We saw this coming. Recent college grads, unable to gain employment, now with student debt coming due this fall, DEFAULT. This week the U.S. Department of Education posted information on student loan defaults from 2008. As this was simply the beginning of our current economic recession, we will most likely see the numbers worsen in the coming years. Nearly 240,000 students who had loans come due from 2007-2008 defaulted on their first payments (this number does not include borrowers who have defaulted well into their repayment schedule). Think about this. Many of the student loans that are not being paid back are federally funded; that means we as taxpayers are being owed money that is not being paid back. The default rate from 2008 was 7%. Students who graduated from a public four year university had a default rate of 6%, and those who graduated from a private four year university had a default rate of 4%. But, those students who graduated from for-profit schools had a default rate of 11.6%. 43% of total money in default came from students of for-profit colleges.
Recently I have advised students who are considering student loans to look at $40,000 total student debt after four years as a manageable number, in general. Those monthly payments (for 10 years) are tough, but manageable if they graduate on time and get a good job.
College is like a monopoly; everyone still wants to go, but prices continue to rise, even in a recession. A college degree is still very valuable, but students (and parents) need to be smart. Borrowers need to investigate the reputation of the college or university they are considering. They need to ask around, inquiring where recent grads took jobs. And students who have just exited college and fret over loan repayment should contact their lender to ask about loan consolidation, or deferrals, in the case of financial hardship. It's tough, but it's worth asking.
So, what do we see coming in another six months? Probably rising default rates of recent grads, more financial aid applications for incoming freshman, even more students delaying repayment by entering grad school, and a flood of current college students wrestling for on campus jobs.
News Video Link: http://www.azcentral.com/video/#/News/Student+loans/40280768001/35150280001/610107252001
Friday, September 17, 2010
Tuesday, September 7, 2010
How to Pay for College
College has been, and will always be valuable. The experience has value not only in its academics, but also in its ability to socially develop young individuals who are away from home for the first time. The excitement of independence sometimes draws a curtain over the ever increasing, and enormous cost to attend college. Many times young minds cannot differentiate $30,000 from $40,000, or a $10,000 a year student loan from a $15,000 a year student loan, and what that debt looks like over time.
Parents have recently wondered if saving for college has actually hurt their chances at financial aid. While savings certainly factors into the Expected Family Contribution, there is no replacement for money readily available when it is time to pay for a college education. Many families are struggling and searching for this funding when time is not on their side. When financial markets tumble, and investments, like college savings, languish, families need other sources to draw from. Have you sat down as a family to brainstorm others? Consider these points below as a beginning to your conversation...
-What groups do mom and dad belong to that may offer scholarships to students?
-Have I spent time on each financial aid website for my college choices, looking for scholarships that require additional paperwork?
-Can my student get a job to offset some of the extra expenses like travel, food and entertainment?
-Have I considered residency requirements for out of state colleges?
Let's put college expenses into real terms. The cost to attend a private college can be 4.5 times higher than attending a well known private high school. Remember when you sent your child to preschool and paid tuition for the first time? College can cost 44 times that of preschool.
Students this year will struggle to find outside sources of money to pay for college, and so too will parents who want the best for their children. In witnessing students take out six figure undergraduate loans, and watching parents draw down their retirement savings early, we can certainly see that college is still valuable to many. But, starting with a simple family conversation at dinner can aid parents now, and students in the future.
Parents have recently wondered if saving for college has actually hurt their chances at financial aid. While savings certainly factors into the Expected Family Contribution, there is no replacement for money readily available when it is time to pay for a college education. Many families are struggling and searching for this funding when time is not on their side. When financial markets tumble, and investments, like college savings, languish, families need other sources to draw from. Have you sat down as a family to brainstorm others? Consider these points below as a beginning to your conversation...
-What groups do mom and dad belong to that may offer scholarships to students?
-Have I spent time on each financial aid website for my college choices, looking for scholarships that require additional paperwork?
-Can my student get a job to offset some of the extra expenses like travel, food and entertainment?
-Have I considered residency requirements for out of state colleges?
Let's put college expenses into real terms. The cost to attend a private college can be 4.5 times higher than attending a well known private high school. Remember when you sent your child to preschool and paid tuition for the first time? College can cost 44 times that of preschool.
Students this year will struggle to find outside sources of money to pay for college, and so too will parents who want the best for their children. In witnessing students take out six figure undergraduate loans, and watching parents draw down their retirement savings early, we can certainly see that college is still valuable to many. But, starting with a simple family conversation at dinner can aid parents now, and students in the future.
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