College Finances 101: Introduction to college funding and financial aid is now available for review.  This recording was made on the evening of December 8th, 2009 and covers the following:

• The college funding environment
• The college financial aid system
• Expected Family Contribution (EFC)
• FAFSA
• CSS Profile
• Financial Aid Priority Deadlines
• College Financial Track Records
• College Application Strategies
• College Financing
• Strategies and Tactics to Minimize College Costs and Increase College Financial Offers
• Negotiating the College Financial Award

This overview runs about 71 minutes. After you have finished watching, click the link below the video to request a PDF of the presentation be emailed to you.

Should you have any problems viewing the video, you may need to update your computer’s flash player.  You can do that at the Adobe website.

Webinar Response Form

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Next Webinar is…

Tuesday, December 8th, 2009 at 7pm Central Time

Register Below

College Finances 101 has now come to the web. Attendees have been praising this ground breaking presentation for years; now you can participate in the comfort of your own home or at work.

In 90 minutes, I will cover the most important aspects of minimizing your students’ costs for college. You will learn…

• How parents can often send their children to expensive private colleges for less money than a state school.
• How to fix lost money caused by popular college savings plans.
• How to identify schools that give you more free money.
• The great myths and misconceptions about college funding that can cost you thousands of dollars.
• What assets are penalized 4 times higher than others when applying for help.
• Why waiting one year can cost you as much as $5,000.

“The information Mr. Anderson shared was
incredibly eye opening.” — Tricia Christiansen, Guidance Counselor,
Hampton-Dumont HS, Hampton, Iowa

“What an eye opener! We wish we had
attended this seminar sooner. This seminar has given us ideas and
information but also hope…” — Dave & Maria Sullivan, Rock
Island, Illinois

“He has provided our families with
invaluable information. Scott does an excellent job…” — Linda
Cutler, Guidance Counselor, Rockridge High School, Taylor Ridge,
Illinois

“Listening to all the options available
to pay for college encouraged us that we don’t have to sacrifice a
quality education because of a lack of money.” Pastor Scott & Tonya
Culley, Silvis, Illinois

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In July of this year, I published an article titled The Mythical Ivy Impact.  I discussed the evidence which suggests striving to get into prestigous colleges like Harvard, Stanford, or Yale may not be worth it if you have to take on substantial debt to do so.  Now it’s the fall, and discussions about college selection are flying all over forums on the Internet.  And I am still surprised how quickly the knives come out when you suggest it may be better to take the money and go to a so called “second tier” school, as opposed to mortgaging your future to pay for an Ivy or near-Ivy college.

I invite you to read my full article at the link above.  Also, here are the links to the supporting articles from USA Today and the Brookings Institute:

USA Today: Wanted: CEO, No Ivy Required PDF

Brookings Institute: Who Needs Harvard PDF

In a nutshell, don’t get hung up chasing prestigious named schools.  If you get in and it’s reasonably affordable, great!  But there is no reason to put yourself under a mountain of debt.

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Bank of America announced within the last week that they are suspending all federal student loan originations.  This really isn’t anything new.  Throughout 2009, banks and other lenders have been abandoning the federal loan programs administered through the Federal Family Education Loan Program (FFELP) en mass.

The reason for this wholesale action is The Student Aid and Fiscal Responsibility Act of 2009.  The Act has cleared the House of Representatives, and will in all likelihood be through the Senate by the end of the year.  The major effect of this new law is to remove all private lenders from participation in the federal student loan programs.  Previously, federal student loans were divided in two programs, the FFELP and the Direct Loans.  This new act eliminates the FFELP.

What is the real impact to you the student or family wanting to borrow money for a college education?  Well… the only real difference is that from now on, your federal loan will be serviced by a government beauraucrat, rather than a bank representative.  Previous loans will still be administered by the company you borrowed from, or the company they sold the paper to.  Student loans will not be any harder to obtain because of this change.  There is still plenty of money available to help pay for college.

These new changes apply only to Stafford and PLUS loans.  This does not have any impact on Perkins or private education loans.

