Round it Out with Loans
Loans are part of the equation for most families. Federal student loans such as the Stafford and Perkins loans have interest rates around 6.8% (unsubsidized) and 5% (at press time), respectively, and repayment can be deferred while the student is in school. The Parent Loan for Undergraduate Students program (PLUS) has a higher rate (7.9% at press time) and can’t be deferred while the child is in school. Private student loans can also be taken out, with interest rates based on the credit score of the child or co-signing parent.
According to the Project on Student Debt’s study, Student Debt and the Class of 2010, the average student loan debt for a 2010 graduate was $25,250. That, coupled with the fact that 50% of graduates under the age of 25 are either unemployed or underemployed, forces people to think more strategically about debt if they don’t want it to compromise their financial future. A good rule of thumb is to avoid borrowing more than your expected annual starting salary, Kantrowitz says. Also consider the job prospects for your desired field before taking on a lot of student loan debt.
For instance, if you are considering a public sector stint or government job, it pays to know that the Federal Student Loans Repayment Program is used by federal agencies such as the Justice Department to recruit and retain high-value employees by helping to repay their student loans. Similarly, some or all of your college debt will be forgiven if you work in public service. For example, the College Cost Reduction and Access Act of 2007 created a public service loan forgiveness program that eliminates certain unpaid college debts after 10 years of working full time in the public sector, including such positions as nurses and early childhood teachers. Visit www.studentaid.ed.gov and www.finaid.org to learn more.
Once you’ve explored savings, scholarships, and loans, you can apply personal strategies to lower college costs even more. For instance, have your child stay in state. The average cost of in-state tuition and fees at a public four-year institution is $8,244 compared to $20,770 out-of-state. Or having your child attend a community college for two years and then transferring to a four-year university can cut your expenses in half, says Johnson. The average cost for one year at public two-year-colleges is $2,963.
The earlier families sit down to assemble the college savings puzzle, the more options they have to ensure that students receive a quality and affordable education, say financial experts. The power is in the planning.