FAFSA

It might be difficult to realize it with all the presidential campaign hoopla, but there are other interesting stories in the news that should capture our attention. On one hand, it appears as though the economy is recovering and more jobs are being created. But, on the other hand, we are still reading about a trillion dollar debt crisis in student loans that could pull down the economy again. The group most affected by these competing stories is the Millennials. Roughly aged between 18 and 34, the older members of the generation have been buffeted by the economic winds, while their younger siblings might be seeing nothing but clear sailing ahead. While most Millennials agree that a college education is necessary to secure a better quality of life, there is great discussion about whether they will be able to repay the students loans which paid for that education. Here is some interesting background on the job situation and how it affects today’s up-and-coming workers: • Baby Boomers Are Retiring in Record Droves: The older generation has clogged up the career track for years, but it may finally be opening as the boomers retire. For the first time, it is expected that Millennials will outnumber their parents and grandparents, and will finally begin to take their places in the work force. • Their Education Is Starting to Pay Off: The vast majority of Millennials has a bachelor’s degree, and probably paid for it with student loans. There were a few years of struggle and maybe some more time living at home with mom and dad than originally planned, but now things are beginning to look up again. They are finding jobs, getting promotions, changing careers and starting their own businesses – all on their own terms. • They Do Pay Attention to Politics: With their instant access to the digital world, today’s voters are more tuned in to politics. They just tend to look at it with a more wary eye, and dissect everything in the social media world. Those running for president and other political offices better pay attention, and have answers ready for questions about the cost of a higher education and paying for it with student loans. Some of the student loan crisis can be traced back to the sheer volume of Millennials that went to college. As they borrowed individually, the total amount outstanding began to look ominously large. When the downturn in the economy diminished their likelihood of finding high-paying jobs, many of those loans unfortunately went into default. In investing they always say that past performance is no indicator of future performance, and it is possible that the same may be true when it comes to Millennials and their student loans. Just because some had difficulty making payments, that doesn’t mean all will. As the Millennials finally begin to earn an income that is consistent with their education, we might even begin to see the student loan amount decrease.

Have your child’s college tuition bills arrived yet? For some unprepared parents, this might provide their first look at the amount of money they are actually expected to come up with to send their student to college. Their child is excited about attending and is already looking at possible courses, but the parents may be thinking, “How did they calculate this amount, and where are we going to get this money?” This could be an unwelcome introduction to the term, “gap amount.” The gap amount is the dollar figure that is left over after all costs have been added up, and all “free” monies have been applied. Let’s take a look at what this means, and figure out a few ways that you can “bridge the gap.” For example, the cost of an entire year at the school your student will be attending is $15,000. This includes tuition, dorm room, food plan, lab fees, and other student fees. Your child has qualified for $5000 in grants and scholarships from the college, and has won a private scholarship in the amount of $2000. This leaves $8000 that is due. From this amount, you may be able to subtract money your student can earn through a federal work-study program. If your child can earn about $1000 per semester, that now leaves $6000. In addition to this amount, you still have to come up with money for books, travel expenses, and out-of-pocket expenses. If you estimate those costs at about $1000 per semester, you are back to a “gap amount” of $8000 per year that you will be responsible for paying. Some sources for these funds might include: • College Savings Account: If you have been putting money aside for your child’s education, you might have a sufficient amount of money available to cover this gap amount. • Grandparents/Relatives: Other family members might be willing to provide some funds each year to help cover the cost of tuition. • Additional Income: You and your student might be able to earn additional money to help offset some of these costs. Let’s say that you can come up with another $1000 per year from these resources, but that still leaves $7000 outstanding. After you completed the Free Application for Federal Student Aid, the college sent you a financial aid award packet. In addition to the money available from the school itself, it should also have informed you of your eligibility for federal student and PLUS loans. Based on your family’s financial situation, they may have concluded that you are eligible for $5000 per year in federal student loans. That still leaves $2000 per year. One final resource is to look at private student loans. Private lenders like Discover Student Loans often offer competitive interest rates, no fees, and incentives for good grades. If you borrow $7000 each year, there will be $28,000 owed when your child graduates. You will need to talk to your child about who will be responsible for repaying this amount.

