after Jan. 1 of the year you’ll start
school b/c some aid is awarded on a first-come, first-served basis
www.takepart.com/ivorytower (FAFSA Video)
Applying for Federal Aid
Source: studentaid.ed.gov/prepare-for-college/checklists/#checklists
YOUR SAR The Student Aid Report (SAR) summarizes
the info you provided on the FAFSA & will contain your Expected Family Contribution SAR is returned 3-10 days after FAFSA is submitted Review the SAR carefully to make sure it’s correct Colleges listed on your FAFSA will also receive your
SAR (up to ten colleges) From this point, stay in contact with your college’s aid
office as they will put together your aid package
Applying for Federal Aid
YOUR EFCExpected Family Contribution (EFC) is
calculated based on the info you reported on the FAFSA, according to a legal formula How much are you expected to contribute EFC will appear on your SAR Income, assets, family size, & # attending college are
considered in the formula EFC is used to determine need for federal student aid
• Cost of attendance – EFC = Financial Need www.studentaid.gov/sa/fafsa (EFC Video)
Applying for Federal Aid
YOUR AWARD LETTER Colleges that accept you for admission will
send an award letter detailing the financial aid package you’re being offered Award letter shows COMPLETE aid package
This is all grants, scholarships, loans, & work-study offered from state, federal, & institutional sources
Evaluate the aid package paying close attention to loan interest rates, fees, & repayment terms
Applying for Federal Aid
Federal Pell GrantUndergrad, up to $5,730 (2014-2015 award year)
Fed Supplemental Ed Opportunity Grant (FSEOG)Undergrads with exceptional financial need, up to $4,000
TEACH GrantElementary or secondary school teacher Must teach full-time in a designated teacher shortage area4 year commitment, up to $16,000
Iraq & Afghanistan Service GrantParent passed away as a result of military service after
9/11
Federal Aid: Grants
Federal Work StudyGuaranteed employment while you’re in school
On campus – usually work for your school Off-Campus – usually private NPO or public agency
You will earn at least minimum wageEmployer must pay you directly, once a month Important considerations:
Will work interfere with studies or sports? Do I want to work while in school? Could I get a higher paying part-time job elsewhere?
Federal Aid: Work Study
WHAT IS A LOAN? A loan is a borrowing agreement made between two
parties, where one party lends money to another party who agrees to repay the borrowed money on specific terms, with interest.
A loan is made up of 2 components: PRINCIPAL = Original amount borrowed INTEREST /FEES = Expenses paid by the borrower
Interest is calculated (compounded) monthly. With student loans, the interest can be paid right away, or CAPITALIZED (added to the unpaid principal).
Federal Aid: Loan Terms
SUBSIDIZED Vs. UNSUBSIDIZED “Subsidized” means the US Dept of Ed. pays
the loan interest during certain time periods You’re in school ½ time During your grace period During periods of deferment
“Unsubsidized” means you are responsible for the loan interest during ALL periods
Interest accrues as soon as the loan is disbursed You can choose to pay the interest right away You can choose to capitalize the interest
Federal Aid: Loan Terms
LOAN ORIGINATION FEE Basically, a processing fee Some federal loans have origination fees Fee is subtracted from the loan amount before
disbursement Your loan is $1,000 with a 1% origination fee $1000 (amount borrowed) - $10 (1% origination
fee) = $990 $1000 is the amount you pay back
Federal Aid: Loan Terms
Loan = $5000 (Disbursed 9/2015), No Origination Fee, 5% Interest Rate, Subsidized thru 1/2020
$5000 (Principal)- $0 (Origination Fee) $5000 (Amount disbursed on 9/2015)
$5000 (Value of Loan)X $0 (Monthly Interest accruing @ 5%) $0 (Monthly interest added for 54 months)
$5,000 = What you owe in Jan, 2020 (+ interest)
Federal Aid: Loan Terms
Loan = $5000 (Disbursed 9/2015), 1% Origination Fee, 5% Interest Rate, Unsubsidized, Interest NOT capitalized
$5000 (Principal)- $50 (1% Origination Fee) $4950 (Amount dispersed on 9/2015)
$5000 = Value of loan $21 = Monthly interest charge @ 5% APY 54 = Number of months you make this payment $1145 = Total interest paid over 54 months
$5,000 = What you owe in Jan, 2020 (+ interest)
Federal Aid: Loan Terms
Loan = $5000 (Disbursed 9/2015), 1% Origination Fee, 5% Interest Rate, Unsubsidized, Interest capitalized
$5000 (Principal)- $50 (1 % Origination Fee) $4950 (Amount dispersed on 9/2015)
$5000 = Value of loan $21+ = Monthly interest charge @ 5% APY 54 = Number of months interest capitalizes $1258 = Total interest capitalized over 54 months
$6258 = What you owe in Jan, 2020 (+ interest)
Federal Aid: Loan Terms
FEDERAL PERKINS LOAN: Awarded for exceptional financial need
5% Fixed Annual Interest RateUnsubsidizedNo Origination Fee$5,500 per year limit ($27,500 maximum)
Student is the borrower College is the lender
Funds applied to college “bill” first with a refund issued for excess funds
Grace period for repayment = 9 months If attending at least ½ time
Federal Aid: Loan Options
FEDERAL DIRECT SUBSIDIZED LOAN: Also known as: Stafford Loan Awarded to students with financial need
Undergrad students only4.29% Fixed Annual Interest Rate (As of 10/3/15)1.068% Origination Fee (As of 10/3/15)Maximum Eligibility Period is 150% of the