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Income Based Repayment (IBR) for Federal Stafford, Grad PLUS, and Consolidation Loans is a new option this year for college borrowers.  This tool has been talked about for years, but it finally came into being in 2009.  In essence, IBR is a system designed to make payments on federal college loans more manageable, particularly for those students who have just graduated and have limited income and resources.  It’s design is not limited to new graduates however, it can also help those with federal college loans no matter how long ago they were taken out if they meet the income and family criteria of the program.

The formula for determining IBR payments is not terribly complex, but it’s far easier just to show you the table developed by the federal government.  Keep in mind that this table will be adjusted every year as it is based in part on the annual poverty line.

There are four primary benefits to borrowers of the IBR program:

1. Payments are lower than the standard 10 year payment program, and likely lower than other available payment programs as well.
2. The government will pay for up to three years of interest on subsidized Stafford loans if your IBR payment does not cover your total interest payment.
3. If you qualify for IBR payments for 25 years and meet certain other requirements, any remaining balance on your federal loans can be canceled after the 25 years of payments.
4. If you work in public service for 10 years and qualify for IBR payments, you may be eligible for forgiveness of your remaining loan balance.  For information on public service loan forgiveness, please read the Loan Forgiveness for Public Service Employees Fact Sheet.

There are also disadvantatges to the IBR program:

1. You will likely pay more interest while paying off your loans under IBR as compared to standard payment programs.  In other words, it will cost you more in the long run.
2. You must submit annual documentation verifying your income and family eligibility for the IBR program.  If the documentation is not provided, your payments will revert to the standard 10-year payment plan.

For more information on the IBR program, check out the Income Based Repayment Fact Sheet.

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Last week, I got on my College Financial Watch soapbox and blasted the lack of financial literacy in this country as a prime contributor to the problem of student debt.  Later in the week, I was part of an online discussion again discussing what is reasonable for a student to borrow for college.  I recommended that the student get a copy of Rich Dad, Poor Dad by Robert Kiyosaki and improve his financial literacy.  I never knew that recommending someone beef up their financial knowledge would be so vehemently criticized, but it was.

In January of 2008, President Bush formed the Advisory Council on Financial Literacy.  In May 2008, the council conducted a nationwide youth financial literacy contest on the web.  Over 46,000 high school students participated.  The students had to answer 35 basic questions about money, banking, and financial products.  The average score was 56%.  Did you follow that?  As a whole, our students are failing financial literacy.  And we wonder why there is such a high level of student debt.

Do you want to know what is even more tragic.  The online discussion I mentioned above was at a website dedicated to helping students get into college and provide answers for financial aid questions.  There are people out there who are acting like they understand finances, but are actively trying to keep students in the dark.  Now the action is likely out of ignorance, but the motivation does not matter a hill of beans to the outcome.

We have to face facts.  The majority of students and adults as well in this country are woefully undereducated when it comes to personal finance.  Before you start complaining about student debt, you need to get yourself and your student educated on the matter.  That is why I am now including two books from Robert Kiyosaki in my Recommended section at www.RealCollegeSavings.com

Rich Dad, Poor Dad

and

Rich Dad, Poor Dad for Teens

Go get these now.

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Students graduating with college debt is the topic of “A Steep Climb for Indebted College Grads” in the most recent issue of Business Week magazine.  It tells of the horror stories of students graduating with mountains of college debt… $50,000; $75,000; $100,000 in debt before they ever get a job.  This is insane!

Towards the end of the article, there is a story of one young woman who graduated with $160,000 in private loans alone… just for her bachelor’s degree.  I assume she probably has at least another $15,000 in public loans on top of that.  This has got to stop!  At least she had the maturity to say “I have to deal with the consequences.”

There are two demons to blame for this astronomical rise in student debt.

First… students really have no understanding of debt and what it does to you.  A few years ago, I was in a conversation with a student who asked me if $100,000 is a lot of money to borrow.  I had to do a double take at the question alone.  We need to better educate students on the nature of money.  Honestly, I think Rich Dad, Poor Dad by Robert Kiyosaki should be required reading in every high school.  I would be in far better shape if that book was available to me 25 years ago.