They say that money makes the world go around, but sometimes it can make the world stop dead in its tracks. When you become burdened by debt, every action seems like it is governed by the amount of money you have available. If you get behind on payments, it starts to turn into a downward spiral as late fees and interest payments add to the amount that is owed. On the other hand, the intelligent use of debt to pay for something that will provide a future benefit can be a positive influence in life. While many parents worry about having “the talk” with their teenage and adult children, many also forget to have the equally important “money talk.” You want your child to understand how to use money, learn about setting a budget and sticking to it, and use debt where appropriate. This is not something that can be taught in one sitting; it is a lifetime of accumulated money skills. Here are some lessons you will want to impart to your child along the way: • High School/Thinking About College: Have a frank discussion with your high school student about college dreams and college reality. Indicate exactly how much you are going to be able to support your student financially through college, and talk about their role in the process. Research college options and costs, and projected earning potential for various degrees. This will help all of you better evaluate which college your student should attend. • High School Grad/Entering College: At this point, you should know if student loans will be necessary to help pay for college expenses. Utilize federal student loans first, and then talk with your student about private student loan options. Check out private loan lenders like Discover Student Loans, which offers zero fees and has a reward program for good grades. Make it very clear who will be responsible for repaying loans upon graduation, and show your child how to live within a designated budget while attending college. • College Grad/Entering Life: This is where the “rubber meets the road” when it comes to the financial lessons you have taught your child. For the most part, there is a grace period of about six months before student loan payments must start. Use this time wisely to understand repayment, deferment, forbearance and consolidation options. Set up a repayment plan together, make sure your graduate understands the repercussions of not paying, and then help him or her find a job with sufficient remuneration to allow for student loan payments. If you have done your job properly, you should have a reasonable adult who understands how to use money and debt properly to achieve certain goals in life. Money lessons well learned can then be applied to adult decisions about marriage, car purchases, and home mortgages. So, don’t be afraid. Find some quiet time with your high school student, take a deep breath, and just say, “Honey, we need to talk.”

Your “little baby” is a high school graduate who will be leaving for college soon. There are so many things you want to say and do, and so little time to do them in. With all the packing and organizing, be sure that you spend some time giving your student some of the financial insights you have worked so hard to gain. Here are a few topics you can use to get the discussion going: • Learn to Live on a Budget Now: Although you will always think of him or her that way, your child isn’t a “baby” anymore. He or she is almost a full-grown adult who will soon be responsible for making major financial decisions in life. The time to learn those skills is now. Inform your child that “The Bank of Mom and Dad” is closed, and that the “Bank of Budget” is now open. Carefully review the expected monthly expenses, and discuss how much you are willing to cover, and how much you expect your child to earn. Although you will always be there for emergencies, this is still great practice for “real life” after graduation. • Understand the Value of Money: The best money in college financial aid is that which is “free” through scholarships and grants. Everything else has to be earned through work-study programs or paid back through student loans. Make sure your student understands what is necessary to maintain eligibility for the existing scholarships and grants. This is not an entirely “free ride,” as your student will be expected to meet certain requirements regarding attendance, grades, and conduct. Don’t risk losing a major component of the financial aid package through irresponsible behavior. • Be Careful with Student Loans: There has been a great deal of talk in the media about the “student loan debt crisis,” or even whether there is a crisis at all. Some have proposed that public universities should be free, while others say it is a matter of personal responsibility. The reality is that any changes to the student loan system will be years in the making, so this year’s rising freshmen have to make decisions based on how the system works now. Of course you want to educate your child to borrow as little as possible and to spend it wisely, so there will be less to repay. If you do have to borrow money, always use federal student loans first and then carefully research what is available from private student loan lenders. There are many differences from one private lender to another. Discover Student Loans, for example, has zero fees, competitive fixed or variable interest rates, and even offers a cash reward for good grades. Enjoy some fun times together making lasting memories with your child, but also be sure that you spend time imparting your wisdom about money. Hard lessons learned now could make life so much easier for your dear child when he or she finally becomes a college graduate.

