First, relax...it will be okay...eventually...

I know, it all sounds impossible. But more people are going to college than ever. And while many of them are accumulating debt faster than Congress, you can still get through this without an impossible financial burden. Just remember, that there will likely be no single source of money, you will have to be realistic on selecting the right school, and your major means everything. So, relax and start the journey, one step at a time...

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Wednesday, August 31, 2011

INFOGRAPHIC: Why Exactly Should I Continue My Education?

Interesting graphic from the University of Phoenix on trends in education and the workforce. Click the "Info" button hovering over the graphic below to link to an image that you can enlarge.

Note that there is greater growth in the jobs requiring education at trade schools or an Associates degree, compared to a Bachelor's degree. However, completion rates for these students lag those persuing 4-year degrees. A recent Department of Education study indicates average degree completion rates of 37% for 2-year degree programs and 61% for 4-year degree programs, as measured by completion within 200% of the nominal time frame (i.e., degree completion within 4 years for a 2-year program). There is much better news in the trade schools (those seeking a certificate), where 200% completion rates average 72%.

College degree required, careers, enrollment
by GOOD         via

The Real Cost of a Public College: A Case Study

College costsThe Presidents Council, Universities of Michigan (a lobbying group representing the interests of the Michigan's fifteen public universities) has released a report that demonstrates the impact of financial aid and federal income tax credits and deductions to make college more affordable for the average family.

The average annual tuition at Michigan's fifteen public universities for in-state, full-time undergraduates was $9,661 for 2010. The average awarded need-based financial aid ($2,573), merit-based financial aid ($1,718), and Federal Work-Study ($95) reduced this to $5,275. When you add the average impact of federal tax credits and deductions ($488), the average tuition net cost was reduced to $4,787, or 49.5% of the regular tuition. This  does not include the cost of room & board or other expenses.

There is a lot of variation by individual, especially for lower income families that qualify for a Pell Grant (up to $5,500 per year per student), or academic achievers who can get increased merit-based aid. Overall, some students may not get any financial aid, others may have their tuition fully-subsidized. But most students receive some level of support.

Tuesday, August 30, 2011

Choose Wisely: What Are You Getting For That Tuition?

Kiplinger has come out with their latest 2011 best values for a college education, an online report, considering both public and private four year schools. Value is determined by Kiplinger as two-thirds by quality (as determined by student-faculty ratio, admission rate, graduation rate, and admissions selectivity) and one third by affordability (as determined by net cost after financial aid). There are even tools to select from among the top schools and compare by state for both public and private schools.

Value is in the eyes of the beholder, obviously, but this list is a good conversation starter for those schools that may have not been on your radar. It also may make you reconsider how you look at the cost side of the value equation - that is, are you placing too great an emphasis on the full cost of tuition, and not on net tuition after financial aid, or the quality of the education received?

One factor that is often overlooked in initially evaluating schools is that private schools can provide a much bigger financial aid package (especially for academic achievers and lower income families), potentially offsetting the higher tuition and changing the value proposition. For example, the College Board data indicates that the average cost of a year at a four-year private school is about $36,000, but the net price after financial aid puts the average closer to $22,000 (OK - still big). Always fully explore both public and private schools, especially if you believe a need-based or academic scholarship is in your future.

 While the economic value of a college education for the average person is clear, it varies greatly by the type of degree earned and major. You also need to factor in the impact of potential unemployment on your long-term financial situation as well, since college graduates tend to have lower unemployment rates (though also differing greatly by major). Again, your major matters.

One useful tool to compare value for yourself based on specific information for an individual (financial aid package offered compared with a school's tuition and fees) is TuitionCoach, a subscription-based tool to guide you through the financial aid process and evaluate competing financial aid offers. There is also a "lite" version to give you an idea of how it works.

