Saving and Paying for College

When it comes to your college education, planning ahead makes sense but isn’t always practical. No matter where you are financially, there are steps you can take to get started.

When there’s plenty of time to save, follow these steps to get a plan together:

Step 1 – Do the legwork to get a budget together and figure out how much you can set aside within the scope of your other goals – retirement, emergencies, etc.

Step 2 – Start saving now! Even if it’s only a small amount, it will go a long way in the end.

• Check out the Saving Educational Resource for more information on ways to save.

Step 3 – Research options for saving in special college savings accounts such as Coverdell and 529 plans.

• Learn more about an ESL Coverdell Education Savings Account or simply search online for “college saving plans.”

If the time is drawing near, take the following steps to get on track:

Step 1 – Research education costs for community, public, and private schools in your area of interest.

• Private schools aren’t always the most expensive depending upon financial aid, scholarships, and other opportunities.
• Check out the “Compare College Costs” tool to see prices for different schools.

Step 2 – Apply for financial aid to see the amount for which you qualify.

• To get started, visit the Federal Student Aid website at https://fafsa.gov/.

Step 3 – Communicate with the colleges in which you are interested. Contact the financial aid office for an appointment.

• They will give you all the information you need about tuition payment plans, student loans, scholarships, and grants they are able to provide.

If saving is the difference-maker early on in the college planning game, then the big question is, “Where’s the best place to save?” We’re glad you asked. Here are some quick thoughts:

529 Plans:

• Special college savings plans.
• Offered by different states – to compare plans by state, check out collegesavings.org.
• Provide different tax advantages depending on the state.

To learn more, view a detailed Q&A about 529 plans at www.irs.gov.

Coverdell Education Savings Accounts:

• Special savings plans for future education expenses.
• Allow parents, grandparents, other family members, friends, or even children to contribute money.
• Individuals making contributions to Coverdell ESAs must meet certain income requirements.
• Earnings grow tax deferred.
• Withdrawals are tax-free when used for college.
• Funds can also be withdrawn tax-free for primary and secondary school.
• The maximum annual contribution for each minor beneficiary is $2,000 per year.

For a detailed publication about Coverdell Education Savings Accounts, go to www.irs.gov.

If you feel the way most people do about student loans, then you have a lot of questions: Am I eligible? What are the best options? How do I apply? How much should I take? What will my responsibility be? Here’s a simple way to find the answers:

First thing to consider:

If you have to take out student loans, you essentially have two choices: federal student loans and private loans. Here’s are the main differences between the two:

The student loan process:

1. Get an estimate from studentaid.ed.gov of your eligibility for federal student aid.
2. When ready, fill out the FAFSA.
   (Must be completed for any federal student loans or grants.)
3. Explore and compare the federal loan options first.
   (Go to the Federal Student Aid website for a full comparison.)
4. Submit applications to schools.
5. Compare school aid offers.
   (A school aid offer – award letter – tells what aid can be received at a particular school.)
6. Decide on the financial aid you’d like to accept.
   (Learn more about the next steps in accepting aid from studentaid.ed.gov.)
7. Receive aid.
   (How aid is received depends on the type of aid—grants, student loans, etc.)

Don’t forget that there are ways other than student loans to pay for college. For information on grants and scholarships, go to studentaid.ed.gov for details.

Even though you’ve learned the right steps to take on the college path, there can still be some lingering questions. Concerns about student loans and their effect on our financial lives are natural and important to consider. Here are some of the top questions that arise:

How do I make the cost of college worth it?
It’s important to think about how to get the best “bang for your buck” when it comes to your education. Be sure you consider the potential income versus the overall price.

What kind of an interest rate can be expected?
While rates vary year-to-year based on the type of loan, most federal loans fluctuate near 7%.

What if federal loans are not enough to cover the costs?
Consider the following options:

• Search for scholarships from other sources
• Service members, veterans, and their families may be eligible for GI Bill benefits and/or military tuition assistance
• Consider reducing costs through the Federal Work-Study program
• Carefully investigate private loan opportunities

What’s the standard repayment period for a student loan?
Student loans are most commonly repaid in 120 months (10 years).

If I co-sign a student loan how will it impact my credit?
Yes. Co-signing a student loan may impact your credit rating just as co-signing for any other type of loan. This means that missed loan payments or defaults will appear on your credit report if the borrower doesn’t repay. Additionally, the monthly payment amount and debt loan can be taken into account when you apply for credit.

Can a student loan be “forgiven”?
There are limited federal student loan cancellation (also known as discharge or forgiveness) programs for federal student loan borrowers. Most commonly there are job-related discharges that will cancel all or a portion of a federal loan for borrowers working in certain professions.

Is it possible to discharge student loans in bankruptcy?
Most student loans are not dischargeable in bankruptcy unless you can prove “undue hardship” which can be very challenging. Click here to learn more about student loans and bankruptcy.

If you have more extensive questions about the impact of student loans to your finances, take a look at www.studentloanborrowerassistance.org to get even more answers.