Lessons

I. It’s All About the Money, Money, MoneyII. Deciding On A College 101III. You Want Me To Go Where?IV. Some More About the MoneyV. Where’s the Free Money?

Lessons

I. It’s All About the Money, Money, MoneyII. Deciding On A College 101III. Deciding On A College 202IV. You Want Me To Go Where?V. Some More About the Money

The New Normal

Save for your retirement before you ever consider saving for your kids’ college

There are several options for parents to borrow for their kids’ college: Don’t do it!

There are other options for parents to pay other than borrowing that still aren’t good ideas!

The best way to contribute to your kids college is by cutting your spending way back while they are in school

Two other ideas are to get an extra job/ work overtime or sell stuff!

It will ask all kinds of info about you and your kid’s financial situation.

They then put all of that info into a formula that spits out your EFC

The formula basically takes into account the parents’ income, savings and other assets, and age, along with the student’s incomes and assets.

For most families, the EFC is completely out of touch and arbitrary

The FAFSA spits out an EFC that has nothing to do with what you can actually afford to contribute

It does not take into account retirement savings

Beware of things that will artificially pump up your income such as selling $10,000 worth of stock: this will be counted as income for that year

Your student will be penalized for working and saving for college

The formula does not take credit card debt into account

Financial aid directors will often state that parents are only expected to contribute 5% of their savings to their kid’s college which is technically true, but that is per year

Remember that people in the financial aid office work for the college, not you!

Bottom line is to take a look at your situation and determine how much you can afford, not what the federal government tells you you can afford

There is a FAFSA loophole, pay down on your house

College scholarships are great, but be careful.

The average financial aid package in America today comprises 60% loans: which isn’t aid!

According to the US Department of Education’s National Postsecondary Student Aid Study, of families with income between $40,000 and $59,999, only 31 percent received federal grant aid and families with incomes between $60,000 and $79,999, only 2.3% received federal grant aid

If financial aid was so great, student loan debt would not constitute 25% of all consumer debt in this country

Remember: student loans are different from grants!

Some schools even give a great financial aid package the first year and then significantly drop it the second year

It’s basically pointless to negotiate for more financial aid because it is very formulaic

Make sure to compare the bottom line price out of pocket (without loans!) of a private school vs public even with “more financial aid”.

With all things being equal, you are much better off paying for your school with little or no financial aid

It is possible to get a bachelor’s degree with no savings, no loans, and no financial aid.

Year 1 at a Community CollegeAverage tuition and fees: $2,360Books and supplies: $500Room and board (at home), transportation, etc:

$4,000

Year 1 total cost: $6,860

Year 1 at a Community CollegeHow you pay for it:Parents spend $15 per week less in budget: $780Student works 30 hrs/week on average and

saves the equivalent of 20 hrs/week at $9 per hour (after taxes): $9,360

Year 1 intake: $10,140Year 1 surplus: $3,280

Year 2 at a Community CollegeAverage tuition and fees: $2,360Books and supplies: $500Room and board (at home), transportation, etc:

$4,000

Year 2 total cost: $6,860

Year 2 at a Community CollegeHow you pay for it:Parents spend $15 per week less in budget: $780Student works 30 hrs/week on average and saves the

equivalent of 20 hrs/week at $9 per hour (after taxes): $9,360

Year 2 intake: $10,140Year 2 surplus: $3,280Year 2 accumulated surplus: $6,560

Year 3 at a Public UniversityAverage tuition and fees: $6,600Books and supplies: $1,000Room and board (at home), transportation, etc:

$8,000

Year 2 total cost: $15,600

Year 3 at a Public UniversityHow you pay for it:Parents spend $15 per week less in budget: $780Student works 30 hrs/week on average and saves the

equivalent of 20 hrs/week at $9 per hour (after taxes): $9,360

Year 3 intake: $10,140Year 3 deficit: -$5,460Year 3 accumulated surplus: $1,160

Year 4 at a Public UniversityAverage tuition and fees: $6,600Books and supplies: $1,000Room and board (at home), transportation, etc:

$8,000

Year 4 total cost: $15,600

Year 4 at a Public UniversityHow you pay for it:Parents spend $15 per week less in budget: $780Student works 30 hrs/week on average and saves

all earnings at $9 per hour (after taxes): $14,040Year 4 intake: $14,820Year 4 deficit: -$780Year 4 accumulated surplus: $380

Don’t forget about tax credits.

Pay for college monthly

Graduate in three years

According to the Project on Student Loan Debt, 67 percent of students graduating from four year colleges and universities in 2008 had student loans, averaging $23,200.

There are horror stories galore about people who have gotten drowned by their student loan debt: that are not bankruptable!

Many people (including parents) argue that student loans are an investment and that future earnings will more than cover the payments, so they are worth it.

It’s impossible to know the full impact on student loans on building wealth because it is such a new phenomenon.

A 2002 Nellie May study found that 21 percent of student loan borrowers put off having children because of their student loan debt.

High student loans choke off a young person’s ability to leave a job or even move cities (because they can’t quit their job)

Although it is hard to put a number on it (purposely of course), many estimate 1/3 of student loan borrowers will default.

Many people say that student loan debt is good (because it increases wages).

Later in college when everything else has been used and an unpaid internship may cut into time to work should be the only time student loans are even considered.

Subsidized Stafford loans: federally guaranteed fixed-rate loans that are available based on financial need.

Unsubsidized Stafford loans: federally guaranteed loans that are available to all students regardless of financial need.

Federal Perkins Loan: a 5 percent subsidized loans but most people don’t qualify because of parental income

One in three student loan borrowers are surprised at how large the payment is the first time they receive the bill

College loans are often sold as a good investment because of the increase in wages versus not going to college

If you plan on starting a family, do not take out student loans

The student loan deductible interest argument is basically the same as the mortgage interest argument.

If your child wants to become a writer, a teacher, or a social worker, student loans are crazy!

Planning on student loan forgiveness is not a good plan.

Homework:1) Find $70-$100/month to cut out of your budget2) Fill out the FAFSA if you have not3) Determine how much YOU can afford to

contribute (it may be $0)4) Create your own scenario on how to get

through school with no loans, savings, or scholarships.