COLLEGE FINANCING ALTERNATIVES
When it comes to their children’s college education, most parents believe their kids will graduate from high schools at the top of the class, be admitted to a college they like, be happy there and graduate four years later. Unfortunately, research does not support this happy belief. The American Council on Education has in the past reported that only 49.9% of college students complete their degrees at the institution they first attend. Parents are shocked and dismayed at this statistic, and college administrators are less than pleased with it.
Researchers have toiled for decades searching for better ways to predict academic success. Yet despite these efforts, the process is far from an exact science. Students who look good on paper often fail their courses, and good colleges often fail to meet the needs of their students.
Individual parents and students cannot control college admissions policies, but they can do a more thorough job of researching prospective institutions, and a better job of choosing one. The problem is not variety. There are more than 7,500 colleges and universities in the United States. Each offers a wide range of academic programs. Just like a restaurant with a forty-page menu, the choices can be bewildering! However, the stakes are much higher than an unpleasant meal. The colleges they choose will influence how students will make a living, where they will live and even whom they will marry.
Keep in mind that a college education is a long term, durable investment. In a lifetime, a person may own a dozen cars and a half a dozen homes, but he or she will get only one college education.
COLLEGE COSTS VARY SIGNIFICANTLY
Most people seem to realize that a college education is an expensive investment, but it is surprising to discover how many people do not know how expensive it really is. Currently, a student enrolled in a prestigious private university can spend $15,000 to $25,000 per year, even as much as $40,000.
However, a student enrolled in a local community college, or a local state-supported institution, might spend less than $5,000 per year, including books and fees.
For some parents, the cost of their child’s college education can exceed the cost of their house. In fact, the two investments have much in common. In today’s society, both are a necessity. Both are long-term investments that should pay off handsomely in the future. In addition, many of the features that influence homebuyers also should be examined when selecting a college. Size, location, cost and financing should be considered before college applications are completed.
Colleges, like houses, come in many different sizes. Some students seem to thrive on the hustle and bustle of a large, busy campus. Others get overwhelmed by the size and impersonal nature of a mega-college and find themselves unhappy and homesick. The intimate environment of a small school may be just what some student's need, while others find it confining and dull. The student and the student’s family must assess the situation and the student’s preferences.
As with size, the location of the school should suit the individual student, too. College locations fall into three categories:
The urban college uses the city as an extension of its campus. It draws upon the resources of the city and offers them to the student. Easy access to museums, libraries, theaters and cultural events is a major asset for an urban campus. A student majoring in art or drama will find that these resources enhance classroom knowledge.
The rural campus offers a different set of benefits. Located away from a metropolitan area, it eliminates some of the distractions of the city. The campus is far more self-sufficient, generating its own cultural and sports activities. The student’s academic major should be considered. An agriculture major may find the rural setting beneficial.
The suburban campus is the middle ground. It offers convenience without isolation and access to city activities without the daily frustration and risks of city life. However, the school selection should be based on many factors in addition to location, such as curriculum or the scholarship and financial aid package.
One consideration seldom mentioned is safety. Safety is seldom discussed in college catalogs, and admissions counselors are often hesitant to bring up the subject. College students are active at all times of the day and night. A campus that is only safe during the day is not safe at all. The family should feel secure that the campus is well protected.
Consider access to transportation. College students need to visit home. Distance from home must be considered in terms of both miles and time required for travel. Convenient airports, rail lines or bus terminals can shorten the trip from school to home. Schools that are not located near public transportation can be much further away than the measured miles.
Again, like houses, college costs vary. State supported schools remain the least expensive, while the prestigious private institutions continue to be the most expensive. However, small, private colleges fall between the two extremes. Location, reputation and uniqueness affect price. Here are some of the average regional differences you can expect:
- You’ll pay an average of $2,000 more per year for 4-year public schools in the Middle States (e.g., New York and Pennsylvania); an average of $7,000 more for 4-year private schools more for schools in New England.
