Education Costs: How to Pay for College and Pay Back Your Loans

April has been declared Financial Literacy Month across the nation, so we thought it was a great time to share some educational content created by our Financial Planning team. Led by a group of Certified Financial Planners, eMoney’s Financial Planning team helps our clients understand, and effectively use, our planning technology to meet their diverse needs.
Look on our blog for a new post every day this week related to topics like Financial Planning 101, Credit Scores and more. We think this content will be a valuable resource that advisors can share with both their clients and their clients’ children during Financial Literacy Month and beyond.

You’ve probably already heard the statistics.  The average all-in cost of college (tuition, room and board, fees, books and personal expenses) at an in-state public university is $24,610 per year.  If you are thinking private college, brace yourself, you are looking at $49,320 per year. (Source: College Data.)

If you are fortunate enough to have stashed away $100k during your teenage years, good for you. Your future looks very bright.  But for everyone else who wants to attend (even later in life) help might be needed in the form of student loans.

Here are some tips for those approaching college:

  1. Don’t be scared by the sticker price of colleges.  Most students qualify for student aid, which considerably reduces the actual cost of college. To be eligible for this aid, you need to file a FAFSA (Free Application for Federal Student Aid).
  2. File the FAFSA as soon as you are eligible.  Schools have a limited amount of financial aid available and the earlier you get your application in, the more likely you are to get aid.  For a student attending enrolling in the fall of 2018, the earliest you can file is Oct. 1, 2017.
  3. Don’t be afraid of student loans.  While you should always consider the risk of taking on debt, the reality is that if you want to go to college, you are going to need some help. And studies show that investing in yourself (by attending college) yields to higher earnings over your life and less unemployment risk. (Source: Hamilton Project)
  4.  Understand the different types of loans.  Generally speaking, federal loans are better than private loans because they have fixed interest rates and may be eligible for generous repayment plans. You should only use private loans as a last resort.

Now, if your college days are behind you, here are some tips for those who have graduated. 

  1. Consider consolidating your loans. Juggling multiple loans with multiple payments can be difficult, but you may be able to combine your multiple loans into one loan with a lower interest rate.  CAVEAT: Be careful about consolidating federal loans because you could lose out on potential repayment benefits (see #2).
  2. If you have federal loans, you may be eligible for generous repayment programs. Depending on the nature of your job, your income and family size, you may be able to enroll in programs such as Public Service Loan Forgiveness and Income-Based Repayment. Before consolidating any federal loans, you should see if you are eligible for these plans.

Don’t neglect an emergency savings fund and retirement. It may be tempting to pay off that debt burden as soon as possible, but you shouldn’t do so at the expense of creating a safety net and funding your retirement. Before you make any extra payments on your loans, consider setting up a savings fund equal to three months of expenses, and contributing to a retirement plan. In most cases, this diversified approach is best.

Written by Certified Financial Planners on eMoney’s Financial Planning team.
Grayce Turnbach

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