Thursday’s need-to-know money news

Today’s top story: Money mistakes even smart people make. Also in the news: 3 reasons to choose a college based in price, the pros and cons of moving abroad for health care, and which state has the highest average credit card debt.

Money Mistakes Even Smart People Make
We all make them.

3 Reasons to Choose a College Based on Price
Spend less time in debt.

Should You Move Abroad for Health Care?
The pros and cons.

Where credit card debt is the worst in the US: States with the highest average balance
Where does your state rank?

Monday’s need-to-know money news

Today’s top story: 3 reasons to choose a college based on price. Also in the news: 3 times you can pay taxes with plastic and come out ahead, 7 tax changes investors should watch for when they file, and why you should check your hospital bill against your explanation of benefits.

3 Reasons to Choose a College Based on Price
Avoiding high debt.

3 Times You Can Pay Taxes With Plastic and Come Out Ahead
Building card perks.

7 Tax Changes Investors Should Watch For As They File
Investors face several new changes.

Check Your Hospital Bill Against Your Explanation of Benefits
Billing mistakes are rampant.

Friday’s need-to-know money news

Today’s top story: Get to know your 401(k) plan. Also in the news: How one couple ditched debt, having the talk about college costs with your teen, and what to do if you’re affected by Marriott’s huge data breach.

Get to Know Your 401(k) Plan
Everything you need to know.

How I Ditched Debt: ‘We Have Choices Again’
One couple’s story.

Having ‘The Talk’ About College Costs With Your Teen
Keeping expectations in check.

What to Do If You’re Affected by Marriott’s Data Breach
Over 500,000,000 customers are affected.

Why your kid should help pay for college

I recently heard from the parents of yet another high school senior who turned down a huge scholarship from a good college to attend her “dream school,” which of course has lousy financial aid. Now her parents are scrambling, trying to figure out how to pay for it .

This madness must end.

Asking teenagers to pay the whole cost of a four-year college degree probably isn’t realistic or smart. Kids may be cut off from financial aid, since need-based help is largely based on the parents’ resources. The debt they accumulate may be crippling, and students who try to pay for school entirely on their own are more likely to drop out.

But the open bar approach isn’t wise, either. Setting limits and requiring a kid to pay at least part of the cost can actually lead to better grades while protecting parents’ finances.

In my latest for the Associated Press, why parents should set clear boundaries about how much they’ll pay for college.

Why “Get scholarships!” is bad advice

Student-LoansWe had a great Twitter chat today about preparing financially for college, hosted by Experian. (You’ll find the tweets using #creditchat.)

I was distressed, though, that many believe people should look for scholarships as a way to reduce college costs. That’s not how it usually works.

If you have financial need, colleges typically deduct the amount of so-called “outside” scholarships from the free aid such as grants and their own scholarships that they otherwise would give you. Schools don’t have to reduce the loan portion of your package unless your outside scholarships exceed the grants and other free aid they were planning to bestow.

They’re not just being mean. It’s what federal financial aid rules require, according to FinAid. If you don’t have financial need, outside scholarships could reduce the merit aid a school would otherwise give you.

Does that mean you shouldn’t search and compete for outside scholarships? No. But it’s certainly not a reliable solution to the college affordability problem.

A better approach for students and families is to look for generous schools. Colleges themselves are the greatest source of scholarships, but most don’t meet 100 percent of their students’ financial need. Some meet 70 percent or less. If you want a better deal, look for schools that consistently meet 90 percent or more of their students’ need. College Board and College Data are among the sites that can help you find this information.

 

What you need to know about paying for college

My recent Reuters columns have focused on some of the most common issues families face in trying to pay for college, from getting the most financial aid to how to cope when you haven’t saved enough. Read on, and please share these columns with people you know who might benefit.

Increase economic mobility by busting college myths

One way to improve economic mobility in the United States may be to fix the misconceptions that high-achieving, low-income teenagers often have about college.

Avoid easy-to-make mistakes on your financial aid application

One of the worst mistakes you can make with college financial aid is simply failing to file the all-important Free Application for Federal Student Aid. But there are plenty of other ways to mess up this application.

Last-minute moves to boost financial aid

Financial aid filing season starts Jan. 1. It may be too late to rearrange your finances this year, but here are some ideas for maximizing what you can get in future years. First, though, make sure your hopes are realistic.

What to do if you have not saved enough for college

Soaring college costs and stagnant incomes mean many families will not be able to save enough to pay for a typical undergraduate education. But there are still ways to find a college degree you can afford. The good news is that most people will pay significantly less than the sticker prices.

Busting the myths of haggling for college aid

My daughter learned this little ditty in preschool: “You get what you get, and you don’t get upset.” Parents who are convinced they can haggle their way to a better financial aid package might want to learn it, too.

No need for irrational fears of student loans

The next generation of college students has heard the message loud and clear about the perils of taking on too much student loan debt – so much so that many are unwilling to go into debt at all in order to attend college. The drawback to this wariness is that most of those who do not borrow are unlikely to get four-year degrees.

What will you pay for college? Probably more than you think

Zemanta Related Posts ThumbnailI recently used the College Board’s “estimated family contribution” calculator to see how much we’ll be expected to pay when our (currently pre-teen) daughter heads off to college.

The answer? Roughly half our annual incomes. Each year.

No colleges actually charge the amount we’d theoretically be expected to pay. So our out-of-pocket costs would be somewhat less. But the exercise drives home how important it is to run these numbers, early and often, if you want a college education for your kids that doesn’t bankrupt you, and them.

