Who Will Be Responsible For College Costs
Start with a pen-to-paper calculation of what you could realistically spend on college. This doesnt need to be a detailed monthly budget, but instead a ballpark figure that your student understands. The goal is to get a sense of whats comfortable and whats a stretch as you use more net price calculators and finalize your students list.
Here are the most common components of this contribution calculation:
- Savings: money set aside for college, including from your 529 plan. This should not count retirement savingsthose are yours and we dont recommend using your retirement nest egg to fund your childs college education.
- Additional Contributions: what you and your support networks plan to contribute to the cost of college, above and beyond any savings. This could be $0but often there is some additional money that you can put towards tuition bills as they come due. For example, if your student wont be living at home you will presumably save on travel and food expenses, and could put that money towards their expenses in college.
- Student Income: there are many reasons to work during college, and contributing to the cost of college is top of that list! Even earning a few thousand dollars per year represents a real reduction in loans youd need to take otherwise.
- Additional Scholarships: if you do have committed or likely scholarships you know about you can include those here also.
Let’s take a look at an example:
Average Cost Of College In America
Our researchers found that the average cost of college for the 20172018 school year was $20,770 for public schools and $46,950 for nonprofit private schools, only including tuition, fees, and room and board. Each year, school costs have continued to increase, even accounting for inflation. We took a look at higher education data from the College Board to provide a deeper understanding of the costs and the differences between states, school types and degrees.
Commit To A Monthly Contribution
But how much should you be saving right now? Lets assume you are shooting for one-third of the projected cost of college, and youre using a 529 college savings plan to invest your savings and gain its tax advantages over time. If youre saving for a 4-year-old child, here are your estimated monthly contributions.
- Public : estimated $210/month
Cost Of Books And School Supplies
The average price of books and school supplies for students at both public and private colleges in 2020-2021 is $1,240.
Textbook prices have risen 812 percent since 1978, according to a 2019 report by Follet, an educational products company. Borrowing books from the library or purchasing digital or used textbooks can reduce your costs, but students still find budgeting for textbooks to be a major source of stress, according to a survey of current and former college students by textbook publisher Cengage. Thirty-one percent of the students surveyed said they took fewer classes to save on textbook costs, and 43 percent said they skipped meals or took out loans to pay for course materials.
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If You Must Borrow Student Loans
As a last resort, student loans could help you bridge the gap in your cost of attendance.
Before rushing to borrow, however, ensure you study up on the differences between federal and private student loans. For example, loans from the federal government come with added protections, including the ability to alter your repayment plan.
Private loans could be cheaper to repay with a creditworthy cosigner. Without mom or dads help, however, you might need to find an alternative cosigner.
When shopping around, compare all sorts of lenders including the federal government, your school, banks and credit unions to find the best loan for you and your family.
Remember: You have options when it comes to paying for college, even if you feel like your familys income is a deterrent when it comes to financial aid.
Keep the lines of communication open with your chosen schools financial aid office, and approach the problem collaboratively to find the best solution for your situation.
How Much Should Your First Job Pay You
If you are a new grad fresh out of college or high school, your job search is probably in full swing. You might already have some idea of what type of work you want to do, but figuring out how much your first job should pay you can be tricky. After all, many jobs postings dont even include a salary range, much less the market rate for this type of job.
There are a number of potential reasons for this, and it isnt just to make your head spin. Every applicant has a different level of experience, credentials and skills that influence their compensation. Even where you live plays a part in how much you ultimately get paid.
Still, its a good idea to ensure you are meeting a certain baseline level of compensation. If you are offered a job and it doesnt reach that baseline, you may want to negotiate or consider looking elsewhere.
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Where To Open A 529 Plan
What many people don’t realize is that you can invest in almost any state 529 plan. For some people, it can make sense to use your own state’s plan to take advantage of the tax deduction – but not all states offer tax deductions on contributions .
If the state doesn’t matter, the next things to look at are performance and ease of saving. For performance, you want good performance for low fees. For ease of savings, we look at whether the plan can be connected to savings programs like College Backer.
Check out this guide here, find your state, and see what plan we recommend: 529 Plan Guide.