It is sometimes easier to lump groups of similar people together under broad guidelines for comparison purposes. That is what we loosely do when we look at the generations – there are the Baby Boomers, Gen Xers, and now the Millennials. Generally thought of as those born between 1981 and 1997, the Millennials are quickly becoming the dominant cultural group. Their actions and beliefs will shape the direction of society for many years to come. On the other hand, though, there can be wide discrepancies within these broad generational guidelines. Millennials who are over 30 have a very different outlook on money, college and life than their younger cohorts who are just entering college. In fact, “Millennials & College Planning,” a report compiled by Junior Achievement USA in collaboration with PwC, points out some very strong differences between the two age groups: • Learning From Their Elders: While older Millennials blazed a path in computer access and social media usage, they didn’t always make the wisest choices when it came to money decisions. The result is that Millennials in their 30s are struggling with student loan debt, credit card debt, car loans and mortgage payments. The younger Millennials are taking notice, and giving more thought to where they will attend college and how they will pay for it. • Number One Doesn’t Always Come True: More of the older Millennials decided to attend their number one choice of college, regardless of the costs involved, but the younger Millennials aren’t quite so sure. They are making choices based on the amount of financial aid available, actual out-of-pocket costs and student loans, and long-term value of the education received. • They are Thinking Twice About Student Loans: Older Millennials might have gotten in over their heads with student loans by taking out the maximum amount and not thinking clearly about how they spent the funds. While still realizing that student loans are a useful way of helping to pay for the college dream, younger Millennials are thinking more about the long-term impact on their lives. Despite some of the financial concerns, younger Millennials still agree that a four-year degree is a valuable investment, and is almost a requirement in today’s job market. Combined with internships and part-time job experiences, a college degree often results in students who are better prepared to enter the workforce and command higher salary levels. The biggest takeaway for the youngest Millennials is to think very carefully about the actions they are taking when it comes to selecting a college and paying for it. They, and their parents, have learned from their peers who may have made some financial mistakes, that attending college is crucial, but they should also make smart decisions when it comes to comparing financial aid offers and taking on student loan debt. Perhaps the lessons they learn will be passed on to the next generation of college students, who will learn how to make even better choices.

Part of the college financial aid process is determining whether or not to take out student loans, and how much money to borrow. All student loans are not created equally, so be very sure of what you receive. Students and parents should always turn to federal student loans first. You will usually see them listed as part of the financial aid award letter, while you will need to research and obtain private student loans on your own. Federal Direct Subsidized Loans have slightly better payment terms because the Department of Education pays the interest while the student is in school and meets the loan’s criteria. You must be able to demonstrate financial need to qualify for subsidized loans. The student is responsible for paying interest on Direct Unsubsidized Loans while he or she is in school, but this amount may be deferred and included into payments when the student graduates. There is no requirement to demonstrate financial need to receive an unsubsidized loan. Federal Perkins Loans are low-interest federal student loans for undergraduate and graduate students with exceptional financial need. PLUS loans are available at a fixed interest rate to parents of dependent undergraduate students, as well as graduate or professional degree students. There are also certain loan fees which are charged for both direct and PLUS loans. If you still need additional funds to cover college expenses, the next step is to research private student loans. Lenders have a great deal of latitude in setting up their student loan program. You will need to research fees, interest rates, variable versus fixed interest, repayment options, prepayment penalty fees, and consolidation opportunities to make sure you receive the best option. Here are the major differences between federal and private student loans: • Repayment: With federal student loans, repayment does not begin until after you graduate or leave school. Some private lenders require payment to begin immediately. • Interest Rate: Interest rates may be fixed or variable. Federal student loans offer fixed interest rates, so you know what you are paying for the entire term of your loan. Private student loans may offer fixed or variable rates, which may increase over time. • Interest Accrual: You must understand when interest begins accruing on your loans. It may be deferred until payment on the principal is due, but that can add up to a substantial amount of money, depending on your interest rate. • Credit Check: Most federal loans do not require a credit history. Private student loans do, which may result in a higher interest rate or stricter repayment terms. Student borrowers may also need a co-signer on private student loans. • Consolidation: Federal student loans may be combined into a Direct Consolidation Loan, which may make it easier to handle repayment. Private student loans will vary on the ability to be consolidated. There are many things to take into consideration before agreeing to any type of student loan. Make sure you understand the risks, differences, and benefits before you sign.