- You’ll pay an average of up to $1,700 less for 4-year public schools in the South; an average of $5,500 less for 4-year private schools in the Southwest
- You’ll pay an average of $7,300 more to attend public school outside your home state (ranging from $5,800 more at public schools in the Southwest to $9,100 more out West)
Schools with regional rather than national reputations are often less expensive. Diligent research about costs can bring about substantial savings.
INANCIAL AID AVAILABILITY
Education financing alternatives must be carefully planned. Most colleges agree that the family should be the primary support vehicle. However, financial assistance does exist. A search for assistance should include federal, state and institutional aid. Private sources such as trade unions, fraternal or service organizations, professional associations and religious groups should also be included. Academic, athletic and other special talents are rewarded with substantial scholarship opportunities. A thorough investigation of all assistance programs is a fundamental part of financing a college education.
Under present aid programs, a parent does not have to be in a low-income bracket to receive financial assistance. Most need based programs take into account family living expenses, the number of children in the family and how many children are in college.
“Financial Aid” is any grant, loan, and scholarship or work-study plan offered to help a student meet educational needs. It is most often awarded based on financial need. Financial need is defined as the fixed amount difference between the cost of attending college and the amount of the parent/child contribution, and remains the same no matter what school the student attends.
The Federal Government administers six major financial assistance programs. Three of these programs are direct assistance programs; that is, the assistance goes directly to the student. The other three programs are administered through the college that the student attends; that is, funds are sent directly to the colleges, which in turn dispense the money to students in accordance with federal guidelines.
THE PELL GRANT
The Pell Grant, formerly the Basic Educational Opportunity Grant Program, was named for Senator Claiborne Pell who sponsored the legislation that established the program. A Pell Grant is based solely on financial need. The amount of the award is based on student need, within certain limits, and upon how much money Congress appropriates to the program in a particular year. In the 2006/2007 academic year, nearly $13.6 billion will be disbursed to more than 5.4 million students with an average award of about $2,490.
It is important to apply for a Pell Grant even if you think you will not qualify, since many college and state aid programs require it. Just check the proper box on the financial aid application.
THE STAFFORD STUDENT LOANS
The Stafford Student Loan, formerly called the Guaranteed Student Loan, is a federally subsidized loan program that allows the student to borrow from private lenders at low interest rates. Families with high incomes are eligible for the program if certain need tests are satisfied. The Loan is insured by either the Federal Government or a state agency.
During in-school, grace and deferment periods, interest equals the 91-day T-bill plus 1.7% (currently, 4.7%). During repayment, the interest rate equals 2.3% above the 91-day T-bill, adjusted annually, with an 8.25% cap. For the 2006/2007 year, the rate will be 5.3%.
A dependent undergraduate may borrow up to certain limits each school year under the Guaranteed Student Loan program. Dependent undergraduate freshman may borrow up to $2,625 a year. Sophomores, $3,500. Juniors, seniors and fifth year undergraduates may borrow up to $5,500 per year. Amounts for independent undergraduates are higher: $6,625 for freshmen, $7,500 for sophomores and $10,500 for juniors and seniors. However, at least $5,000 of these amounts must come from the unsubsidized program.
Graduate students may borrow up to $18,500 per year with an overall cap of $138,500. This limit includes any undergraduate Stafford money as well.
PARENT LOANS FOR UNDERGRADUATE STUDENTS
Parents Loans for Undergraduate Students (PLUS) loans are available to parents of undergraduate students, graduate students and independent undergraduate students (those who totally support themselves).
PLUS loans are handled like guaranteed student loans, through participating lenders. Repayment of a PLUS loan to parents begins 60 days after receiving the final loan disbursement, and each lender establishes a repayment period of 5 to 10 years.