SavingForCollege.com ranks the best plans every year. What plan you choose depends on the state you’re in. Check out the map below and find your state:
Follow The Order Of Operations For Saving For College
That single amount gives me sticker shock each month when I think about saving for my child’s college education. But it’s also an important reminder of why everyone should follow the Order of Operations For Saving For Your Kid’s College.
The key phrase is Y.E.S.:
YOU: You have to make sure your own financial house is in order before you try to save for your child’s college. If you can’t make rent, or buy groceries, there are bigger issues to fix first. However, the YOU bucket also includes saving for your own retirement and making sure you have an emergency fund. I’ve said this hundreds of times – you can’t get a loan for retirement. Make sure you save for yourself first.
Education Savings Accounts: If you’ve saved for yourself, next you can save for your child in Education Savings Accounts, like the 529 Plan.;
Savings: After contributing some amount to the 529 plan or other education savings account, it’s smart to save in a traditional savings account as well, in case there are other expenses you want to help your child with that don’t qualify as education expenses.
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Loans To Cover The Rest Of Your Expenses
Students often need to use a variety of forms of financial aid to pay the entire cost of college, including living expenses. Grants are capped at a certain amount, or disbursed among many students and therefore diluted, so they may not be enough to cover the whole cost of attendance.;
Scholarships are another form of free money that can be used to pay for college costs. These are often merit-based and usually require an academic, athletic, or arts-related achievement. You can obtain both grants and scholarships to pay for college expenses.
Student loans are another option to pay college tuition and living expenses while going to school. Student loans are offered through the federal government and through private lenders. When you submit your FAFSA, you will determine how much and what kind of federal financial aid you qualify for. This includes federal student loans.;If you need more funds to pay for college and living expenses than federal aid provides, private student loans are an option. Private student loans typically offer the best rates to those with an excellent credit rating, stable income, and a low debt-to-income ratio.
Students just starting out often dont have much in the way of credit. If you choose this route, you may need a credit-worthy co-signer to help you get the best interest rates.
Saving For Future College Costs
It can seem insurmountable to even think about saving over $40,000 for college costs on top of all your other financial responsibilities. A common recommendation is to pay off your own student loans before putting significant amounts of money towards college savings. Some parents find that refinancing their own student loans if they havent paid them off already allows them to save moneygiving them more financial wiggle room to start saving up for future educational expenses.
How can refinancing help you save on your student loans so you can start saving for your kids education? Student loan refinancing allows you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.
What is the benefit of trading in old student loan debt for a new loan? When you refinance your student loans, the refinancing lender looks at your current financial situation, including your credit score, income, and future earning potential to calculate an interest rate that could potentially be lower than what you might be paying to the federal government or a private student loan lender.
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Say No To Student Loans
When you complete the FAFSA, youll start getting offers from banks that will be more than happy to help you pay for college. In fact, some financial advisors actually tell their clients to count on paying for part of their college expenses with student loans.;Listen, its this advice that has led Americans to carrying around 1.58 trillion in federal student loan debt.6;
Bottom line? Debt is a threat to your kids financial futures.;Student loans only help your kids start out in the negative. But get this: Going through college debt-free really is possible.
These lenders claim theyre more than willing to help you out. Lets look at the real costs of that so-called student loan help. In 2020, the average student loan borrower carried about $38,792 in student debt.7
So, what will paying off that debt look like?
Assuming you have a 10-year payment plan and an interest rate of 6%, youd be paying just over $400 a month. And throughout those 10 years, youd pay almost $13,000 in interest. So, that help in the form of a nearly $39,000 loan cost you almost $52,000. If you do the 20-year payment plan, youd pay only $278 a month, but youd end up paying close to $30,000 in interestalmost the original loan amount! Paying nearly double for a degree?;No, thank you!;
How And When Will I Receive The Funds
Keep in mind, schools follow the Federal Pell Grant Payment and Disbursement Schedules to distribute the funds. The schedules depend upon the student: full-time, half time, etc. to help determine how much money each student will receive.
Your college will determine how the grant will be paid. They may apply the funds directly to your school costs, pay you the funds, or combine the two options.
Students may only use funds from their Federal Pell Grants at one participating school at a time. Any funds leftover may be used for school-related expenses, such as textbooks, room and board, etc.
Check out the list of participating schools that accept Federal Pell Grants.