Monday, August 29, 2011

Tuition and the Tax Man "Part Deux": Tax Credits and Deductions

In a previous post, I discussed the various tax-advantaged college savings plans. In addition, there are many income tax credits and deductions related to higher education, as either the parent of a student or a student yourself. Unfortunately, they have different (and sometimes conflicting) eligibility requirements, and various phaseouts and conditions, so you need to take a careful look at all of them.


The American Opportunity Credit (AOC) is an expansion of the previously-established Hope Credit. It provides a federal income tax credit of up to $2,500 of the cost of qualified tuition and related expenses (course-related books, supplies and equipment) paid during the taxable year, for the first four years of post-secondary education. This is available to the student paying these expenses, or if you pay the expenses for an eligible student. The student must be enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year. Note that room & board expenses are not eligible.

This credit is calculated as 100% of the first $2,000 of tuition, fees, and course materials paid during the taxable year, plus 25% of the next $2,000 of tuition, fees, and course materials paid during the taxable year. As a credit, it reduces your federal income tax liability dollar-for-dollar. If your eligible credit is more than your tax liability, the amount greater than your tax liability is refundable to you, up to a maximum refund of 40% of the eligible credit (maximum of $1,000).

Sunday, August 28, 2011

Tuition and the Tax Man: Make them Work Together

There are many savings options for college that offer tax advantages. Broadly speaking they are known as Qualified Tuition Plans (529 plans), Coverdall Education Savings Accounts, custodial accounts (known as UGMA/UTMA), and US savings bonds. Even an early withdrawal from your IRA account can be used for education expenses without the 10% penalty, and maybe without income taxes.

The most common savings option is known as the 529 Plan, named after the section of the IRS tax code authorizing these plans. In 529 plans, the account holder (parent, grandparent, etc) initiates a plan with a named beneficiary. The account holder maintains control over the use of the account. While they come in two flavors (prepaid tuition and college savings), they both offer the same tax benefits: earnings grow tax-deferred and withdrawals are tax-free when used for qualified education expenses (tuition, room & board, fees, books, etc). There may also be a state income tax deduction for contributions, if you open a plan in your state of residence. The funds may be transferred between beneficiaries, if funding needs change, so that if you have two accounts with two beneficiaries, you can move funds to the other account if one of the beneficiaries receives a scholarship or doesn't attend college. Also, you can change the named beneficiary without transferring accounts.

Saturday, August 27, 2011

College Funding Strategies for Low-Income Families

College Funding Strategies, Low IncomeThe best strategy for low-income families is first, for the student to do well in school. This means a high level of engagement and involvement in the student's school work, from grade school through high school. By keeping school work of high importance in the family and encouraging and rewarding your children, their accomplishments may place them in honors and Advanced Placement (AP) classes (which they may receive college credit for, potentially reducing the tuition bill). The combination of high academic achievement in high school as well as finanical need will allow the greatest award of scholarships and grants. Just make sure to fill out the FAFSA form early and every year your child is in school.

In addition, families can provide for enriching low-cost trips and activities, through Scouting organizations, church activities, and library and museum events. Your local paper is probably full of these events every week.

As the child gets older, they can volunteer to expand their interests and accomplishments. In addition, many volunteer positions can lead to paid positions that can help them earn money for school.

When they are in school, the Federal Work-Study (FWS) program can provide on-campus employment to help in paying tuition. FWS is oriented towards lower-income families, and can provide a convenient, flexible job that may even enhance them in their academic major (such as tutoring and teaching assistant). Beyond FWS, there are other flexible on-campus jobs for students, especially for students with particular skills or certifications (lifeguard at aquatic centers, computer help desk, etc), so cultivate these skills early.

An excellent first step in post-secondary education is to pursue a local regional campus or community colllege for the first two years of school. This is an increasingly popular option (especially through this latest recession), since the tuition is lower, the student can likely live at home, and the quality of education is excellent.

