Time for FAFSA

Over the past few weeks our team has been writing about open enrollment, but did you know that it’s also FAFSA season? In case you’re wondering what FAFSA is, it stands for The Free Application for Federal Student Aid. Some of you reading this blog might be lucky enough to have both open enrollment and FAFSA apply to you. As of October 1, 2020 FAFSA applications can be completed for the 2021 - 2022 academic year. 

As we’ve heard time and time again 2020 is a year of uncertainty and college planning is no exception. If you or your child are trying to decide whether or not college is in the plans for the 2021 - 2022 academic year you may want to consider filling out the FAFSA anyways. For those of you who aren’t sure if you’ll be going to college in 2021-2022 it’s okay to complete the FAFSA and then decide not to attend college. 

When you are completing the FAFSA you are able to select up to 10 schools, of whom all will receive your information to help them generate financial aid packages. Did you know that you can include colleges that you haven’t even applied to yet?  Because of that, be sure to include any schools that you are interested in attending. It’s important to complete the FAFSA early, as schools have limited financial aid to disperse among their students and/or offer to potential students. Once you receive your financial aid package from the colleges be sure to call the financial aid office and ask them if they have any additional aid that you could receive. They may not have any additional aid, but it’s worth asking. And don’t forget, even if you’re already in college and you plan on attending next year you need to complete the FAFSA for each and every academic year.

Last year I wrote the following blog about what FAFSA stands for and why you should complete the FAFSA “Uncork the FAFSA - College Planning”. If you haven’t completed the FAFSA before and you are a senior in high school or a college student be sure to read the article for additional information on why you want to complete the FAFSA.

College Planning Considerations for Parents

By: Becky Eason, CFP®

Student loans impact people of all ages, from high school through retirement. This may come as a surprise to some people, because it’s often thought that student loans are a millennial “issue”, but that’s not necessarily the case. In fact, many adults who are either planning on retirement or already in retirement are faced with student loan payments. This is for a variety of reasons - it may be as a result of them going back to school themselves later in their careers, it could be from paying for or contributing towards a child’s education, or it could even be from being a co-signer on a loan. According to Credible.com in 2019 of all people with student loans 4.2% of them were over the age of 62 and another 13% were between the ages of 50 and 61. This seems like a high percentage, considering that the average age of a college graduate is 25.4 years old.

If you are a parent, grandparent, or anyone who has a child going to college and you want to help fund their education there are some things you may want to consider. 

• If your child isn’t in college yet you could consider funding a college savings account. This will help reduce the amount of student loans that will need to be taken out when your student attends college. Some college savings vehicles that you could explore are a 529 plan, brokerage account, Roth IRA, custodial accounts (UGMA/UTMA), Coverdell ESA’s, or U.S. Savings Bonds. Before you decide which savings vehicle you want to use it’s important that you research each type of account and weigh the pros and cons. You may find that based on your individual situation one outweighs the other or you may find you want to fund multiple different accounts (which is what we usually recommend).

• Make sure your child completes the FAFSA for each academic year they plan on attending school. FAFSA stands for Free Application For Student Aid. You want to complete this application even if you don’t think you’ll be eligible for financial aid. The reason for this is because if you don’t complete it your student won’t be eligible for federal student loans.

  • We generally recommend that student loan borrowers borrow federal student loans before private because they come with more benefits, but as with any of these decisions it depends on each individual situation. 

• Teach financial responsibility from an early age. While this consideration isn’t directly related to student loans it could help with student loan management later in your child’s life. 

  • If your child is aware of money before going to college they may be more inclined to look at the cost of attendance and compare those costs to various schools. This could help reduce the amount of student loans your child needs to take on. This would then likely reduce the amount of student loan debt you have to co-sign on.

  • While in college your child might be more aware of how they are spending money. Many students borrow extra money to help cash flow general spending habits in college. This can cause a lot of excess debt upon graduation, which most of the time results in higher monthly student loan payments, unless they are eligible income based repayment, which may result in them paying back more debt in the long run. 

  • After college if your child is financially responsible they are more inclined to spend within their means, which will help reduce the likelihood of their defaulting on their student loan payments. 

• Be careful of how many student loans you co-sign on and of whom you co-sign for. 

  • If your student doesn’t make their payments, lenders will come after you, as the co-signer to get their money. 

  • Did you know that the government can garnish up to 15% of your social security to pay defaulted student loans?

• Know that it’s okay to not fully fund your child’s education. The decision on how much you want to pay towards your child’s education is completely up to each individual. There is no right or wrong amount to save. 

Planning for college can be very overwhelming, especially when you don’t want to negatively impact your retirement savings. If you’re feeling overwhelmed with college planning decisions reach out to us and inquire about our college planning services.  

College Planning Through a Pandemic

By: Becky Eason, CFP®

It’s hard to believe that it’s the beginning of another school year already. Many colleges have already started their fall semester, whether it’s in person, online, or a hybrid of in person and online classes. We are in a period of uncertainty, especially the education system. Some colleges that opened their doors for in person learning have already switched to online classes, within just a couple of weeks. For future college students what does this mean for your college planning and student loans?

If you’re in the college planning process continue pursuing your planning. What I mean by this is to find a variety of schools you’re interested in attending and schedule a campus visit, but know that this campus visit might be virtual. The college planning process is usually a multi year process, so if you delay planning you could lose out on opportunities, especially considering how rapidly everything is changing with the pandemic. 

According to Business Insider, it’s estimated that college enrollment is down 5% - 20% for the fall 2020 semester and nobody knows what future enrollment is going to look like. However this enrollment decline could help future college students negotiate better grants and scholarships because colleges are going to want higher enrollment numbers. In any college planning circumstance we recommend you apply for as many scholarships and grants as possible and to also ask the schools for additional financial assistance if possible. This can work especially well if you have been accepted into multiple colleges, as you can use the financial assistance packages from one college to negotiate with your top choice school. This does take some additional time but additional financial assistance from scholarships and grants reduces the amount of student loans you need to take out, which will save you money in the long run. 

Many college students enjoy going off to college for the college experience and the “freedom” that comes with it. Something upcoming college students may want to consider is the reality that they may not be able to attend in person college, or if they are able to, will they be sent home shortly after arriving? The reason for bringing up this point is because it’s possible that there might be a local college that a student can attend for a year while the education system figures out how to keep students safe. Attending a local college could allow the student to live at home for a year and greatly reduce their cost of attending college by not needing room and board. If you have a dream school in mind and don’t want to pursue a local college another option would be signing up for online classes from the start. This would also save room and board costs but allow you to be a student of your dream school. 

The college planning process is always complicated and when you add in our current pandemic it only makes the process more complicated and emotional. We love to see students have a wonderful college experience, but we don’t want to see them leave school with lots of student loan debt and regret. That’s why we specialize in the college planning process. Check out this video on how our college planning process works. 

A Tip to Minimize Student Loans

High school graduation time is upon us! If you receive cash gifts for graduation consider using a portion of that money to directly pay for some college expenses. This will help reduce the amount of student loans you need to take out, saving you money in the long run.

Current Balance vs Payoff Amount

When you make your final student loan payment find out what the payoff amount is. The current balance shown on your account and the payoff amount are usually different as a result of fees and interest. Once you make the final payment save the receipt confirming your loan has been paid off. The month after your final payment has been made login to your student loan account to confirm that your balance is still $0. This will reduce the chance of having any outstanding balance that could result in delinquent payments.