Because I know how the formulas work, I was able to tweak some numbers to lower our EFC. Moving more money into retirement accounts and using savings to pay down the mortgage helped a lot with the federal formula, and helped some with the institutional formula (which, unlike the federal, counts home equity). We still wouldn’t get any need-based help from most colleges but could get some breaks if our daughter gets into one of the most-expensive elite schools. (The total cost of the average public college is $20,000 to $25,000; $40,000 for privates and $60,000 for elites.)

If we didn’t have a fat college savings account, we likely would steer our daughter toward public schools or privates willing to offer merit scholarships to reduce the total cost. It’s much better to start a college search knowing what you can afford than to have to tell your kid, dream school acceptance letter in her hand, that you can’t send her there. Or worse, that you will–and then never be able to retire.

For more about how financial aid formulas work, read my Reuters column this week: “A guide to figuring out the real cost of college.”

 

Monday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to protect yourself from credit card breaches. Also in the news: The best ways to pay for college, how to avoid year-round tax scams, and what happens to your debt after you die.

Shelter yourself from payment card breaches
How to protect both your finances and your identity while shopping.

The Best Ways to Pay for Your Child’s College Education
How to combat the rising cost of a college education.

Tax-related scams don’t hit just during tax season
Beware of these year-round scams targeting your taxes.

Who Will Inherit Your Debt When You Die?
One thing you don’t want to leave behind.

Why These 4 Personal Finance Myths Perpetuate Money Problems
Monday mythbusting.

“England is sinking. Scotland is rising.”

DSC04008The narrator of the museum documentary we were watching in Edinburgh was referring to the geology of the United Kingdom, not its economy or politics.

Yet the phrase resonated somehow. Since devolution, when the Scottish Parliament was established after nearly 300 years of British rule, the Scots have definitely taken their own way.

One thing travel can do is help you better understand the world, and I understood Scotland a bit better after learning some of its history this summer. Its union with England was mostly supported by wealthy landowners, merchants and investors who wanted access to England’s colonies. The common people were not so enthralled. After that came the Highland Clearances, when tenant farmers were booted off their traditional holdings so that wealthy landowners could raise sheep instead. The evictions came with little notice and left a lot of suffering in their wake.

So maybe it’s not surprising that many Scots are suspicious of any system–political, social or economic–that favors the rich at the expense of regular people.

While England slashed public benefits after the financial crisis, Scotland restored tuition-free college education for its residents and added free long-term care for its elderly. (Actually, in-home care is free. Care in nursing homes is means-tested.)

As a result, Scotland is moving closer to the European model, where long-term care is at least in part funded by the government in many countries and where college education at public universities is free or very low cost.

These outlays might surprise people who believe the stereotype that Scots are tight with their money, but a Scotsman explained to me that what his people really like is good value for their money.

Renewable energy is a big thing in Scotland, too. The Scots surpassed their goal of 31% by 2011 and its 2020 target has been boosted from 50% to 100%. Again, that’s more like Northern Europe than the rest of the U.K.

Now Scotland is on the brink of deciding whether it wants to be independent. The U.K.’s prime minister, David Cameron, has promised Scotland more control if it stays with the union. So either way, it looks like Scotland may continue to rise.

 

How not to drown in student loan debt

DrowningI recently talked to yet another recent grad who owes six figures for an undergraduate degree. The ease with which young people can drown themselves in debt makes me furious.

And a lot of young people are having trouble paying this debt. The exact number of struggling borrowers is a bit of a mystery, as I wrote in this week’s Reuters’ column, “Confusing data flummoxes fixing of student loan defaults.” But it’s safe to say a sizable portion of borrowers is having trouble paying down their education debt.

A college education, or at least some post-graduate education, will be a virtual necessity if you want to remain in the middle class in the 21st century. But believing that any investment in any education will pay off is naïve. The thing is, the colleges know better, or at least their financial aid staffs should. But their vested interest in selling educations typically means they don’t step in or even offer warnings as their teenage and twenty-something students pile on ridiculous amounts of debt.

Here’s what I wish every college student and every parent knew:

1. You should stick to federal student loans. These loans have fixed rates, tons of consumer protections and most importantly, limits on how much you can borrow. You typically can only borrow $5,500 for your freshmen year. You typically can’t borrow more than $31,000 for an undergraduate education. That makes it virtually impossible to take on too much debt as long as you get the degree. Can’t afford the education you want with just federal loans? Then you need to look for cheaper schools.

2. Steer clear of private student loans. Honestly, these loans should have warning stickers plastered all over them, like cigarette packs. The rates are typically variable, there are few options if you can’t afford the payments and you can borrow far more than you could ever repay. They should only be considered if the total amount you’ll borrow in both federal and private loans is no more than you expect to make your first year out of school.

3. Mom and Dad should not risk their retirement. Federal parent PLUS loans have some of the advantages of federal student loans. The rates are fixed and there are some repayment options (parents can choose extended, graduated or income-contingent payments, but not income-based or “Pay as You Earn,” the most helpful payment plans for overburdened debtors). But unlike federal student loans, there aren’t reasonable limits on what you can borrow. Parents’ ability to repay isn’t taken into account, and they can borrow up to the full amount of their child’s education. That’s a recipe for disaster. Parents should consider borrowing for college only if they’re able to comfortably repay the debt AND continue saving adequately for their own retirements.

4. You should get through school as fast as possible. If Mom and Dad are paying the bill in cash, then you can afford to party, pack your schedule with electives and switch majors 10 times. If your future self is paying the bill via loans, then you need to get your act together. Get help—find a mentor or advisor who cares about you enough to set you on the right path. The place to look is among your school’s best teachers. Ask around, because these teachers get talked about; take their classes; ask for their help.