The interest rate on PLUS loans is presently the 91-day T-bill rate plus 3.1% with a cap of 9% (currently it is 6.1% although some lenders may lower the rate). Repayment of principal on a PLUS loan to a full-time student is deferred until 45 to 60 days after the final loan disbursement, for the academic year. The minimum annual repayment is $600. Loans may be pre-paid without penalty.
FEDERAL SUPPLEMENTAL EDUCATION OPPORTUNITY GRANT
A Federal Supplemental Education Opportunity Grant (SEOG) is a grant to a student with exceptional financial need, typically students with the lowest EFC. However, the money is sent by the Federal Government directly to the colleges that determine the award amount and dispense the money to the students. These are in addition to Pell Grants. A FSEOG doesn’t have to be paid back.
The Department of Education allocates a specific amount of money to each participating college. Once distributed, there are no additional sums. Awards presently range from $100 to $4,000 per student per academic year.
Applications are made through the academic institution’s office of financial aid. Early application is strongly recommended.
THE COLLEGE WORK-STUDY PROGRAM
The College Work-Study Program is a program administered by each participating college to provide employment for students who demonstrate financial need. The Federal Government grants funds to colleges for this purpose. This year more than $1 billion will come from Uncle Sam. Colleges must match 25% of this money with funds of their own. Students normally obtain employment under this program as part of an overall financial aid package. They generally work 12 to 15 hours per week during school sessions, and up to 40 hours a week during vacation periods. Examples of college employment include library clerks, faculty aides, maintenance workers and cafeteria workers. The awards are determined by the colleges and once a student has earned the award amount, employment is terminated for that academic year.
Application is made to the college financial aid office. Eligibility is based solely on financial need. Students must usually be enrolled at least half time in an accredited college and maintain good academic standing while employed. These earnings will not reduce the student’s financial aid eligibility. However, funds are limited, so apply for financial aid and work-study early.
THE PERKINS LOAN PROGRAM
Perkins Loans, formerly National Direct Student Loans, are administered by colleges that also act as lenders. Eligibility is based on the student’s calculated need. The interest rate is a low 5%, but funds are limited, so again, each student should submit the financial aid application early. An undergraduate student may borrow $4,000 per year up to a maximum of $20,000. Graduate students may borrow $6,000 per year to a maximum of $40,000 (less any Perkins money borrowed as an undergraduate). A student will pay no interest while still a student. There is a nine-month grace period after leaving college. Repayment is stretched out over ten years.
LOAN DEFAULTS
With any federally funded loan, the student must take great care not to default on the obligations. Not only is it dishonest, but the Internal Revenue Service will find you. If you are in default, the IRS will extract the money you owe from any tax refund you have due. An angry Uncle Sam can also put a red flag on your credit rating so you will not be able to obtain credit cards or other loans.
COPING WITH LOAN REPAYMENT
If your debt from federal loans overwhelms your ability to fend for yourself, you may qualify for loan consolidation. In this plan, students consolidate all loans into one and take a longer repayment period. The new interest rate equals the weighted average of all consolidated loans, or 8.25%, whichever is greater.
To learn more about consolidation, you must first go to your original lender. If it does not offer consolidation, look into a program like the Student Loan Marketing Association’s (Sallie Mae) Smart Loan, by calling 888-272-5543.
STATE GOVERNMENTS
State Governments also offer a variety of assistance programs. However, most state assistance is available only to residents of the state, while attending schools within the state. Some states do make exceptions, and permit state residents to attend out-of-state schools. A few states allow non-residents to receive assistance while attending a school within the state, or have reciprocity arrangements with other states!
Many states have special programs for teachers and National Guard enlistees. Others offer work-study programs and special academic supplements.
Application procedures vary from state to state. Most states allow the student to use one of the need analysis application forms acceptable for one of the federal programs. Some states do require separate application forms that must be completed for state programs. A student may find out about state programs and requirements through his/her high school guidance counselor, college financial aid office or a state agency.