When should you think about repaying your student loans? I always tell my students and parents to start thinking about payment before they ever receive the money, because student loan debt can affect the student and the family’s financial situation for many years to come. Be acutely aware of how much money you borrow, borrow only what you need, and understand exactly how much it will cost you to repay these loans. If you are a college student who just graduated, there is a little more urgency in this thought process. You may start receiving payment due notices before the end of the year, and need to have a sound strategy in place before then. Since most students take out numerous student loans over the course of their college career, it can become overwhelming trying to figure out the total amount due and keep on top of the monthly payments. One possibility you will want to research now is student loan consolidation. Student loan consolidation is the process of taking all of your outstanding student loans and bundling them into one. It may be similar to consolidating your credit card payments. You may have a number of credit cards at different interest rates from different credit card companies, and decide that it is getting too complex to manage. You take out a personal loan to cover the cost of those debts and then make monthly payments on the personal loan. The same principle is true with your student loans, but you must first be sure to separate your debt into federal student loans and private student loans because they cannot be mixed for consolidation. A Direct Consolidation Loan allows you to consolidate or combine multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments. There is no application fee to consolidate your federal student loans. Loan consolidation for these loans can greatly simplify loan repayment by centralizing them into one bill. It can also lower monthly payments by giving you up to 30 years to repay your loans. There might be additional access to alternative repayment plans you would not have had before, and you could be able to switch any variable interest rate loans to a fixed interest rate if you believe that interest rates are going to increase. Although it might seem like a no-brainer, there are downsides to consider. Increasing the length of repayment might mean that you end up making more payments and paying more in interest. You could also be in danger of losing some of your original borrower benefits. Depending on your original loan, this might include interest rate discounts, principal rebates, or some loan cancellation benefits. Similar benefits and potential negatives apply to the consolidation of private student loans. That is why now is definitely the time to think about loan consolidation, so you can make decisions that are best for your individual financial situation.

The summer before your senior year of high school should definitely be packed with fun, but also with a steady stream of college application activities. If you are applying to any colleges using an early action or early decision application, you need to check their deadlines and make sure you have enough time to complete all the necessary requirements. If you have not yet visited any college campuses, make that a top priority for this summer. An on-site visit is really the best way to get a feel for the campus itself. While there may not be as many students there during the summer, you should still be able to meet with some department personnel, the admissions office, and the financial aid office. You should be prepared to obtain information from all of these resources. After your trip, write down all the answers you receive to your questions as well as your overall impressions of the school, to help you make better decisions once you begin applying. Here are a few questions you definitely want to ask the financial aid office during your college visits: • What does it really cost to attend this college? Although they probably cannot provide an exact figure for how much it will cost you, they do have a very good handle on what current students spend to attend. Of course, you want to hear about the tuition, room and board, and meal plans, but you also want to find out how they apply to the typical student. How much are students paying for books and fees? Do most students live on campus and participate in the meal plan? What is the cost of living in the surrounding community so you know how much of an entertainment budget you might need? During your trip, also be sure to keep track of your costs, so that you can allow for several trips back and forth from home during the year. • What is the typical financial aid package? Again, this will be different for every student, but try to understand how much money is available for merit-based and need-based awards, and determine whether you might qualify for either. Get a firm grasp on how much of their financial aid is through the federal work-study program or federal student loans. Confirm that the amount of financial aid you receive will be consistent for all four years. • What is the average student loan burden upon graduation? How much do students typically borrow to attend this school? Other questions to ask include how many students continue after their freshman year, what percentage of students graduate in four years, and what percentage of students find employment in their chosen career fields? These answers provide good indicators of the school’s ability to educate and graduate accomplished students. The campus visit can be both fun and serious. Make sure you have your questions in mind so you can get the answers you need.