Second… the ideal of the “Best” college is killing our kids.  Students and parents alike have this perverse idea that there is only one “best” school for them, or only a handful.  Typically, this handful of schools comes out of some beauty pageant list, such as the “Best Colleges” issue of US News and World Report.  Students have got the idea that if they don’t get into one of only a small selection of colleges, then their future is shot.  Then when they do get into that one college, they put the rest of their life in hock to pay for it.

NEWSFLASH — There is no “Best” college.  There is only the best colleges for you.  Notice that colleges is plural, not singular.

This expectation of only one or two schools are the right schools is absurd and must come to an end.  There are over 3,000 colleges and universities in the United States.  It is a very easy process to find 6 to 10 very good fit schools for any student at a bare minimum.  And these schools will not break the bank when the student graduates.

I challenge all of the parents, students, guidance counselors and teachers reading this post to take a stand against these two pervasive problems.

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A friend of mine emailed me yesterday wanting my opinion on whether or not it would be a good idea for her daughter to accept additional Stafford loans for her graduate degree, or would it make more sense for them to take out a home equity loan.

Graduate degrees can get very expensive… quickly.  And because students are typically considered independent when pursuing such a degree, the Stafford loans they are offered can be very large.

The student will be starting on her pharmacy degree next fall to the tune of $50,000 per year.  She was offered $8,500 in subsidized Stafford loans, and $24,500 in unsubsidized Stafford loans.  Those numbers are huge, but considering that the median starting salary for a pharmacist is $81,000; many would agree it is worth the investment.  But is it worth the Stafford loans?

My recommendation… take the subsidized Stafford, but don’t take the unsubsidized.  Subsidized Staffords are no interest, no payments while in school.  They are free money at least until you graduate and always make good sense.  However the unsubsidized Stafford, while no payments are due during school, does accumulate interest while in school.  Here’s the problem… the tax deduction on education loan interest is completely phased out by $70,000 in income.  The median income for a pharmacist is $81,000, so she will likely never get the opportunity to deduct any of that interest.

Some form of home equity financing would make much more sense in this case to cover the unsubsidized Stafford which was offered.  The interest on home equity financing would be deductible.

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It’s May, and it’s decision time.  Negotiating with the colleges is over, and it’s time to figure out how to cover those out of pocket costs you are left to deal with.  For most families, this will entail some kind of financing.  This information will help make your
financial loan decisions a bit simpler.

In this post, you will find tips on:

·     Deciding how much to borrow

·     Rights and Obligations as a borrower

·     Facts on being a Co-Signer

·     Some important questions to ask a lender before signing on the dotted line

·     Some suggestions of reputable lenders

If you read through this information and have any questions, please feel free to contact our office at 563-359-1104.

Before embarking on the search for an education loan, we strongly recommend that you examine the benefits of home equity financing.  After the federal loans (Stafford and Perkins), utilizing home equity is by far the least expensive method of borrowing for college.

Home equity financing in combination with a Money Merge Account has been shown to dramatically decrease the amount paid in interest compared to traditional financing means.  If you
would like more information on this strategy, please contact our office at scott@cfstrategies.com or scott@realcollegesavings.com.

Deciding
How Much to Borrow:

One of the first steps to deciding how much to borrow for you child’s education is to know all of the costs associated with that particular school. Typically you will get the best idea of what costs will be left up to you when your son/daughter receives their Financial Aid Award Letter. These typically come in the month of April and are based on the schools COA (Cost of Attendance) and your EFC (Expected Family Contribution).

A school’s COA includes:

·     Tuition and Fees

·     Housing

·     Meals

·     Books and Supplies

·     Personal Expenses

·     Transportation

Once you know what the school is leaving up to you to cover out of pocket, the next thing to do is decide how much you want to actually pay out of pocket and how much you want your student
to take on with student loans.

Here are some tips on how to decide on a specific amount.

·     Determine what the student is going to be responsible for and what the parent(s) will be responsible for.  Some parents want to cover 100% of the out of pocket costs for college (those expenses left over after the financial award).  Some parents expect students to cover 100% of the out of pocket costs.  Most families are somewhere in between.  You as a family need to determine what your split will be.  Then you can determine what is the best way to cover that split.

