As we approach this year’s college decision season, there are a few trends and changes that families must consider before committing to a specific college. A State University with an In-State fully loaded cost is approaching $30K annually. This cost makes this a $120,000 financial decision, assuming the student graduates in 4 years.
On the other hand, many of the elite universities are approaching $100K per year fully loaded. This makes this commitment a $400,000 investment for a family. If you have multiple children, the financial goal to educate your children may be one of the largest financial decisions in your life.
Here are college financing trends and proposals that will impact your child’s college decision. You must consider these before making your college decision.
Trends in Loan Debt
At today’s cost, most families will need to finance a portion of their children’s education. It may not be for an undergraduate degree, but more careers require Postgraduate degrees. You need to consider the total cost and financing of both degrees in your undergraduate decision, as the education outcome should be the preparation for a successful career path.
Due to the increasing college cost and the lack of government adjustments, the traditional dependent student can only qualify for $27,000 of federal loans over the first four years. These loan limits have not changed in nearly 20 years. As a result, parents were forced to legally finance their children’s college education either directly or indirectly.
Here is a chart showing the growth rate of Federal Loans by age. People over 50 are the fastest-growing group of student loan borrowers.
Parent Timeline and Carrying Student Debt into Retirement
Now that repayment has started, we are seeing an increase in the number of Parent PLUS borrowers who have taken this path to fund their children’s education. Due to the increased college costs, student loan limits, easy approval, and lack of transparency, the chart above is fully understandable.
I highly recommend that parent borrowers understand their family’s timeline for when the borrowing will start and end. We provide that information in our College Cost Analyzer tool.
Due to a few demographic changes, parents are having their children later in life. As a result, many parents do not finish borrowing until they are near or in their 60s. This new trend is starting to impact retirement planning and timing. It is highly recommended that you estimate when your youngest child will graduate and work backward to create the best college funding plan.
If you are currently carrying student loan debt that will continue into retirement, there are repayment strategies that we can help you utilize. Currently, 6% of Social Security recipients have a portion of their Social Security garnished due to student loan default.
Planning For Proposed PLUS Loan Limits
With the administration changes, we are seeing a world of changes. The planned elimination of the Department of Education will result in significant changes, especially in higher education. Federal educational support for the K-12 level is only about 14% of their funding. The majority of program changes will occur at the higher education level, especially student loan repayment and forgiveness.
The proposed limits to Parent PLUS and Grad PLUS loans may be the most significant change that will impact a family’s college decision. Under the current rules, these are basically unlimited. What I mean by unlimited is that parents and graduate students could borrow up to the total Cost of Attendance, less any financial aid the student received. There is no financial cap if the student or parent has good credit.
Many financial hawks have criticized this unlimited PLUS loan policy. It allows colleges to raise the cost of education with minimal financial exposure to the college. The federal government owns the loans, and unlike a mortgage or auto loan, they have minimal underwriting requirements.
A proposed limit to these types of PLUS loans, offered by the federal government, may have limits as early as 7/1/25. The loan limit proposal was discussed before the change in administration. It will have a significant impact on college and graduate programs. Current Parent Plus limits would be $50,000 per parent, not by child.
It is unclear when this proposal will be approved. I believe it is highly likely to be implemented in the next 18 months. A CATO report on the federal student loan business, using current repayment and forgiveness rules, estimates that federal loans cost the American taxpayer between $0.07 and $0.19 per dollar lent.
This proposed limit change is why having a four-year college funding plan is critical
Future Financing May Require a Mixture of Private and Federal Loans
If the PLUS loan limit is implemented, the college admission and funding process will change significantly. Based on the current cost of education and the loan limits, more borrowers will need to use a mixture of private and federal loans to attend their desired college.
This new combination will add more complexity and stress to an already overwhelming process. Understanding the sequencing of the loan structure and repayment plans will become more critical than ever.
Summary of New College Financing Trends and Proposals That Will Impact Your Child’s College Decision
The college decision process is a marathon for both students and parents. This year’s class faces more funding unknowns than ever due to the increasing cost and DOE changes. Take a step back and take a deep breath. Think on the positive side and look at what both you and your child have accomplished. They have graduated from high school and are headed to college or a professional training program.
The new college financing trends and proposals presented are here to help you make an informed decision. They allow you to understand additional information and develop a contingent plan if changes occur. Please call us if you need help analyzing your options or reviewing your plan. We have both software tools and advisers trained in both College Funding and Student Loan Repayment.