Tuesday, August 23, 2011

What You Need to Know about Student Loans

When you add up your savings, scholarships, grants, work-study, and family contributions, you may still not have enough to pay for tuition, fees, and room & board. That's where loans can fill the gap, if you are careful not to overburden the student (or parents) with debt. There are two general rules of thumb to remember here: (1) Avoid taking on more total debt to get your degree than what you expect to earn your first year in your chosen field after you graduate (given there are good job opportunities in that field), and (2) parents should provide themselves an adequate retirement fund first before funding student loans, as there are no loans for retirement.

Current trends for college funding show disproportionate increases in both student loans and number of students receiving aid. So a student loan may just be in your future.



From: National Postsecondary Student Aid Study
(Click to enlarge graphic) 

There are three major categories of education loans: federal student loans where student borrow the money, federal parent loans (PLUS loans), and private student loans. For the federal student loans there are need-based subsidized loans (Perkins loans for extraordinary financial need as well as Stafford loans) and un-subsidized Stafford loans.

Sunday, August 21, 2011

Meritocracy or Classist: What Are We?

The New York Times has a post summarizing a report from Sallie Mae and Gallup that breaks down the typical source of funds for a college education today. This summary chart gives you a good idea of what to expect (on the average).

College funding sources, student loans, savings, grants, scholarships, income
“How America Pays for College,” Sallie Mae and Gallup

There is a further breakdown by parent's income level with similar results across income levels (although there is a greater relative contribution from grants and scholarships for lower family incomes, as you would expect).

Don't Fear the FAFSA

FAFSA
Image by FreeImagesLive.co.uk
The Free Application for Federal Student Aid (FAFSA) is how virtually all student aid is determined, whether provided by government, private entities, or by each school. It is somewhat easier to understand and fill out than your tax forms (I know that's not saying much), and the online option is quick and efficient. While it is quite lengthy (officially, 106 questions), most of the questions either won't apply to you or are simple enough to answer.

Filling out the FAFSA is a must. And it must be done every year, as early in the year as possible, as long as your child is applying for or going to school. There are state-specific deadlines for Federal, State (for State aid), and even college-specific deadlines to submit your FAFSA. You should complete your FAFSA online as you complete your previous year income tax forms, and you should complete this as early in the year as possible, with a goal of submitting both by early February or so, starting when the student is a high school senior. If you cannot complete your taxes by the end of January, submit the FAFSA with the best information you have, and update your FAFSA when your taxes are done. You can  submit changes to the FAFSA in one of three ways: 

Saturday, August 20, 2011

Creative Ways to Pay for College: Is this where we're headed?!?

Smart Money has an article with four "creative" ways to pay for college, including advertising on your body (see, "Online Casino Tattoos Woman's Face").

Is it that bad?

Or, put another way, is the "government/education complex" such a dominant political & commercial enterprise that their product justifies such acts?

Personally, I have received (financial) payback in my education many times over. That has a lot to do with a major that is in demand, and required considerable work to achieve.

Your Major Matters: The Economic Value of College Majors

Check this great study from the Georgetown University Center on Education and the Workforce (http://cew.georgetown.edu/whatsitworth/). If you're trying to understand what to expect in terms of salaries by field, this comprehensive study breaks it down. While this shouldn't drive you to decide on a major (your passions should do that), it does help to understand how much you can afford to borrow to get that degree. That, in turn, may help you decide on a school. And if you dive into each major (by clicking on the category in the report), you can get insight into employment rates, so you can understand your chances to actually use that degree. Warning: Get a cup of coffee ready before opening the study...it's a little thick...

Friday, August 19, 2011

OK - What will it REALLY Cost Me?

