Personal Finance and Investing

College loan corporations are companies that provide financial aid to college students. The corporations have their own websites on the Internet that list very detailed explanations of what the companies offer, from college-planning guidelines and loan programs, to access to their loan consultants.

One of the most common services offered on college loan corporations? websites is the so-called college loan calculator. However, there are also other independent companies or websites that focus generally on loans and budgeting strategies that offer this service as well.

Calculators

College loan calculators are basically a set of criteria aimed at computing and evaluating a specific category of college education financing. It aims to help students and parents analyze how much needs to be invested in education, how much financial aid they can take advantage of, how much the student will eventually earn after getting a college degree, and which repayment program will help the student save money in the long run. There are no general standards for what the criteria should be, as each company?s website has a different approach in its method of evaluation.

There are similarities, though, in general regarding how these calculators help users or clients to make their decisions.

College Cost Calculator

College cost is one of the more standard criterion found in calculators. This takes into consideration a lot of different inputs like annual college costs, college cost inflation rate, years of attendance, percent of costs you plan to cover from savings, and years before college. Basically, this calculator helps parents and students analyze how much they have to save and pay for college and whether or not the student shoulder on his/her own finances.

Savings Calculator

Savings calculators help students and parents determine if they are on the right track regarding how they budget and save money for college. This calculator takes into consideration the following: years until college, family?s current savings for college, expected annual interest earnings, and monthly savings for college.

Others

Other calculators include student loan calculator, parent debt calculator, and parent loan repayment calculator. Student loan calculators compute how much students would have to pay monthly or annually after they graduate. Parent debt calculators basically analyze parents? capacity to take on more debt to finance their child?s education. Lastly, a parent loan repayment calculator computes how much of the loan parents have to repay monthly or annually.

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It’s one of the most important investments you’ll ever make — sending your child to college.

According to the College Board, the total average cost of a college education including room and board at a private school for the 2008-09 school year was $34,132, which is 5.6 percent higher than the previous year.

For in-state students at a public college or university, the total average costs including tuition, fees and room and board were $14,333, or 5.7 percent higher than the previous year.

With college costs soaring each year, how can parents ever save enough money?

One way for parents and even grandparents to save for their children’s college education is a tax-deferred 529 plan, also called a Qualified Tuition Plan.

With a 529 plan, all funds grow free of federal and state income tax.

Another benefit is when a student enters college, the withdrawals are exempt from federal taxes when used for qualified educational expenses.

There are two types of 529 plans: prepaid and savings plans. With a prepaid plan, you enter into a contract to save a specified amount to lock in the costs at a specific college at today’s prices.

In addition, prepaid accounts may transfer to out-of-state schools under certain conditions.

With the savings plan, you can start small and save at your own pace. However, because your contributions are not part of a contract, they don’t lock in today’s college prices.

Savings accounts can, however, cover any qualified higher education expenses including books, supplies and room and board. Money can be used at accredited colleges throughout the country and there are also many different investment options available that you can choose from.

The Illinois College Savings Program has some additional benefits for Illinois residents. Depending on individual circumstances, qualified 529 contributions can be deducted in computing Illinois taxable income, up to a maximum of $10,000 per year for an individual taxpayer.

Marty Rossman, director of financial aid at North Central College, said that during the 2008-09 school year, about 40 percent of the student population was using debt to cover costs.

“If you asked a director at any other four-year college, they would give you very similar, if not higher, percentages,” he said. “With that said, do I think it’s worth it? Honestly, I don’t believe there’s a better or more important investment that a college education.”

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#1: Relying on the financial aid office.
Financial aid officers work for the college, not for you. Enough said.

#2: Not planning ahead.
By the time you are in the college financial aid office, it’s too late to make necessary changes to your taxes and asset allocation to affect your aid package. Your tax return during the fall of your child’s junior year of high school will be used to determine your aid eligibility. The most financial aid also goes to the first in line and when it’s all distributed, it’s gone. Be early.

#3: Assuming that you can only afford the cheapest colleges.
It is entirely possible that it could cost your family less to send your child to a pricey private college than the local state university. Don’t judge the costs by the listed tuition; you have to judge by the aid package you actually receive.

#4: Going too far into debt.
Unless you want your child to be living in your basement for the next decade, you are going to need to limit the amount of debt assumed to finance a college degree.

#5: Forgetting about retirement.
Money that is used to pay for college can’t be used to fund your retirement or pay off your house. College planning and retirement planning go hand in hand.

#6: Neglecting to negotiate.
College costs are a lot like buying a car: the sticker price bears little resemblance to what you will actually pay. Aid packages are not set in stone and can be appealed. Two families with identical financial aid profiles can wind up with completely different financial aid packages, depending on how they position themselves. Remember that a college’s financial position can change as some students turn down offers, potentially freeing up money for you.

