Affording College in a Difficult Economy

If you are in college now or planning to attend college in the near future, the national recession is making the task of paying for a college education even more daunting. Perhaps you were counting on help from your parents, or as a parent, feel you should be providing the best education possible. Parents of students attending college or prospective college students have every right to be concerned. But you should also know that even with dire economic news, there are lots of ways to afford a college education.

As a father of five children I fully understand how difficult paying for college can be. My oldest son decided not to go to college and attended a police academy instead. The cost was modest compared to college, so it did allow me to devote more money to the other kids in the family. My second oldest son wanted to go to a small private college to learn a trade. While I was able to pay some of the costs from savings and current income, a parent Plus loan and student loans covered most of the cost. My daughter started at a private woman’s college with a scholarship for half the cost. She later transferred to a state university, and the cost of attending dropped by more than 50%. Again some savings, student loans, and paying for what we could from our current income has covered the costs.  

Not everyone can save money in advance and with today’s economic uncertainty, most of us are on edge when it comes to affording college. I started saving in mutual funds for each child and learned to move money from growth funds to more conservative money market funds as it got closer to time to pay for college.  This helps ensure that you are not taking too much risk with your money.

My third son is 19 and will graduate next year from college with no debt.  How is he doing it? First, he stayed home and saved on the cost of housing. Attending the local state college is much less expensive than the other six schools he considered. Getting excellent grades in high school allowed him to earn a scholarship for the first years’ costs—this was a big savings.  He has since been able to get additional scholarships, but he also works 30 hours a week (while maintaining a 4.0 GPA).  He is saving $100/week from his part-time job to pay for his senior year and has used the money we saved for him to pay the remaining costs. Avoiding student debt will really help him as he tries to pay for graduate school.

My youngest son is still a few years away from college, so we put money aside in a state 529 fund to take advantage of the tax benefits for this type of investment. The market is down and it allows me to buy more shares in mutual funds at a lower cost.  Over time (I still have more than five years), the stock market will recover and it is likely I will benefit from this fund. We also have money is a separate mutual fund account with an allocation between growth and more stable balanced funds. Additionally, I save all my lose change and have my wife deposit it in a bank savings account, where our youngest son also contributes a part of his weekly allowance. This gives him a stake in the plan to save for college and allows us to have discussions about the options for college costs and how to save for them.  

The most important thing is don’t give up before you get started. MeritAid.com recently surveyed over 2,500 high schools.  The results of the survey are telling—almost fifty percent indicated affording college was an issue of concern. Fifty-seven percent are considering attending a less prestigious college due to cost and sixteen percent don’t think they can attend college right now due to the cost.

Have a frank discussion as a family about what you can afford before you begin to search for colleges. But don’t give up on college because you think you can’t afford it. You may have to start at a community or junior college. In many states, you can get two years of college at the local level with smaller classes and save on the cost of going away to college. High school students can also take Advanced Placement (AP) courses in high school that often translate to college credit, that’s a big savings right off the bat. I was the first person in my family to attend college. I started at a community college and later transferred to a state university. While on active duty with the US Air Force, I continued my education and was able to earn a graduate degree. There are lots of paths toward getting a college education. Explore all the options.
    
Before you decide you can’t afford college, calculate what you can afford on www.fafsa4caster.ed.gov and start searching for scholarships, grants, and loans at free web sites:

Do everything you can to maximize financial aid. Financial aid is actually on the increase. The College Board found that while tuition rose less than one percent over inflation in 2007-2008 for a four-year college, financial aid rose by more than 5.5 percent over the cost of inflation during the same period. College students received more than $143 billion in financial aid, including grants, loans, work-study programs, and tax credits.

If you need help to pay for college, federal loans are an increasingly attractive alternative to private student loans. While the credit crunch is limiting the availability of private loans, the access to federal loans is not affected by the economic downturn. A new benefit of federal loans begins in July 2009, when the payment that borrowers are expected to make will be calculated to be proportional to their income.

Private colleges can remain affordable when you compare value and cost together. Students who assume those institutions are out of their price range might be surprised to learn that private colleges are affordable because need-based and merit scholarships are still available.

If you are attending college in a state where the cost of tuition for a public university is close to the cost of a private college, those costs can be offset by financial aid packages that outpace what public universities can offer. With the additional advantage of getting the classes needed to graduate in four years (unlike many public universities where earning an undergraduate degree can take longer), private colleges can be affordable.

If you or your family is worried about paying for a college education keep in mind a few key must dos:

Get past the “sticker shock.” When you see the tuition price listed at many colleges, don’t assume that’s what you are going to pay and instantly rule out those schools. Thanks to a variety of financial aid programs, few families pay the list price. The College Board reports that average tuition at private colleges after grants and tax benefits are factored in is often $10,000 less—and rising at a slower rate—than the “sticker” price.
Work with Mom and Dad to complete the Free Application for Federal Student Aid (FAFSA). Most colleges use the FAFSA to determine student financial assistance. The sooner you submit the FAFSA, the better the chances of getting a generous aid package. If a family’s financial situation changes during the course of the academic year, the college can make adjustments to provide more money immediately rather than waiting until the next school year. My kids learned this lesson the hard way. My 19-year-old son, who will finish college next year, did submit a FAFSA in his second year of college but it was submitted late, and as a result, scholarships had already been dispersed. The outcome of the late submission was that his parents had to pay most of the cost for his sophomore year.
Visit the campus financial aid department often. College financial aid officers should know you by your face and your first name. They are really there to help you and can be a tremendous resource for finding money for college from both the institution itself and the community at large. They will also help you navigate the in and outs of application deadlines. If you are interested in a private college, talk to the campus financial aid office about opportunities for assistance.

News reports about college financial aid may have you thinking that searching for financial aid will find the loan and grant pickings slim at best. But you should not disqualify yourself before investigating all options. In particular, I urge prospective first-generation college students and their families to explore financial aid options rather than concluding that higher education is out of reach in today’s economy. I recommend:

Investigating federal and state grants and loans before going to private loans, and checking alternative lenders thoroughly before applying for a loan. Student Lending Analytics, an independent research firm, has developed an Alternative Loan Guide to assist students and parents.
Meet all financial aid deadlines.
Complete the Free Application for Federal Student Aid (FAFSA) as soon as possible beginning January 1, 2009.

With each day seemingly bringing more bad news on the economic front, it’s important to remember that the dream of a college education doesn’t have to be delayed or set aside altogether. Help is out there for students and their families.

Floyd D. Saunders has 35 years of experience in the financial services industry. Floyd?s diverse background includes experience in retail banking, investment banking, insurance, investments, financial planning, and tax preparation. He has been an adjunct faculty member for St. Mary?s College, Moraga, California, and Community Colleges in California, teaching courses in managerial finance, money and banking, and principles of banking. He has also taught extensively for the American Institute of Banking and various banks.


Mr. Saunders? professional experience includes assignments in the business lines of retail banking operations, investment banking, institutional trust and securities services, employee and management training, and systems engineering for banking, accounting, and tax preparation firms. He has worked for Bank of America, JP Morgan and JPMorgan Chase, and as a consultant in the financial services industry. He has prior experience as a registered representative and has published several articles on personal financial planning.


Mr. Saunders has authored four programs for the American Bankers Association, Banking on Mutual Funds and Annuities, Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.

Mr. Saunders earned a Master of Arts degree in Management from Central Michigan University and a Bachelor of Arts degree from San Diego State University.

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