Last week I discussed some of the surprising results uncovered in the Discover Student Loans Annual Survey. Now Discover has taken that information one step further and developed a new interactive tool that proves college is still worth it, despite the rising costs. The idea for the tool evolved from the survey’s finding that 95% of the parents surveyed felt college was either very important or somewhat important. This finding has been backed up by independent data which shows that a college education leads to higher income and lower unemployment. But is it possible to put more of an accurate personal picture on those statements? Turns out it is. The website provides statistical background information from the Bureau of Labor Statistics on the financial benefits of a college education, presented by overall employment rate and gender breakdown. Those with a college degree stand to make $20,000 more per year on average than someone with only a high school diploma. This is especially true for women, whose employment numbers and income jump significantly with each degree earned. The major concern is that college tuition rates have soared, leading to a very small percentage of parents who say they can afford all of their child’s education. Website visitors can see how tuition has increased over the past ten years, and also look at states with the highest annual tuition. So the challenge is trying to justify college costs by looking at future earnings potential. The survey also revealed that 44% of parents would be more likely to fund their child’s education if the child majors in a field that has a higher likelihood of employment. Majors, potential earnings and job growth are all factors that can affect the return on education, so the site also offers information on various jobs in terms of potential growth and annual median pay. There is a link to a video about which college majors land the highest-paying jobs, but the most personalized portion of the site is the interactive tool, Major Payoff. First up you can select and compare average salaries for various college degrees of your choice. Then click on one of the majors to gain insights into average salary, industry and more. In the upper left is an icon which will add each major to a queue you can use for comparison purposes. Discover also provides a link to their $2500 scholarship contest that you can use to help pay for some of those college costs. It’s easy to enter and you earn bonus entries for sharing. No purchase or student loan necessary to enter or win.  Winners will be randomly drawn on September 7, 2015, December 7, 2015, and March 7, 2016. High school seniors and undergraduate students can enter to win through February 29, 2016. Knowing how much a college education can cost and having the ability to project future earnings should be a valuable tool in the college decision-making process.

Now that most high school seniors have decided which college they will attend in the fall, the final pieces of the puzzle can fall into place. Families should know what the expected tuition and related costs will be; they will probably have a financial aid offer in place, and should know if their student will receive any outside scholarships. If there is any gap between expenses and financial aid/scholarships, the remaining amount of money must come from savings or other resources. Most likely, the family will turn to student loans. After determining how much is available through the federal student loan program, the next option to research is private student loans. While federal student loans are funded by the federal government and have standard terms and conditions for all borrowers, there is a great deal more latitude in private student loans. These loans are made by a lender such as a bank, credit union, state agency, or a school, and the terms and conditions can vary from one lender to another. Here are some of the things you should look out for when considering private student loans: • Fees: Check the contract details very carefully when signing for a private student loan. Some companies will add on fees which could increase your out-of-pocket costs or accrue interest over the life of the loan. Discover Student Loans is a good example of a private lender that does not require any loan application fees, origination fees, or late fees. • Interest Rates: Interest rates will vary among lenders and could make a difference in the ultimate amount of money you will repay. Make sure you understand whether the interest rate you are agreeing to is fixed for the life of your loan, or if it will vary as market interest rates change. Discover currently offers both types of interest rates so you can choose the approach that is best for your specific financial situation. • Coverage: Check to determine if your private student loan covers 100% of your school-certified college costs such as tuition, housing, books and other expenses. Discover will allow you to borrow up to 100% of your cost of attendance minus other financial aid. • Service Center Location: When you have a question about your student loans, you want to be able to understand the answer. All of Discover’s Student Loan Specialists are based in the U.S. and are available 24 hours a day to assist you. • Repayment Options: Some private lenders may require you to start repaying your student loans while you are in college, while Discover offers the choice of in-school or deferred repayment options. • Rewards: Everyone likes to get a little something extra. With Discover, if you earn a 3.0 GPA or better, you can receive a full 1% cash reward on each new student loan. Never rush into a decision about your student loans without first checking your options. It might pay to discover the differences there are in private student loans.