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Lowering college costs: What you need to know

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Zemanta Related Posts ThumbnailMy latest Reuters columns focus on financial aid and new opportunities for borrowers with private student loans to get some relief.

One of the big complaints about private student loans is how hard it’s been to consolidate or refinance these often high-rate, variable loans. Many big lenders fled this market and those that still offered the loans weren’t much interested in reducing rates for borrowers.

That’s starting to change as smaller lenders see the opportunities to cherry pick the most credit-worthy borrowers and offer them better rates. A new entrant into the market, RBS Citizens, is even offering fixed-rate refinancing. (RBS operates as Citizens Bank in the northeast and Charter One elsewhere.) For more, read “Student loan borrowers get relief from small lenders.”

Meanwhile, the financial aid season is in full swing as families submit their FAFSA forms and hope for the best. My column “How asking for aid could hurt your college chances” warns that most schools aren’t truly need blind, which is why you need a strategy for getting admitted.

Since most families need some help in cutting college costs, going without financial aid isn’t a smart option. In “Seven ways to help your child get more money for college,” I review the best ways to lower your expected family contribution. “Four financial aid strategies that can backfire” covers the strategies that won’t work.

In addition to those four, here are two other approaches doomed to fail:

Making kids “independent.” A father with a hefty income said that he didn’t plan to help any of his kids pay for college. He rationalized that without his support they could be considered “independent” for financial aid purposes and get help based on their own meager income and assets.

Sorry, Dad, but colleges closed that loophole decades ago. The Higher Education Amendments of 1992 tightened the definition of who qualified as independent for federal financial aid purposes to people who are:

  • 24 years of age or older
  • orphans or wards of the court and those who were wards of the court until age 18
  • veterans of the U.S. armed forces
  • graduate or professional students
  • married
  • parents or who have legal dependents other than a spouse
  • students for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances.

A parent who simply refuses to help isn’t typically considered one of those “unusual circumstances.” Financial aid will be based on his resources, which can effectively cut off grants, scholarships and loans for the children he won’t help.

Faking in-state residency. College consultant Lynn O’Shaughnessy of San Diego heard from a family who thought they would only have to pay out-of-state tuition rates for their daughter for the first year, believing that after spending her freshman year at the school she would qualify for in-state tuition.

States vary considerably in defining residency but typically require that at least one parent be a state resident for a full year before the student starts college. If the parents are divorced, residency is based on where the custodial parent lives. FinAid.org has a list of state residency requirements on its site.

Dropouts, addicts and teachers: must-read stories for this week

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iStock_000016702801XSmallMy column for Reuters this week covers the perils facing community college students who “stop out” once too often. Reuters also posted an excellent piece on the financial toll addicts take on their families, plus a column on what teachers really want for the holidays (hint: it’s not another coffee mug!).

That break from college? Stopping out leads to dropping out
Taking a break from college isn’t unusual, but taking more than one can doom a student’s chances of getting a four-year degree.

More than 22 million Americans abused drugs or alcohol in a recent survey. What’s a family member to do? Experts offer some advice.

Holiday gifts teachers really want
Teachers share what gifts have meant the most to them over the years.

Finally, don’t forget to enter this week’s book giveaway. Time’s running out! Details here.

Should you bail on your 529 plan?

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Education savingsLong-time readers know I’m a big fan of using state-run 529 college plans to save for higher education expenses. (Remember the mantra: if you can save for college, you should!) Money in these plans grows tax-free when used for qualified college costs and doesn’t have much impact on financial aid (which is going to be mostly loans, anyway).

But the plans aren’t created equal–in fact, they’re so diverse it’s kind of daunting to track and compare them. Investment research firm Morningstar does just that, though, and every year creates a list of the best (and worst) plans. That list gives us 529 investors a chance to compare our plans against a gold standard and consider whether we need a change.