·     Accept only what is necessary to cover your remaining college costs. This means you will need to decide whether your student will be living on campus, off campus, or with parents or other family members. Decide how much you the parents can afford to pay out of pocket and whether the student is willing to work during the school year to help pay for college costs. Then come up with an amount that you believe will cover what is left over.

·     Keep repayment of loans in mind when deciding on an amount. As soon as a student graduates or is finished with school, they typically have a 60 day grace period before repayment of loans begins. It is during this time your student will want to consolidate their loans into one monthly payment. Otherwise your student will have multiple payments that can total as much as 10% of their monthly income. You will want to decide on an amount that you believe your student will be able to handle repaying in a timely fashion.

Also remember that interest plays a big factor in the amount your student will pay back to
the lender. The amount you pay back will always be more than the amount you borrow, so try and find loans with as low of an interest rate and interest accumulation as possible.

Federal loans are the best to start with. Federal loans have fixed rates that are established
upon disbursement of the loan. These loans also do not require a cosigner and some do not accrue interest while the student is in school.

Private loans are the next best solution. While they can have variable rates and can require
a cosigner, they are designed with students in mind and often have reasonable interest rates and payment plans.

Normally, CFS does not recommend that a family take out a Parent PLUS loan. Parent PLUS loans typically have high interest rates around 8.5-9 % while many student loans rest
around 6.9%. They also accrue interest from day one and monthly payments are to begin 60 days after loan disbursement. They are solely the parents’ responsibility and in the end you will likely end up paying more in interest with the PLUS loans than with many other financing models.

·     Fees are also involved. Many families are not aware of this when they set an amount for their loan, but many private lenders charge fees on the loan and automatically deduct those fees from the loan amount before disbursement. Before signing for a loan, ask the lender about their fee amounts so that you can take them into consideration.

Rights and Obligations of the Borrower

Before you and your student decide to take on a student loan, here are some rights and obligations you will need to know. Decide if these obligations are acceptable before taking out any loans because once you make the decision to borrow this money, your student must be able to keep up their end of the bargain.

Rights as a borrower:

·     You may accept all/some of your Federal Student Loans. While the school may offer your freshman $5,500 in Stafford loans, you do not have an obligation to accept the entirety of the loan offered. You can indicate to the school how much you feel your student should take on from that amount.

·     You are entitled to a copy of the loan promissory note. Both Federal and Private loans must offer a promissory note for your records.

·     You have the right to defer payments for a certain period of time or request forbearance
if you qualify. Deferment of payments can be offered due to

o  economic hardship,

o  unemployment,

o  military deployment,

o  enrollment in school,

o  internship,

o  national service, and

o  similar situations.

Forbearance lets you suspend or reduce your student loan payments under certain circumstances and for specified periods of up to one year at a time.

During forbearance, you will receive quarterly interest statements and have the option to pay the accrued interest. If you don’t, any unpaid accrued interest will be capitalized.

Forbearance is a practice reserved for when the loan is in repayment, typically after the student graduates or leaves college.

·     You may be able to repay under a graduated or income based payment plan. However, not
all lenders give this option. It is available under the federal government loans.

Borrower Responsibilities:

·     You must notify the school if you want to borrow less than the federal loan amount awarded. You must either give the school this notice in writing or by phone as soon as award is accepted by student. Otherwise the school will automatically process the full amount.

·     Must repay loan in full even if your education is not complete and if you do not get a job that supplies enough income.

·     You must notify the lender immediately of any name, address, phone, or social security changes.

·     Must make scheduled monthly payments on time, even if the lender does not send you a bill or monthly statement.

Being a Cosigner

Private Student Loans are based primarily off of the borrower’s credit rating. For many students’ their credit ratings are not sufficient enough or are totally non-existent. In these cases a cosigner is necessary in order for
the student to become a borrower and receive a low interest rate. The better the credit score of the borrower/cosigner, the lower the interest rate on the loan.