COLLEGE AID PROGRAMS
In addition to federal and state financial assistance programs, many colleges offer some assistance through scholarships, loans, jobs, alternative payment plans and other programs. College provided assistance usually comes from tuition revenues or from alumni, foundations, corporations and other donors. Therefore, the resources at the disposal of colleges vary greatly.
Many Ivy League schools with large endowments offer substantial amounts of aid to supplement federal and state programs. A student should not overlook expensive schools simply because the tuition is high; these schools may be in a position to offer substantial financial assistance.
Some colleges discount tuition if more than one family member attends. Other schools discount tuition if the entire year’s tuition is paid in full as opposed to being paid one semester at a time. A number of schools accept payment in one lump sum for all four years of college to protect against future tuition increases.
Some of these prepayment plans allow loans to be made against this payment to meet additional, unforeseen expenses with interest and repayment of deferred payment plans, to spread the payments throughout the academic year. However, some of these installment plans charge interest.
CO-OP JOB SHARING
One of the best programs available is called the Co-Op Job-Sharing Program, and it is available at some institutions. Generally, two students are paired up by the school. One works in the chosen field full time, while the other attends classes full time. At the end of the quarter or semester, they swap places. This enables the students to receive hands on experience and enables them to earn a substantial portion of their college costs. The job can also serve as a reference source of far greater value than other entry level positions without any relevance to the students chosen career.
THE IMPORTANCE OF GETTING INFORMATION
In selecting a college, a parent should be advised to inquire about the availability of these programs. The college catalog will provide some information on programs, but it may not be complete. An institution with excellent programs will also have material they would be happy to send upon request.
PROJECT EASI
Easy Access for Students and Institutions is a government project that combines all grant and loan information onto one computer network, accessible to students, parents and colleges. Students will be able to apply for financial aid as well as view loan history and learn about other aspects of admission and financial aid. You can access information via the Internet at http://www.students.gov or the Department of Education’s main website at http://www.ed.gov.
PRIVATE PROGRAMS
The number of private scholarship and loan programs runs into the thousands. National assistance programs have been set up by some large corporations on both merit and need basis. Specialized programs are provided by some organizations for children of employees, religious groups, minority groups, women, handicapped persons, part-time students, older students, special interests, particular talents, athletics and others based on parents’ occupations and membership organizations. In addition, programs restricted to local high school graduates, given by service clubs, local industries and private individuals, are common.
Given the number of programs, a student should only apply to programs where he or she fits the eligibility requirements exactly. Many schools have computers to help students search for scholarships to find ones for which they may qualify. A high school guidance counselor or college financial aid office should have material listing all scholarships and other assistance programs available.
IS COLLEGE WORTH THE COST?
The Chronicle of Higher Education has frequently reported that college costs have continued to escalate although inflation has slowed. Tuition increases will range between 7 and 10 percent, and college administrators are not predicting a slowdown in those increases.
Armed with the knowledge that costs will continue to escalate, families must explore all of their financial options in order to allow their children every possible educational opportunity.
Considering the enormity of the investment, is a college education worth all the effort and money? During the last decade, college graduates have suffered less unemployment and have more job opportunities than non-graduates.
EARNING POTENTIAL IS INCREASED
According to The Association of Independent Colleges and Universities, the average college student earns $300,000 more in a work life than a high school graduate does. Future projections place this figure at $1.8 million in inflated dollars.
NON-FINANCIAL CONSIDERATIONS
Money is not the only advantage. Studies on college graduates have found them more self-confident both intellectually and socially. Both they, and their children, are less likely to commit or be the victims of violent crime.
IS IT WORTH THE SACRIFICE OF MONEY AND TIME?
If you question the worth of a college degree, consider future earnings, employment opportunities and self-confidence. A college degree may cost a fortune, but it will last a lifetime.
Sources: Octameron Press
Don't Miss Out: The Ambitious Student's Guide to Financial Aid, 2006-2007
Loans and Grants, 2006-2007
www.studentaid.ed.gov
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