#7: Leaving assets vulnerable.
On the federal financial aid form, some assets are “assessed” and others are not. Knowing which is which can protect your assets, reduce your costs, and maximize the aid you receive. Some traditional accounting advice that helps you save on taxes will destroy your chances of receiving financial aid for college and will limit your child’s educational options. When it comes to financing college, the more you know, the less you pay.

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Do you know that investing in a 529 education savings plan is one of the best ways to afford your child’s college education costs? Currently the most used financial option by parents, these college savings plans are more than just for studies. What about additional college education costs that your child may need to cover when he’s in college and of course let’s not forget the college tuition fees themselves. For those who do not invest in 529 savings plans there are alternatives so whatever decision you make in investing in child’s education, there are no right or wrong answers.

Why do parents go for college savings plans more than anything else? Because it’s an investment that will usually grow faster than the inflation rate and with a minimum monthly payment your child can have access to a large sum of money when they go to college thanks to you. How early you should start? The earlier the better because the earlier you start the less you have to invest a month in order to send your child to college. School is not only about learning but it’s also about having fun so it may not come as a surprise but the funds will not only go to school.

Like everybody else students do need to get entertained sometimes so the money invested in 529 plans may pay for education but it will also be used for other purchases. More important than entertainment, if your child lives on campus, there is the rent to consider, the food, the utility bills and other expenses related to the cost of living. So it’s important that whatever money is invested in a 529 savings plan takes care of your child’s additional expenses. The main use of the college savings plan is to pay college tuition.

The most expensive part of going to college is paying for college tuition fees of course. Varying from a few thousand dollars to almost $20,000, college costs are usually a big factor as to why some students will study two years instead of four. Another factor is whether they will go to private schools or public schools. It’s important to make the decisions beforehand so you can see if your child has funds and if they don’t, how much will they need in order to graduate from college. Some of you may not have enough time to invest in a college savings plan which is why there are quick financial alternatives for those in need.

Maybe faster than savings plan, there is one catch which is the money does not belong to you. A college loan is money that you borrowed which means you will have at least one creditor to who you owe a debt. Although you can get a huge amount of money in a short period of time, you have to pay it back with interest and the longer it takes you to pay it back to more it will cost you in interest. But if you are good with money management then loaning money will not be a problem for you.

Planning for a child’s college education is extremely important since college costs have been known to be rising much faster than inflation rate of the country. If you want to be able to compete with that inflation you must start early and investing in a 529 education saving plan when a child is still young will give you a big head start over the rising cost of college. Don’t leave your child’s college education to faith, your child believes in you so let’s keep it that way.

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College financial aid for students attending college and graduate school can come from several sources, including scholarship, grants, federal loans and private loans. It can become a complicated labyrinth that isn’t always easy to navigate.

Most college planners urge students to tap out on federal funding before turning to other sources, because financial loans tend to be less expensive in the long run. Unfortunately, because college tuition is so high today—and expected to continue to increase—federal loans many times only pay for a portion of college costs.

And while scholarship and grant money are available, the number of students who attend college on a full scholarship are few and far between. The smart thing to do when planning to pay for college if you don’t have a huge college fund at your disposal (most people don’t) is to apply for federal loans. Here’s why: Federal student loans often have an interest rate that is far lower than private financial institutions, and also offer better and longer payment terms.

Usually, students don’t have to start repaying the loan until after graduation, and sometimes can even defer payment of an original loan if the student goes back to school for additional training.

These federal loans don’t pay for everything. The most a four-year student can borrow is $10,500 per year, which for some colleges is just a bite out of a much bigger pie. For graduate programs, the loans can go up to $20,500. What any particular student receives is dependent on several factors, including the college of choice and in which year the student is.

Students can choose from three federal loan programs:

—Stafford loans are available to students in two forms: for low-income students, who don’t have to provide credit references, and for other students, who do.

—Plus loans are low-interest loans taken out by parents to help pay the difference between real college costs and the amount of the student loan. Still, even with this loan tuition costs often exceed what the loans cover.

—Consolidation loans allow parents and students to consolidate multiple loans into a single loan with one monthly payment.

When students apply for a federal student loan, they fill out a Free Application for Federal Student Aid (FAFSA), which automatically includes their information for other programs, including scholarships, grants, or work programs provided by the federal and local governments.

Because financial loans are covering less and less a percentage of college tuition, private financial loans are becoming more popular. Unfortunately, as with any private loan, only those with the best credit scores will receive the best rates. Private loans can be expensive and most college planners urge parents to exhaust other financing methods first.

The best private loans have rates competitive with the federal low-interest rates, about LIBOR +/- 2.0. Watch for lenders that offer a low rate while the student is in school, then raise the rate when payments are due.

As with anything, shop around, do your research, and perhaps paying for college won’t be such a nightmare.

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