However, when deciding to become a cosigner keep in mind that you will be just as accountable for the loan repayment as the student. If the student borrower cannot make their payments for any reason and defaults on their loan, the burden or repayment will fall on you the cosigner.

This is something that we believe parents and students should discuss before jumping into a private loan together. Talk about the burden on the student to repay these loans and make sure that there is mutual trust before cosigning.

Some questions to ask lenders (as suggested by Sallie Mae Student Loans)

• How long have you been in student loans?
• Are you a financially secure company?
• Who services your loans?
• Who guarantees your loans?
• Who performs customer service for you? What kind of training or qualifications do they have?
• Do you certify your compliance with applicable regulations? Where? May I get a copy?
• Do you charge an origination fee?
• Do you charge a default aversion fee?
• If you rebate the loan fees, when and based on what principal amount?
• How do I earn any interest rate or fee reductions?
• When do I earn any interest rate or fee reductions? Is your rate reduction immediate? Is your fee reduction immediate?
• Do I have to do anything to keep my benefits?
• Do I lose any benefits if I make one late payment? Do I lose those benefits forever?
• What happens to my eligibility for benefits if I consolidate my loans?
• Do I have to repay earned benefits if I consolidate my loans with another lender?
• Where do you disclose the terms and conditions for your loan discounts and benefits? Will you provide/confirm the terms and conditions in writing?

Comparison by Sallie Mae of Federal Loans Vs. Sallie Mae Private Loans.

SallieMae is typically CFS’s first choice for private education loans.

Federal Stafford loan

Federal Stafford loans first disbursed July 1, 2006 are fixed-rate, low interest loans available to undergraduate students attending accredited schools at least half time. Stafford loans are the most common source of college loan funds.

Eligibility

• You must have submitted a FAFSA to be eligible for a Stafford loan.
• For subsidized Stafford loans, you must have financial need as determined by your school.
• You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
• You must be enrolled or plan to enroll at least half time.
• You must be accepted for enrollment or attend a school that participates in the Federal Family Education Loan Program.
• You must not be in default on any education loan or owe a refund on an education grant.

Features

• Sallie Mae lenders offer borrower benefits on Stafford loans that can save you money in repayment.
• Flexible repayment options are available for Stafford loans.
• No payments are required while you are in school at least half time.
• You can manage your account online 24/7 at www.ManageYourLoans.com.
• You get life-of-loan servicing from Sallie Mae.
• There is no prepayment penalty.
• No credit check is required for a Stafford loan.
• Six-month grace period when no payments are required immediately following your graduation or dropping to less-than-half-time status.

One way to help pay down your loan

With Upromise Loan Link^SM student and parent borrowers who join Upromise^® can link their Sallie Mae loan account to their Upromise account and use their Upromise rewards to help pay down their eligible Sallie
Mae serviced student loans. Visit www.salliemae.com/upromise to learn more and enroll today.

Legal

You are responsible for all of the interest that accrues on your unsubsidized Stafford loan while you are
in school, but you do not have to pay the interest during this time. Unpaid interest that is deferred until after graduation is capitalized (added to the loan principal) and you will therefore pay interest on a higher loan amount. Interest does not accrue on subsidized Stafford loans while you are in school, during grace, and during authorized deferment.

Federal Perkins loans

A Federal Perkins loan is a low interest (5%) loan for undergraduate and graduate students with “exceptional” financial need.

Perkins loan qualification requirements

• Enrollment in an eligible school at least half-time in a degree program
• U.S. citizenship, permanent residency, or eligible non-citizen status
• Satisfactory academic progress
• No unresolved defaults or overpayments owed on Title IV education loans and grants
• Satisfaction of all Selective Service requirements

The U.S. Department of Education provides a programmed amount of funding to the school. In turn, the school determines which students have the greatest need. The school combines federal funds with some of its own funds for loans to qualifying students.

To apply for the Federal Perkins loan, you must submit the Free Application for Federal Student Aid (FAFSA).

Your school will pay you directly (usually by check) or apply your loan to your school charges. You’ll receive the loan in at least two payments during the academic year.

