May College Planning Tip of the Month

If your student applies for financial aid, they may be offered loans as part of the school’s financial aid offer. If you both decide that a loan is the best college funding source, make sure you understand who is making the loan and the terms and conditions of the loan. Student loans can come from the federal government, from private sources such as a bank or financial institution, or from other organizations. Loans made by the federal government, called federal student loans, usually have more benefits than loans from banks or other private sources. Below is an overview of the types of loans that are available.

Need-Based Loans
  • Federal Perkins Loans may be awarded by colleges to students with the highest need.
  • Federal Direct Subsidized Loans are interest-free while you're in college and have a borrowing limit that increases for each year of school you complete.

Non-Need-Based Loans
  • Federal Direct Unsubsidized Loans charge interest, but allow you to add the interest fees to the amount you borrow until after graduation. However, doing this means you’ll actually end up owing more.
  • Federal Direct PLUS Loans allow parents (or graduate students) to borrow the total cost of college, minus any financial aid received.

State Loans
  • To learn about college loans that may be available from your state, use the contact information on the U.S. Department of Education's list of state higher-education agencies.

Private Loans
  • In general, private loans are not subsidized or need-based. They also often require a cosigner — someone who promises to repay the money if the student fails to do so. The interest rates of private loans vary:
  • Banks and other financial institutions usually have the highest interest rates.
  • Some private organizations and foundations offer lower interest rates. Use our Scholarship Search tool to find these.
  • Some colleges offer loans with relatively low interest rates.

Keep in mind that it's important to understand all the terms of any loan before you accept it. Some private loans might offer relatively low interest rates, but their other terms might not be as favorable as those of a federal loan. For example, federal loans generally offer flexible terms — if you don't have a job or become disabled, you might be able to adjust your payments — while private loans may not be as flexible.

How much money can I borrow in federal student loans?
  • If you are an undergraduate student, the maximum amount you can borrow each year in Direct Subsidized Loans and Direct Unsubsidized Loans ranges from $5,500 to $12,500 per year, depending on what year you are in school and your dependency status.
  • If you are a graduate or professional student, you can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs not covered by other financial aid.
  • If you are a parent of a dependent undergraduate student, you can receive a Direct PLUS Loan for the remainder of your child’s college costs not covered by other financial aid.

Before you take out a loan, it’s important to understand that a loan is a legal obligation that makes you responsible for repaying the amount you borrow with interest. Even though you don’t have to begin repaying your federal student loans right away, you shouldn’t wait to understand your responsibilities as a borrower.

See the table below for a breakdown of each type of loan and its current interest rate.                                       Source: US Dept. of Education
April College Planning Tip of the Month

If your student is or will be planning to apply to graduate, law, medical, or business school they will be required to take a standard entrance examination. Few students relish the idea of standardized tests, but they help admissions officials determine who is capable of withstanding the rigors of graduate school. Standardized exams are thought to measure an applicant's potential to succeed in graduate school. A high grade point average (GPA) indicates success at your college or university. Standardized tests permit fair comparisons of students from a variety of universities and colleges with potentially differing grading standards. For example, consider two applicants with GPAs of 4.0, but from different universities. Is the 4.0 from the state university similar to the 4.0 from the ivy league college? Standardized tests are also the basis for awarding fellowships and other forms of financial assistance.

But which exam is the right one for your student? Applicants to graduate school complete the Graduate Record Examination (GRE), which tests verbal, quantitative, and analytical abilities. The Graduate Management Admission Test (GMAT) is taken by prospective business school students also measures verbal, quantitative, and analytical skills. The GMAT is published by the Graduate Management Admission Council, which oversees graduate programs in business. Recently some business schools have started to accept the GRE as well as the GMAT (students may take either), but be sure to check the requirements of each program.  Prospective law students take the Law School Admission Test (LSAT), which measures reading, writing, and logical reasoning. Finally, students who hope to attend medical school take the Medical College Admissions Test (MCAT).

Your student’s score on the GRE, GMAT, LSAT, or MCAT is critical to their application. Exceptional standardized test scores can open up new educational opportunities, especially for students with weak applications because of low GPAs. Many grad programs use standardized exams as screens, filtering applicants by score. However, note that although performance on standardized tests is a strong factor in the admissions process, it is not the only element that will net your student an acceptance to the graduate school of your dreams. Undergraduate transcripts, recommendation letters and an admissions essay are other considerations.
March College Planning Tip of the Month

Budgeting can be difficult for anyone, and college students are no exception. With the countless opportunities and new experiences at most universities, it might be tempting for your student to indulge in everything campus life has to offer. But helping your student build up good spending and saving habits, rather than rely on you as a financial safety net, will increase their chances of living a more financially stable life in the future.