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Myintuition College Cost Calculator
For students who want to estimate how much college will cost, this is the calculator for you. Simply pick the school youre interested in and answer the questions to gauge how much your education will cost and if you are eligible for need-based aid.;
Planning for college is a big deal, and you want to do it right. These tools and resources are there to help you make smart financial decisions for you and your childs future.;
As always, if you have any questions about filing FAFSA® or financial aid options, reach out to Franks knowledgeable support team.;
You May Qualify For Government Assistance
There are a few different ways you can get government assistance for your college housing costs.;
For veterans and service members, the GI Bill covers tuition and fees, and it includes a housing allowance and textbook stipend.;
Section 8 housing could be an option for college students, however, there are limitations. If youre under age 24, you may need to reference your parents income information on your Section 8 application. The traditional income requirements apply to college students who are over age 24. ;
College students can also get help paying utility bills from the Low-Income Home Energy Assistance Program .;
Section 42 is another method to reduce your housing costs. Rather than paying the market rates for your housing, the program limits your total rent and utility costs to 30 percent of your monthly income. There are restrictions on eligibility. For example, the program doesnt usually apply to full-time college students who live alone or groups of students living together.
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How To Figure Out What To Save From Each Paycheck
As with most long-term savings plans, it’s good practice to contribute small amounts to a 529 regularly, preferably with each paycheck. Before you calculate how much you need to save from each paycheck, though, you need to figure out your goal amount; and that may not be straightforward. You’ll need to think about kind of college education your newborn might want 18 years from now, as well as that future cost.;
Using a calculator can help. The one at;Saving for College, for instance, projects that the cost of a four-year private college education could end up being about $408,844 for a child born in 2020. Depending on how much you earn, scholarships and grants can lower your goal amount significantly: For example, a family earning $100,000 a year might expect to need around $241,500.
On a per-paycheck basis, that works out to roughly $115, $208, or $254, respectively.
Video by Courtney Stith
Federal Loans: Subsidized And Unsubsidized
Federal loans are, unsurprisingly, issued by the federal government. When youre considering taking out student loans, its a wise choice to target federal loans first since, they offer more benefits than private ones.
One benefit is that federal loans dont require a cosigner or guarantor, so; you can apply independently. And most importantly, interest rates are generally lower than with private loans, meaning youll end up paying less in the long run. For the 2019-2020school year, the interest rate is 4.53% for undergraduate loans and 6.08%% for graduate and professional loans. These interest rates are fixed for the life of the loan, so you always know the interest rate youll be paying.
When you receive a federal loan, it will either be subsidized or unsubsidized. Subsidized loans dont accumulate interest for the entire time youre in school, while unsubsidized loans do. Unfortunately, you dont have much say in which type of loan you receive since its heavily based on financial need. Only students with financial need are eligible to receive subsidized loans, while demonstrated financial need is not a requirement to receive unsubsidized loans. Federal interest rates are currently the same for both undergrad subsidized and unsubsidized loans.
Loan amounts vary considerably based on a students year in school and their level of financial need. Take a look at the table below to get an idea of your eligibility.
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Don’t Borrow More Than $50000
The experts agreed that rather than worrying about the total price tag, you should focus on how much debt you’ll take on, and your ability to pay it back.
“Debt is what can burden you going forward and can limit your life choices,” Folt said.
An oft-cited rule of thumb is to borrow no more than what you’ll earn the first year after graduation.
But in order to figure that out, you’ll need to know how much you’ll be earning. That can be tough to pin down.
One recent survey found that the average starting salary for an entry-level position for someone with a bachelor’s degree this year is $50,000.
Tech or science fields may earn bigger paychecks. But those who pursue a more volatile career or go on to graduate school may want to borrow less money, said Kal Chany, the author of Paying for College Without Going Broke.
To get a better sense of what different majors may pay, check out this data from the Georgetown Center on Education and the Workforce on lifetime earnings. The Bureau of Labor Statistics has data on lifetime earnings by career.
A third source, the government’s College Scorecard, shows the median earnings of graduates by school, 10 years after entering college.
Experts told CNN that earnings stats can be “opaque,” “quite misleading,” and should be taken “with a grain of salt.”
“It doesn’t have to be an exact thing. It still helps to think about these ideas,” Chany said.