Federal Perkins loans share many of the characteristics of subsidized Stafford loans. The most notable differences are no fees and a longer grace period.

SallieMae Signature Student Loan

The Signature Student Loan is a popular after-Stafford loan with competitive rates and industry-leading servicing. If grants, scholarships, and Federal Stafford loans have not covered the total cost of your education, Signature Student loans can help.

Eligibility

• You must attend an eligible community college or a four- or five-year college at least half time and be working toward your degree.
• You must meet current credit criteria.
• You must be making progress toward a degree.

Benefits

• No income requirement.
• Cosigner release available after the first 24 on-time payments of principal and interest.
• No payments required while in school.
• You can borrow as much as you need to pay for the cost of your education as certified by your school.
• Flexible repayment options.
• Upromise Loan Link allows you to pay down your loan with everyday purchases.

Features

• Easy, secure online applications with fast credit decision and electronic signature.
• Available for U.S. students in study abroad programs.
• Available to international students with an eligible cosigner.
• Easy online account management 24/7.
• Convenience of having all your student loans in one place and receiving one monthly bill when your Stafford loans are serviced by Sallie Mae.

Loan terms

Aggregate loan limits

Community colleges

• $50,000

Four- and five-year colleges

• $100,000 for undergraduates.*
• $150,000 for graduate students.*
• $220,000 for graduate health disciplines.*

*Includes all private student loan debt.

Interest rate

• Interest rates are variable and based on either the Prime or LIBOR rate.
• Manage your credit well and get a lower interest rate.
• Make interest payments during school so you have a lower amount to repay.

Fees

Usually 0%; a fee may be assessed depending on credit history.

Repayment

• Standard repayment term of 15 years, with the option to extend terms (up to 30 years) for higher aggregate loan balances.
• Prepay your loan at any time without penalty.

Another way to help pay down your loan

With Upromise Loan Link^SM student and parent borrowers who join Upromise^® can link their Sallie Mae loan account to their Upromise account and use their Upromise rewards to help pay down their eligible Sallie
Mae-serviced student loans. Visit www.salliemae.com/upromise to learn more and enroll today.

U.S. Bank No Fee Education Loan

You may want to consider a loan from U.S. Bank or a similar institution.

Supplemental Loan Options

U.S. Bank No Fee Education Loan   The main difference between this and other U.S. Bank supplemental education loans is that no reserve fees are charged. The amount approved for the loan is the same amount
disbursed to you.

Cosigner Encouraged: With
the help of a qualified cosigner, you may more easily qualify for a loan and receive a better rate.

Loan Details:

• Borrow up to the cost of attendance, less financial aid received. This amount will be the lesser of what the borrower requests, program limits, or school certified amount.
• If you plan to enroll for more then one term, consider the cost of your annual enrollment and apply for a loan to cover the full year expense.
• No application, administration or reserve fees (reserve fees are similar to federal loan guarantee fees that are deducted from your approved loan amount)
• Three repayment options

Enrollment: Part-time or full-time in an eligible four-year or graduate school.

Loan size: $1,000 minimum, $120,000 aggregate borrowing limit from all student loan programs (which includes federal). Loans at the highest interest rate tier are subject to $20,000 maximum.

Repayment Discount: Use our convenient auto-pay option and receive a 1/2% interest rate reduction.

Note: Program rules and qualifications are subject to change at any time without notice.

To learn more about U.S. Bank’s loan options, click here.

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For a number of years there have been two competing federal loan programs: FFEL (Federal Family Education Loan program), and the Direct Loan program.  The only real practical difference between the two is who you get to talk to if you have a problem.

Under FFEL, many local and national banks administered the various Stafford loans.  Under the Direct program, you talked to the government if you had a problem.  Now the Obama Administration wants to eliminate the FFEL all together.  All of the Stafford loans would be directly through the federal government.

The benefits of this proposal are dubious.  The downside is very evident.  Let’s face it… the federal government is not good at customer service.  In fact they really stink at it.  I recommend you contact your representative and voice your disapproval on this matter.  You can get more information below and sign an online petition.

Federal Takeover of Student Loans a Grave Mistake

Petition against the takeover

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