If your college savings fund is generating negative emotions, you’re in good company: A recent survey by Student Loan Hero found that almost half of parents who are saving for their children’s college feel guilty about not saving enough. The survey also showed some rather worrying data:
- About 1/4 of savers are saving in cash for college, with a comparable amount using savings bonds. With interest rates on cash savings accounts or high-yield CDs topping out at around 1-1.5%, and similar or lower rates on savings bonds, that means that their savings are losing value relative to inflation. For the past decade, college costs have increased on an inflation-adjusted basis by more than 2% annually.
- About 40% of parents in the survey were still paying back their own student loans. It’s wonderful that they’re trying to reduce the education cost burden for their own children by saving in advance, but it’s a troubling new variation on the “sandwich generation” theme to see parents paying on both their own loans and their children’s college costs.
- More than 1/3 of parents said they would use their retirement savings to pay for college. This is problematic for several reasons: obviously, it will deplete their retirement savings at a time they’re likely to be close to retirement. Beyond that, parents who borrow from their 401k to pay for college run the risk of facing taxes and penalties should they lose their job prior to paying off the loan. And those over 59-1/2 who withdraw from these accounts will see their EFC increase due to the added income, potentially jeopardizing financial aid.
- 43% of those surveyed said they would rely on private student loans to finance college. Private loans are rarely the best option; most families are better served by starting with the federal loan programs to ensure that they have access to these programs’ protections. Those considering private loans would do well to see Student Loan Hero’s recommendations for private loans.
- Worse still, 16% said they would use credit cards to pay for college. If you think that will help you earn rewards, keep in mind that most schools charge a convenience fee averaging over 2.5% for credit card payments– more than double the typical 1% rewards value of the purchase.
Saving for college is an excellent idea; as long as you’re doing it, do it right. Most families are best served by 529 plans, even without state tax deductions. Your savings need to at least hold their value relative to college costs. And if savings plus cash flow available leave you short of the cost of college, then it’s time to look at other cost-saving strategies before going deep into debt.
My kids are juniors and they will be taking the ACT at school next month. Yesterday while they were filling out the registration forms, my daughter texted me frantically asking what to do about the school codes to send scores to– what should she put in there? Continue reading School Codes on ACT/SAT Registration
If you’ve been reading this for a while, you probably know I’m a huge fan of College Navigator as an information source. It’s run by the National Center for Education Statistics and has some information that any prospective student should be aware of. Last week I mentioned the loan default rate by school. Another affordability-related topic that prospective students should consider is the student body’s borrowing rate– also available on College Navigator. Continue reading Student Loans by School
While you’re waiting for acceptances (seniors) or starting to get more serious about particular schools (everyone else), you might want to check out student loan default rates at the schools you’re interested in. Even if you’re not planning to borrow for college, the default rate can be an interesting number insofar as it is probably indicative of whether graduates of a particular school are finding gainful employment, particularly Continue reading Student Loan Default Rates
Many parents and grandparents purchase education savings bonds– series EE or series I bonds– to pay for college. These bonds are tax-free within some limits, and it’s not uncommon for families to find out too late that they’ve landed outside the limits. Continue reading Series EE and I Bonds
Many schools’ FAFSA deadlines are rapidly approaching, or even past. Whether or not you think you’ll get need-based aid, you should be completing and submitting the FAFSA (and PROFILE, if applicable).
What happens if you miss your school’s deadline? Each school has its own policies so Continue reading Do the FAFSA. Really.
Most students and families don’t go into the college process intending to graduate with debt in the high five figures. So how does it happen? Here is a great article explaining common mistakes families make in the college planning process that lead to increased borrowing and debt loads.
Does your mailbox look like this each day?
Continue reading About All That Mail…
If you have a college student, you (or they) probably received a form 1098-T. Schools are required to send this to any student who paid qualified higher education expenses. Here’s what you need to know about your 1098-T: Continue reading What’s a 1098-T?
The recent tax bill that went into effect this year included a change allowing parents to use up to $10,000 annually from a 529 account to pay for private high school expenses. Parents considering taking advantage of this provision should weigh another consideration besides whether or not they have saved enough in their 529 to pay for high school in addition to college: Does your state offer the same benefit? Continue reading 529s and Private High School Tuition