published length of your academic program School determines eligibility Student borrows; US Dept of Education lends
Federal Aid: Loan Options
FEDERAL DIRECT UNSUBSIDIZED LOAN: Also known as: Stafford Loan No requirement to demonstrate financial need
Undergrad & grad students4.29% Fixed Annual Interest Rate (As of
10/3/15)1.068% Origination Fee (As of 10/3/15)
School determines eligibility Student borrows; US Dept of Education lends
Federal Aid: Loan Options
FEDERAL DIRECT LOAN LIMITS: Subsidized & Unsubsidized combined
YEAR 1 = $5,500 (up to $3,500 can be Subsidized) YEAR 2 = $6,500 (up to $4,500 can be Subsidized) YEAR 3 = $7,500 (up to $5,500 can be Subsidized) YEAR 4+ = $7,500 (up to $5,500 can be Subsidized)
AGGREGATE LIMIT = $31,000 (up to $23,000 Subsidized) GRACE PERIOD = 6 months (as long as enrolled ½ time)
Federal Aid: Loan Options
WHAT ABOUT THE REST? $12,000 (Annual Net Cost of Attendance)- $2,000 (Perkins Loan)- $4,500 (Stafford Loan)- $1,000 (Private Scholarships)- $1,000 (Work-Study)= $3,500 (REMAINING BALANCE)
Other Loan Options
FEDERAL DIRECT PLUS LOAN: Used to borrow the remainder of cost for education Parent is likely the borrower
Approval based on credit history No need to demonstrate financial need
6.84% Fixed Annual Interest Rate (as of 10/1/15)4.272% Origination Fee (as of 10/1/15Borrow up to 100% of cost of attendanceNo aggregate limits
Unsubsidized US Dept of Education is the lender Loan cannot be transferred to student
Other Loan Options
SMART OPTION STUDENT LOAN: Used to borrow the remainder of cost Student & Cosigner are likely the borrower
Approval based on credit history No need to demonstrate financial need
5.74-8.56% Fixed Annual Interest Rate2.25-7.37% Variable Annual Interest RateNO Origination FeeBorrow up to 100% of cost of attendance
Unsubsidized Sallie Mae is the lender Cosigner release = Loan can be
transferred to student Grace period = 6 months
Other Loan Options
HOME EQUITY LOAN OR LINE OF CREDIT: Also known as: Second Mortgage
Borrowing against the equity in your home Used to borrow any of the of cost of education Homeowner is borrower
Loan cannot be transferred to studentNo need to demonstrate financial need
Rates are low right nowInterest paid may be tax-deductibleMay incur closing costs
Other Loan Options
BORROWED MONEY: Student Loans
RECEIVE – ACCEPTINGTo accept, sign the award letter and return it to
the school for processing. The financial aid office at your college will guide
you thru the paperwork which includes signing a promissory note, (you PROMISE to repay your loans according to the terms)
College is required to provide entrance counseling
BORROWED MONEY: Student Loans
RECEIVE – DISBURSMENT Loan funds will be “disbursed” in at least 2
installments Most student loan funds will go directly to the college
or come directly from the college College will use aid money first to pay for tuition,
fees, room, board, and other expenses on your student account. If any aid money remains, you will receive the funds by check
BORROWED MONEY: Student Loans
REPAY – WHEN TO START? For MOST student loans, you are not required to
make payments during certain periods While enrolled in school During periods of forebearance During “grace period” after graduation:
• Perkins = 9 months• Stafford = 6 months
Unsubsidized loans start to accrue interest as soon as the loan is disbursed which will be capitalized onto the principal, unless
you choose to pay the interest charges while in school!
BORROWED MONEY: Student Loans
REPAY - PLANS Standard
Fixed monthly payment, $50 minimum, 10-year term Graduated
Monthly payment starts low & increases, 10-year term Extended
Fixed or graduated paymentsMust have more than $30,000 in Direct Loans25-year term
Income Sensitive or ContingentIncome-based repayment options
BORROWED MONEY: Student Loans
RECEIVE – CANCELLATIONBefore loan money is disbursed, you may cancel
all or part of your loan by notifying the school. After the loan is disbursed, you may cancel all or part
of the loan within certain time frames Promissory note will explain procedures for cancelling
loans
BORROWED MONEY: Student LoansREPAY– IT’S SERIOUS!
Student loans are LEGAL obligations!
Student loans are borrowed money that MUST be repaid just like car loans & home mortgages. You
MUST repay a student loan ever if your circumstances become difficult.
Non-payment of student loans has serious consequences (legal default on a loan) and will
negatively affect your credit rating.
BORROWED MONEY: Student Loans
REPAY– LOAN SERVICER Repayment schedule from loan servicer
Exit counseling will be provided at graduationWhen first payment is dueNumber of, amount of, & frequency of paymentsYou will be notified if your servicer changes
The loan is YOUR responsibility!Make payments regardless of receiving billing noticesYou must pay even if you aren’t getting remindersNotify your loan servicer of all change of addresses
BORROWED MONEY: Federal Student LoansREPAY– STAY ON TRACK National Student Loan Data System:
www.nslds.ed.govDept of Ed’s central database for student aidAccess & retrieve your student loan data
Repayment Estimatorwww.studentloans.gov
Shonna Prickette Training & Development Manager
[email protected] 920-882-4801
Jeff Garrett Licensed Financial Consultant
[email protected] 920-882-4780
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