Helpful Web Sites:
Collegeboard.com The folks who bring you the SAT also offer financial aid information and updated statistics on higher education costs.
FastWeb.com Frequently updated, this site matches students’ personalized profiles with scholarship opportunities across the nation.
Finaid.org This nonprofit site is one of the best, most informative, and most comprehensive guides to financial aid out there today.
Insidehighered.com An online magazine offering up-to-date articles on all aspects of higher education.
Projectonstudentdebt.org A nonprofit site that provides news and resources to increase public understanding of the impact of borrowing on students and families.
Upromise.com One way to open a Section 529 college savings plan for your child is by using this site.
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College Tuition Survival Guide
We live in a golden era for thrill-seekers. From the rise of the adventure travel industry to the popularity of extreme sports, there appears to be no end to new delights for adrenaline junkies. Yet the most hair-raising of today’s adventures doesn’t involve wrestling sharks or chopping their way through the Amazon with penknives. This one, however, might have humbled even the likes of the great Sir Edmund Hillary himself—after all, the man who was the first to claim Mount Everest’s summit didn't have to put his kids through college in this day and age.
For many of us, figuring out how we are to finance our children’s postsecondary education is a feat equal to climbing the world’s tallest mountain: We wake up one day to find applications for Rice and Texas Tech strewn across our kitchen tables, and often we have not the foggiest idea of how we are going to fund the enterprise. After all, this educational investment could be equal to the cost of buying a new BMW each year—for four years or more! (And that’s just for one child.)
That’s the bad news. The good news? It won’t cost you as much as you think. Published tuitions and fees for colleges and universities—an average of $5,836 for in-state, four-year public schools and $22,218 for private schools during the 2006-07 school year, according to the College Board—don’t necessarily indicate what you will have to pay. Gift aid—grants, scholarships, and tax benefits—lower the published costs by several thousand dollars a year for the typical student. And knowing your way around the intricacies of student and parent loan options will help you fill the remaining gaps—the ones you can’t bridge with gift aid, savings, and your current income—without as much strain on your checkbook as you might expect.
The trick is to put the full cost of college—we’ll call it the summit—out of your head and focus on incremental steps instead. Imagine these steps as the camps that climbers work toward on their way to the summit: Base Camp (savings), Camp II (scholarships), Camp III (FAFSA and financial aid awards), and Camp IV (loans).
With an understanding of the steps you can take to reach these goals, an open mind, and a little financial savvy, paying your child’s way through school becomes without a doubt one tough adventure that your family can survive—without the penknife.
Base Camp: Savings
Think of your child’s college funding as a three-legged camp stool, with savings, gift aid, and loans holding it up. If you remove any of these legs, the stool topples over. Similarly, in today’s high-priced college market, most of us must rely on all three to cover the costs of a four-year education, so it’s a good idea to explore your options thoroughly.
And just as mountain climbers may spend several weeks at a mountain’s base camp so their bodies can adjust to the higher altitudes before they ascend farther, families can spend years building savings accounts to help ensure that their wallets are acclimated to the lofty heights of college spending. Yet saving is often neglected and its importance misunderstood..
“Education is the best investment you can make in your lifetime,” says Diane Halloway, a Houston-based CPA and certified financial planner. “Yet many people spend more on toys for their children than they do on college savings.”
Halloway suggests that you start early and regularly put away small amounts as your child matures. A contribution to the college fund each birthday and at Christmas is one strategy for regular saving. Even if your child is already in high school, however, it is still a good idea to open a college savings fund, simply because you will be earning interest on every dollar you save versus paying interest on money that you’ll have to borrow later.
A good route is to open a type of Section 529 plan called a college saving plan (CSP). College savings plans are exempt from federal taxes on qualified education-related expenses, and they allow contributions from anybody, even non-family members. (See a certified financial planner or go to Upromise.com for more information.) And if your child should, for some reason, decide not to attend college, these accounts are transferable to another member of the family for college expenses.
Camp II: Scholarships
When it comes to gift aid, which covers roughly one third of the average student’s costs, parents should leave no stone unturned, says Henry Urick, interim associate director of the Office of Student Financial Services at UT-Austin.
“Once your child is in high school, you should start looking at local resources to find scholarships. Talk to your child’s guidance counselor, inquire at the HR department at work, look into civic and social organizations in your community,” suggests Urick. “Even a hundred dollars from a local PTA scholarship buys books for a couple of courses.”
In addition, FastWeb (www.fastweb.com) is one of several free online scholarship searches that matches awards with your child’s profile. With its access to more than $3 billion in local, national, and college-specific opportunities, you will even discover such obscure offerings as the Left-Handed Students Scholarship and the Zolp Scholarship, which guarantees full tuition to Chicago's Loyola University for any Catholic student with the last name of Zolp.