I’ve changed plans once, from California’s then-middling plan to Nevada’s top-rated one, and was surprised by how easy it was. (We still have some money in California’s plan, which is now higher in Morningstar’s ratings.) Some people are tied to their state’s plan by tax breaks or other incentives, but many aren’t. If you’re not happy with your plan, it’s time to consider a change.

You can read more about it in my Reuters column this week, “Is it time to switch 529 college savings plans?“

Will declining enrollment lower college costs?

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Education savingsThe number of high school graduates peaked in 2011 at 3.4 million and will drop to about 3.2 million next year. That’s not a huge decline, granted, but it’s a big change from the two previous decades where colleges could count on an ever-growing population of “traditional age” students.

Still, the experts I interviewed for this week’s Reuters column about declining enrollment don’t believe we’ll see lower college costs any time soon. Less demand will moderate the increases, they say, and so will an improved economy. States are likely to restore some of the funds they cut during the recession and its aftermath, which should decrease the pressure to keep raising tuition.

The short version: college demographics, and college costs, are a many-faceted thing. There wasn’t just one factor that led to spiraling tuition costs, and a single factor won’t reverse that trend.

So keep contributing to that 529.

Friday’s need-to-know money news

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Dollar mazeFinancial advice from Woody Allen, how to avoid living off of ramen noodles in college, and what happens to your credit after a short sale.

12 Personal Finance Lessons, Broken Down, In Woody Allen’s ‘Blue Jasmine’
Financial wisdom can come from some pretty odd places.

How to Manage the Costs of College Life
Manage your money correctly and you won’t have to live off of ramen noodles.

9 Ways to Save on Sports Tickets
The less you spend on sports tickets, the more you can spend on souvenirs!

Beware escalator clause when homebuying
What to do if you find yourself in a bidding war.

How Long Does It Take to Rebuild My Credit After a Short Sale?
Unfortunately, it’s going to take a while.

Parents, get your kids to college–but don’t give them a free ride

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Paid education. Graduate cap on bank notesUSA Today reported that more families are considering cost when choosing a college:

The survey by Discover Student Loans, to be released Thursday, found that nearly half of adults are limiting their child’s college choices based on price. And with rising student loan debt and a job market that continues to greet college grads with not-so-open arms, the ability to find employment has become a top factor in deciding what to study. The number of adults who say earning potential is more important to their child’s education than what they major in is up, at 42% vs. 38% last year, the survey shows.

All I can say is: What’s going on with the other half that cost isn’t a factor? I can’t imagine all those parents have the savings necessary to fund four or five years of undergraduate study. (And even if they do, they probably shouldn’t foot the whole bill…more on that in a minute.)

The idea that economic considerations shouldn’t sully the college decision process is absurd. If you aren’t borrowing money to pay for school, then maybe your employment prospects can take a back seat to the joy of learning. If you are borrowing, though, it’s crucial that you pick a) a school you can afford and b) a major that will resort in gainful employment that pays more than what you would have made had you skipped college. You want to ensure your investment of borrowed money gives you a return that’s worth the cost.

I’ve written a lot about how important it is that your kids get post-secondary education in a world where there’s an increasing divide between those who have college degrees and those who don’t. (For more, read “Ignore the talk: college is vital,” “Should you pay for kid’s college?” and “Should your kid skip college?“) And I’ve argued that parents need to help pay for this education if they possibly can, since letting your kids try to go it alone is often setting them up for failure (read: no degree and tons of student loan debt).

But there’s evidence that giving kids a totally free ride is a bad idea. Parental help is associate with higher “completion” rates–kids actually get the degrees they go to college for–but lower grades. The column I wrote about this has a somewhat misleading headline (“Why parents shouldn’t pay for college“), since refusing to help if you can puts your kid at a severe disadvantage.

Still, the column hit a nerve. It was the most-shared article on MSN Money yesterday. It should provide some comfort to parents who can’t afford to pay the whole bill for college–but I hope it doesn’t provide comfort to those who can help, but won’t.