It has been reported that student loan dept has now surpassed credit card debt. After spending ten years as a Financial Aid Officer, this is no surprise to me. In my opinion this country is going to have round two of the sub-prime mortgage crisis with the pending student loan default decade. It's already starting. Tim is right on the mark with his book "Pay for College Without Sacrificing Your Retirement" If you believe that consumer debt is just debt but student loan debt is an investment, be careful. It is so important to know your financial limits when sending your student to a college. Yes, education is an investment, but it can be a bad investment if you set yourself and your child up to a life of payments that never seem to go away, or they do not have the earning power to meet these payments and still have discretionary spending money at the end of the day. This mistake parallels the mistakes of our society which has us all so indebted due to immediate gratification tendencies for years and years to come. I want to go THERE, I want to go NOW.
Tim paints pictures of wonderful options of various types of college choices, with the benefit of saving money that can accumulate in investments rather than in retirement depletion because of "payments". Why not go to a lesser school when you are unsure of your major? If you are going to college to "live the college experience out of state", why not stay with friends who are away when you are on break? Hey, when it's all over (and it goes by fast) you'll probably owe much less money and be saving for your home instead! More than likely, they'll be living home again and need to come visit you! Use your "leverage" as Tim suggests. Don't limit yourself to an early decision school or just open yourself up to I'll take the first package I get deal...unless this is the only thing you want in life. There are a lot of great award packages out there. Tim's gives examples of schools who award up to 82% need-aid. On the other hand, Columbia does not award merit-aid. They are all different. The EFC is the same though,...everywhere. You need to do your homework!
The choices for borrowing are changing too. Private loan companies are looking very closely at applicants now, and interest rates can be very high. They look for strong cosigners. Students getting these private loans in their own name now is pretty much history. Parent's with stretched credit are having trouble too! Saving money and learning investment strategies, lowering the EFC...these are the goals that must be set for college planners in this changing financial aid environment. Tim's book is your guide.
As an FA, I have seen relationships between parents and students strained due to over borrowing. Because little aid is available in federal stafford loans, the government offers the parent Plus loan to parents used to cover the balance after merit-aid, gift-aid and need-based aid. I have seen parents borrow Plus loans at 7.9% (hey, don't forget the 2.5% origination fee) and make agreements with their student to defer the loan(that's a new option and pretty scary!) and take over the payments when they graduate. Oh, did we talk about the fact not all students graduate? Student loans still go into repayment 6 months after they leave school...even if they did not graduate. The loan will always be in the parent's name, and cannot be consolidated with other "student loans".
I met with a young attorney the other day that knew I was an FA. He is a working attorney with a wife who was recently laid off. His student loans are now in forbearance because of his inability to pay, (which means they are temporarily on hold from payments but the interest is accruing). He told me he had so many young lawyer friends in the same situation; with tons of student debt from law school that even these entry level attorneys cannot afford to pay!
Tim is wise and prudent in his advice to the college bound family..I know what an EFC means from a perspective of how much aid to award, but it is too late in the process to lower that number unless what is called "professional judgment" is done. FAs are allowed to use this judgment, but only in well documented cases. It is the exception to the rule. Tim knows how to get that much anticipated number(the EFC) to a number that can save thousands of dollars. I agree with Tim, get that number and then look at schools.
If I sounded negative regarding student loan funding...I am still glad we have it. It is there for those who have the need for it or really want it. Choose wisely, think clearly, and follow the principals of what Tim is trying to teach you, or at least the ones that you can. People go to college even at my old age! If you do it right the first time around, you will benefit, your college student will benefit and your other kids will benefit too. You may even see your kids appreciate education more...as it only gets more enticing the older you get and maybe you can afford to continue on!
Thanks Tim! I appreciated the education in your book and I don't have a loan on it!