Even if your child doesn’t have the grades for merit-based awards, don’t give up! It is still a good idea to look into scholarships, since many are based on attributes that your child may very well have, such as creativity, essay-writing ability, entrepreneurial talents, community service experience, and other non-academic qualifiers. For a list of these awards, check out finaid.org.
Camp III: FAFSA and Financial Aid Packages
The next step is to cozy up to the ever-cuddly Free Application for Federal Student Aid, or FAFSA (www.fafsa.ed.gov). This eight-page entrée to federal student aid programs must be completed every year your child is in school.
The data that you submit via the FAFSA will allow the number crunchers to figure out your estimated family income (EFC) and, from that, to come up with how much your family should be able to contribute to your child’s education. Your EFC will be used as a determinant for several aid options, including need-based federal grants, such as Pell Grants and Supplemental Education Opportunity Grants, and work-study possibilities.
Colleges and universities will also take your EFC into account when assembling the financial aid packages they offer you. According to Urick, the University of Texas considers costs of attendance (COA)—including tuition, fees, living expenses, and other education-related spending—relative to the family’s EFC and then targets need-based aid over merit-based aid. However, this approach may not be employed at all schools, and in some cases, if schools are competing for your child, you may even be able to negotiate larger aid packages from them!
Camp IV: Loans
Loans—the last leg on our sturdy camp stool/financial plan—are a reality for most students today. And although stories about terrifying interest rates and ballooning debt may be traded over campfires along with tales of the bogeyman, loans do not have to be scary. As long as you know what to look for.
First, you should get acquainted with federal loans, which charge relatively low interest rates and feature favorable repayment terms. Your child’s financial aid package may include Stafford loans—federal student loans that offer fixed interest rates of 6.8 percent and allow the student a grace period of six months after graduation before beginning repayment. (Depending on your family’s level of need, the federal government may even pay the interest on your child’s Stafford while he or she is still in school. The following site is a good place to look for further details: http://studentloan.citibank.com/slcsite/fr_hsta.asp). Perkins loans are another source of assistance for student borrowers with extraordinary financial need.
And PLUS loans, for parent borrowers, allow you to borrow enough to cover your child’s entire COA in exchange for a repayment plan that begins within 60 days of the loan’s first disbursement.
Beyond federal loans, 20 percent of all borrowers find they must also turn to private student loans to close the rest of the financial gap. Since private loans are outside the financial aid system and therefore do not come with a government guarantee, it’s a good idea to apply some strategy to avoid pitfalls if you take this route.
“I tell families to keep all their money in the same bank and to first look into loans with the lending entity that is administering their Stafford,” suggests Urick. “This simplifies the billing process for the borrower, making loans much easier to manage.”
Urick adds that families need to pay attention to things like the interest rates and extra costs on the loan. Fortunately, reputable nonprofit Web sites such as Finaid.org (www.finaid.org) offer resources to help you compare options and find the best one for your family.
A View from the Summit
For most families, a child’s education is the second biggest purchase they will ever make, next to buying a home. Yet paying for it all can be done—without a whole lot of debt attached.
Just ask Omar Venzor, a Dumas native in his fourth year as a civil engineering student at Texas A&M. Coming from a single-parent home and with no college savings to fall back on, Omar understood how important it would be to secure financial aid while he was still in high school.
“My senior year I applied for between thirty and forty scholarships,” he recalls. “I ended up getting four or five.”
These local scholarships, in addition to the gift aid he received from A&M, ended up paying the bulk of his education costs. To supply the rest of what he needed, Omar received Perkins and Stafford loans, though these ultimately accounted for the smallest portion of his funding.
“They are at most fifteen to twenty percent of my financial aid package—really not that much,” he says.
Now, after reaching the summit of a fully financed education, Omar advises parents and students who are just beginning the long trek to start securing funds as soon as they can—gift aid in particular.
“Apply for a lot of scholarships,” he suggests. “And start as early as possible. Since there are so many people applying, get a jump on the competition.”
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Tax Breaks
Gift aid doesn’t end with scholarships and grants—tax credits and deductions on Qualified Higher Education Expenses (QHEE) can potentially save you thousands on education costs each year. You can claim only one at a time, but you have a choice of several options to maximize your savings:
Hope Scholarship Credit (HSC): The student must be enrolled at least part time to receive a maximum benefit of $1,650 on QHEE paid during two school years.
Lifetime Learning Credit (LLC): With a benefit of 20 percent of QHEE, up to $2,000 a year, this credit is available for any coursework—meaning there is no part-time enrollment requirement—and you can take it as many years as your child is in school.
Deductions: The tuition and fees deduction, a maximum of $4,000 for QHEE each year, also allows you to deduct up to $2,500 for interest paid on QHEE debt for a student enrolled at least part time in addition to any of the above benefits. However, you must be the cosigner or borrower on the loan that is accruing interest and the debt must be solely for QHEE.
For more information on tax benefits, consult a certified public accountant.