Here are a few tips to bring up with your current college student:

  • Use an app: Try a money management app like Mint and find the best budgeting app based on your needs. Chances are, after consistently using one of these helpful budgeting tools for just a month, you’ll find new ways to save.

  • Build a saving safety net: Be prepared for unexpected expenses by building up a bit of savings that you can rely on. Once you have your budget, build in a 10 percent cushion, this can help reduce the stress and cost of unplanned expenses.

  • Start paying on student loans immediately: From the moment you begin to accumulate any student debt, start paying it down immediately — not to wait until after graduation.  By beginning to just pay off even just interest, getting into the habit of making regular payments to your student loans will help you pay them off faster.

  • Ask for a student discount: A student ID can get you some valuable student discounts on more than just movie tickets. Great deals can be found on everything from computer software, Amazon Prime, and FedEx shipping to newspapers, food, clothing and much more. The bottom line is you should always ask if a student discount is available.

Laying the groundwork for smart budgeting and spending habits in college enables your student to handle responsibility and learn the value of accountability.
February College Planning Tip of the Month

College is a worthwhile endeavor, but figuring out how to pay for it can feel overwhelming. The cost of a college education includes tuition and fees, room and board, books and supplies, transportation, and other expenses. Fortunately, there are many types of financial aid available to help people pay for college. However, navigating the financial aid process can often be confusing for students and their families. A good starting point is to first learn about the different types of financial aid that is available. There are four main types of financial aid for college students including grants, scholarships, loans, and work-study funds.

Grants are a type of financial aid that does not have to be repaid. Offered by the federal and state government, as well as by some institutions, grants may be merit-based, need-based or student-specific. Examples of student-specific grants might include grants for minorities, women, and students with disabilities. The competition for grants is usually fierce since no repayment is required.

Like grants, scholarships do not require repayment. They are typically offered by individual institutions and private organizations and can be awarded based on a number of factors, such as academic performance, athletic ability, religious affiliation, and race, among others. In order to apply for a scholarship, you will often be asked to write an essay.
Offered by both the federal government and private institutions, loans are money that you borrow to attend college. You must repay your loans with interest. Loans provide students and families with immediate access to funds to help cover the cost of college.
  • Federal Loans: the two main types of federal loans available for college students include:
    • Subsidized Loans– Subsidized student loans are available for students who have demonstrated financial need. They have slightly better terms than unsubsidized student loans, because the US Department of Education pays your interest while you are in school and for a six month grace period after you graduate.
    • Unsubsidized Loans– Unsubsidized loans are available to students regardless of financial need. Students are responsible for repaying interest during all periods.
  • Private Loans
    • Private loans are granted by private banks and may help to bridge the gap between the cost of your education and the amount of financial aid you receive from the government. Eligibility for private loans often depends on your credit score, and private loans tend to have higher interest rates than loans that the government offers. Students are encouraged to pursue all options for federal student aid before entering into a private loan.
Work Study
A work-study program is a work program where you can earn money that helps you pay for school. Work-study programs provide students with federally funded jobs on campus or at other approved locations. The campus facilities at many colleges and universities, including the student center, career center, athletic department, and

residence halls, employ work-study students. However, the positions available and the pay offered vary widely.
The financial aid you receive could make a big difference in the school you attend and the amount of debt you have after graduation. The sooner you start checking out your financial aid opportunities, so that you can capitalize on all of the available resources for funding your college education.
January College Planning Tip of the Month

Need a little more info to decide if 529 plans are right for you? If you have children or grandchildren that you want to save for, this could be a great way to get started! 529 college savings plans provide families with several tax and financial aid advantages. Contributions to a 529 plan are made from after-tax dollars. Earnings accumulate in a 529 plan on a tax-deferred basis. Qualified distributions from a 529 plan are entirely tax-free. In 35 states (including Arizona and Utah), contributions to the state’s 529 plan are eligible for a state income tax deduction or tax credit.

Annual contributions to a 529 plan in excess of the $15,000 annual gift tax exclusion ($30,000 for a couple giving together) are eligible for 5-year gift tax averaging, which treats the contributions as occurring proportionately over a 5-year period. This allows an individual to make a lump sum contribution to a 529 plan of up to $75,000 ($150,000 for a couple) without incurring gift taxes.

You can start a 529 plan at any time. There is no limit on the number of 529 plans you can set up. The account owner controls the account, not the child. The child does not gain control over the account upon reaching the age of majority. The account owner can change the beneficiary if the child does not go to college. Anyone can contribute to a 529 plan. There are no income phase-outs on contributions to a 529 plan. There is no age limit on contributions. So start off the New Year by planning for your child’s or grandchild’s college future!

Contact us if you have any questions!