Evolution of Student Debt and Repayment DecisionsEvery year, while in college, students make college student loan decisions that will affect their financial future. They are part of the 21 million people that are accumulating student loan debt.  I consider these college students to be the “Forgotten Group” since there are minimal resources to help them with their student debt decisions.

Some states have proposed that college students get an update of their current loan balance each year.  This may help but it does not project their total debt at graduation which is really the problem.  At PayForED, we feel it is important to take steps to try and avoid excessive student debt.   We have developed our in-college solution that provides the missing transparency needed for the student loan decision process.

The best way to avoid excessive loans is to stay on track and graduate on time.  Sounds easy but less than 40 percent accomplish this goal.  How does the college student stay on track and become informed?

Here are PayForED’s 10 Tips for Paying for College and Avoiding Excessive Debt:

  1. Understand your College Credits

A college student is considered a full-time student at 12 credits. In most cases, a student will not be able to graduate within four years if they only take 12 credits per semester. If you consider that 35% of students will transfer, and over 50% will change majors, understating the number of credits needed to graduate is critical. This seems like a simple concept but in many cases, most students do not properly plan their credit hours. The best way to save money is to graduate on time.

  1. Timing of Courses

Many colleges design their curriculum to fit most of the students as they progress towards graduation. As a result, some courses are only offered during certain semesters. In addition to tracking the total credits, students need to map the required courses for their major and when each course is offered. This course mapping should be done at the end of each semester and during registration.

  1. College Credit Tuition

Students and parents need to understand their tuition expenses. For many colleges, you pay as a full-time student. The number of credits that a student can enroll could vary from 12 – 18 credits per semester. As more students transfer and change majors, using the total credits allowed may permit a student to take an additional course without added cost. Depending on the policy of the schools, this could be a great way to save money and graduate on time.

  1. Annual Federal Loan Limits

The proper debt structure is often overlooked in planning for college. This is due to the complexity, traditional debt planning and lack of proper information. We always recommended that a student take the Federal Direct Stafford Loan each year while an undergraduate. This will improve the student’s loan repayment and forgiveness options after graduation. The annual limit will be adjusted based on the student’s academic progress and if they are a full time or part-time student.  The FAFSA will need to be submitted to get access to these loans.

  1. Incurred and Projected Debt

Earlier, I discussed the importance of tracking student credits to make sure they are on the path to graduate on their targeted date. More colleges and even some states are requiring colleges to send letters each year to the students stating the amount of current federal debt that they have incurred. This is an improvement but is only one part of the solution.

Students and parents need to have both incurred and projected debt to graduation. To make the best college financial decisions, families need to know the “WHAT” they will pay and the “HOW” they will pay it. The “HOW” is custom to each family and determines the debt structure.

The PayForED, In-College Payer software helps both students and parents project their debt to graduation. It builds a personal budget using the projected income and loan repayment options. This enables the family to envision both the “WHAT” and “HOW” in their specific situation. As a result, they can make informed college financial decisions and avoid excessive student debt.

  1. Understanding of Loan Repayment Options

A student’s debt structure drives their loan repayment options.  Federal Student Loans have better loan repayment and loan forgiveness options than private loans. There are currently 9 federal loan options depending on the type and date of the loan. Only certain loan repayment options qualify for loan forgiveness.  Having an outcome focus improves a student’s financial future.

  1. Career Income and Demand

Following your dream is an important part of the college experience and college major decision. As part of that decision, the student needs to investigate the demand for that career and income potential. There needs to be a sense of reality in chasing a career dream. Many students have the impression that attaining a college degree is a guarantee of a secure financial future. That is not always true.

  1. Tax Strategies

Often overlooked in strategic planning when paying for college are a variety of tax strategies or advantages. As an example, the American Opportunity Credit is worth up to $2,500 per year per student. This is limited to undergraduate students and can only be used for 4 years. There are also tax harvesting and business owner advantages that can be utilized. Some advanced planning is required to take advantage of these advanced strategies.

  1. Using summer courses

A great way to save money is to take summer courses. Students can get ahead or use summer courses to get back on track if they are behind in credits due to a transfer or major change. Summer courses can also help to minimize debt. The student should always check with the current college and get approval before enrolling in any summer courses. Each college is different and may have specific guidelines for course approval.

  1. Planning for Post-Graduate

Over the past few years, more careers are requiring additional education to achieve their desired career. Planning for this additional cost and debt needs to be done as soon as possible in the college decision process. Using all the assets for an undergraduate degree may not be the best decision. Graduate loans have much higher interest rates and fees.  In my current presentations, I discuss how students and parents need to envision your child’s life at age 25. This would include education requirements, income, and student debt.

Conclusion

The path to a college degree is very different today. Examining the college expenses, projected debt and future income are important parts of the college financial decision process. Managing expectations and lifestyle needs to be added to a student’s plan especially as he or she progresses through college. At the end of the day, graduating on time with manageable debt is a goal that should be reviewed each year.  If you need additional help projecting college debt the PayForED, In-College Payer software can give you your customized answers.

 

 

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