Diving into the US Census Bureau data (http://www.census.gov/compendia/statab/cats/education.html) shows some revealing data. For 18-23 year old students, the average out of pocket expenses for a 4-year degree public school is about $8,700 per year (non-doctoral colleges) for net education costs (tuition and fees), after taking financial aid into account. Yes, there are still living expenses to cover, but it puts some realism into the scary numbers you may read.
Since the most often over-looked expenses are living expenses (room and board), let's look there first. A full school year room and board is in the range of $6,000 to $9,000 for a non-commuter, either sharing an apartment or in a dorm. Of course, you can always spend more. With a part-time job, (full-time in the summer, I hope) or work-study, the student should be able to cover at least basic living expenses. Next, tuition. With family contributions of half, and loans for the other half, you begin to see some daylight. Perhaps a 529 plan for half of the family contribution (equal to $100/month savings through middle and high school), then your family contribution just needs to cover less than $9,000 over four years. Sure the student ends up with about $17,000 in student loans (less than the average of $23,000 or so), but that is a good trade for an education that gets you a good job. And again, the rule of thumb is to accumulate student loan debt of no more than your first year's salary in your expected field - given there are employment opportunities in that field. And start that 529 plan today!

Of course, this depends on getting an education that makes you more employable, not just more knowledgeable. That Art History degree may make it tough to pay back that loan, though if you are getting the degree for personal enrichment, it's not an economic decision anyway. Understand the payback potential for your field of study, and get the facts before you start. And that is a subject for another post...

Should I pay for my kid's college?

Compelling report from CBS News today (see below).

Ok, I am not cheap, (perhaps thrifty), and certainly want the best for my children. And I will do what I can to help, but is there a best answer here? There's the financial answer, there's the child's development answer, and then there's the answer in your heart. I am a big believer in letting my children fail early and small, so they then learn from that and don't fail later and big. If they can't remember their homework, help them to devise a system that works for them to remember. But maybe you have to let them forget their homework once or twice to experience that feeling, then maybe they will understand the consequences. I get that.

But that still leaves a  lot of questions.

Thursday, August 18, 2011

Chart of the Day: Student Loans Have Grown 511% Since 1999

The Atlantic has a scary article on the growth of student loan debt, as seen on the following graph:

Student debt, growth

One look at the chart and the comparison to the housing bubble is...troubling. Or disturbing. Or just plain scary.

Be it higher tuition, greater availability (and marketing) of student loans, or greater expectation of attending college, the result is more of the next generation(s) budget will be dedicated to education. And bankruptcy can't make this go away.

So pick your school wisely, and pick your major even wiser.Education for it's own sake is a wonderful thing, if you can afford it. Most people need a return on that investment, so make sure you make an economic decision, and not just an emotional decision. And that means get informed and make a realistic plan.

Expected Family Contribution = EFC = WTF?!?

The first time I filled out a FAFSA form, the Free Application for Federal Student Aid (see previous post for details on the FAFSA), and calculated our Expected Family Contribution (EFC), I laughed. Then I cried. Then laughed again. With one good paying job (the result of a solid education in Engineering), a stay-at-home Mom, a little savings (besides retirement), and three kids, we were looking at an EFC that equates to three times our mortgage payment!

Whiskey Tango Foxtrot? What family can expect to make this contribution?

The Project on Student Debt

The Project on Student Debt, a non-profit established to make college more affordable and available, has compiled an interesting study, complete with state-by-state map.

Student debt, states
Click Here to View State-by-State Data on Student Debt
While the state-by-state variation is at least interesting, the more compelling data is in the details, when you click on your state and see what the debt load is by school - well, at least for most of the schools. The variation is large, enough to make me wonder if this isn't a good barometer of success of a school. While value for the money isn't everything, it is useful to compare schools as one more basis for your decision.

Dept of Education Announces Student Loan Interest Rates

The rates (see http://studentaid.ed.gov/PORTALSWebApp/students/english/FFEL_DL_InterestRates.jsp) shows fixes rates for new 2011/12 undergaduate Stafford or Plus loans of 3.4%. Wow. I guess we now feel the flip-side of low interest rates - we may be getting nothing in that savings account or 529 Plan, but at least the pain isn't so bad if we need to borrow. And we probably need to borrow, as about 2/3 of students currently graduate with student loans, averaging about $24,000 in total debt. Remember the rule of thumb: your maximum student loan load should be less than your expected first year income after graduation...if you get a job in your field. You must also factor in the employment possibilities in your field.