By: Preston Mangus
Chances are that little bundle of joy you welcomed to the world not too long ago is quickly approaching a huge rite of passage: high school graduation. You may have started planning for this day one after your child’s birth—maybe you even opened and funded a 529 college savings plan—and are now you are simply waiting for your young genius to make the difficult choice between all the top-rated schools he or she has been accepted to attend. Or maybe you don’t have a plan yet.
The reality is that the total cost (educational and living) of attending the major state universities as a Florida resident ranged from about $20,000 to $24,000 in 2016, according to the CNN college cost calculator. For out-of-state students, expenses rose to around $34,000 per year. Multiply that by four, and you have a pretty hefty number! Early planning is, of course, the preferred method for college funding, and the 529 plan is an excellent tool to accumulate money for educational expenses. It is extremely flexible, and it offers many options for investment and expenses—including prepaid tuition.
But even if you have planned well, the necessity of additional funding sources may be unavoidable. Sometimes life also has other demands for your child’s college savings, turning a rite of passage into a looming financial challenge. If you are getting a late start, there are still many options and avenues to explore to secure the best results. How you secure that funding can make a huge difference in your total expenses, so attention to detail is critical.
According to calculations from student loan expert Mark Kantrowitz, the average student loan debt was $37,172 in 2016. As a rule of thumb, some counselors recommend not to owe more than the average first-year income of the profession the student is pursuing after graduation. For example, if their anticipated starting salary is $50,000, borrowing should be limited to around $12,500 per year.
If your child is unsure about his or her career path, there are many occupations for which the government will forgive student loans under the right circumstances. It will still require some loan repayment, but any remaining balances can be forgiven—significantly reducing costs. You can get additional information about qualifying occupations at the Federal Student Aid website.
The good news: There are over 21 different educational loan programs available. The bad news: There are over 21 different educational loan programs available! Although much effort has recently been made to un-complicate the process, student loans are still perhaps one of the most challenging and confusing realities of modern times. Here is some critical information to help you navigate through the many options:
Higher education can be a great benefit, but it can also come with a significant financial burden. In my career, I have seen many individuals and couples struggling with very high debt that lasts for years. Some students spend their loan proceeds on non-educational things, like spring break. It is important to set expectations for students that are realistic and measurable. Definite timeframes, minimum GPAs and summer classes can be used to keep students on track. It is very easy to get strung along at institutions at a very high cost—perhaps just to take one class—that could have been avoided with proper planning.
Finally, maybe a college track is not as critical for economic success as in the past. Many technical trades also ensure solid income and steady employment. Have your kids explore all options that could lead to a financially successful and fulfilling career. If college is a necessity, ensure that they pursue degree programs that will provide the best opportunity for sufficient income to pay back the loans it took to get it! And remember: If you need help, the experts at VyStar Investment Services can be a great resource to coordinate the specifics of your college savings plan. The next time you are visiting your local branch, ask to set up an appointment with a representative for more information.
In my next blog post, I will explore the options for coping with student loan debt when it’s time to repay! Until then, here are some more useful websites I recommend you browse through:
U.S. Department of Education Federal Student Aid
National Consumer Law Center Student Loan Borrower Assistance
Consumer Financial Protection Bureau
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.