College Planning: Grants, Work-Study, and Loans

In our prior videos (College Planning), we have talked about ways to reduce the cost of education through AP course, college selection, and scholarships.  Assuming you have done that and still have a shortfall, you are probably moving on to methods of obtaining financial aid.  Today we are going to talk about the $150 billion in federal aid that the US Department of Education offers to 15 million students each year.

Before getting into it, there is a common form that most students and parents will fill out, called the FAFSA (link), or the Free Application for Financial Student Aid.  If you have your tax and investment documents together, the FAFSA form is neither difficult nor time consuming to complete.  The FAFSA form calculates something called the Expected Family Contribution (EFC).  The EFC is exactly as it sounds:  the amount that the parents and child are expected to contribute toward the child’s educational expenses for that year.  It is worth noting, that many states including Wisconsin (link), also have aid forms available, that you probably should also fill out to attempt to receive their aid.

Each college you are considering has their own number called the Cost of Attendance (COA). Quite simply, if the COA is higher than the EFC, then you have a reasonable likelihood of receiving some form of financial aid.  The aid can be awarded in grants, work-study, or loans.

Grants of course are the most attractive, because they don’t have to be repaid. If some of your aid comes as grants, rejoice! Quite simply, however, there is not enough money to go around to make it free for everyone.

That means we move on to work-study programs.  The ideal work-study job is one in which little actual work needs to be done.  My favorite example is the parking lot attendant.  Perhaps a car leaves every 15 minutes or so, where you need to accept payment, which takes perhaps 30 seconds.  Then you have another 10-20 minutes to be reading or studying before the next car comes along.  This is an ideal situation – the employer needs someone there, but the work only happens intermittently.

Last, loans.  Let me caution you here.  Loans dig a deeper hole.  As of 2015 here in Wisconsin, for students that take loans, the average loan balance is $29,000 at graduation(1).  Nationwide, former students owe $1.26 trillion(2).  With that in mind, I want to reiterate how important it is to be sure that the courses and majors you are pursuing are likely to have a reasonable career with an income that can support your student loan repayment, along with your other goals.  I am personally aware of someone that spent $200,000 on an undergraduate degree that they are not using and will not use.  I don’t know the exact amount that was borrowed, but surely some of it was.  That was clearly a poor use of that money, essentially a 4 year expensive vacation from reality.  

Take note that some loans are federally subsidized, which at ground level means lower interest rates, payments delayed until you graduate or leave school, and in some careers may mean partial loan forgiveness.  Private (non-subsidized) loans, on the other hand, have much less favorable interest rates and payment terms.

To sum it up, be sure to do the FAFSA to take a shot at receiving aid.

Warmly,

Patrick Stoa
Financial Advisor

[1] $29,000 per WI student:  http://ticas.org/posd/map-state-data
[2] $1.26 Trillion total:  https://www.newyorkfed.org/microeconomics/hhdc(2nd chart with the detail of the Non-Housing Debt Balance, Q1 2016

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

College Planning: Athletic, Academic, Community, Specialty, and Workplace Scholarships

In our first college planning video, we highlighted advanced placement credits, college selection, and military scholarships. Today we are going to talk about other scholarships: athletic, academic, and community/specialty/employer scholarships.

First of all, let’s talk about something that many athletes dream about:  The Full Ride. I hate to burst your bubble, but it is not common at all. First of all, Division 3 schools cannot give athletic scholarships. Likewise, Division 1 and 2 schools are typically limited in how many scholarships they can give out per sport. The reality is that they have far fewer to give than they have athletes. So, even if offered, it is quite common for scholarships to be partial scholarships.

Still, if you can get a partial scholarship to do something you like doing, that’s great. Partial scholarships are still great way to cut down on college costs.  One of the key things we learned through our daughter pursuing an athletic scholarship is that the coaches want to communicate with the athlete, and not with the parent.  The coach and the athlete are the ones that will be practicing together for 4 years, so they have to develop the relationship.     

One dilemma: does the school offering the athletic scholarship have the expertise in your desired major(s)?  How about your plan B, what if you change your mind partway through and want to go to a different field of study.  It happens, a lot. Another thing to consider is that practice and competition schedules are priority number one, so working to supplement your income may be difficult. Social life can be different if your team practices at 6am most days.

Let’s move on to Academic Scholarships. These are great if you can get them.  Basically, you are being rewarded for being a good high school student.  Typically there is an application of some sort, with grades, test scores, outside activities such as service hours, and an essay taken into account.  In some cases, you can submit one application for multiple scholarships.  I am mixed about the benefit of a single application for many scholarships.  Yes, you easily applied for several, but so did everybody else, and the money is not unlimited.  So you are not ahead. Sometimes your school of choice will offer scholarships to applicants who meet certain criteria. For example, at the University of Alabama, high test scores and a high GPA can earn you full tuition even for out of state students.  They are not alone in this.

Lastly, let’s talk about Community, Specialty and Workplace scholarships. These can be scholarships that are available to a more limited number of people. Typically to be eligible, you have to live in a certain area, be going into a certain field of study, maybe be in a certain club or activity, or have parents that are employed by a certain company.  A well-known example of what I call a specialty scholarship is the Evans Scholar program for golf caddies.  As far as workplace scholarships, in our area I am aware of several large employers that give scholarships of $500 to $1,000 a year for children of employees.  These are not well advertised, and sometimes you have to actively search for them.  The nice thing about these types of scholarships is that far fewer people apply for them, so your odds of being awarded the scholarship go up dramatically.

Best of luck with scholarships.  Next time we are going to talk about financial need programs and FAFSA, along with work studies and student loans.

Respectfully,

Patrick Stoa

Financial Advisor.

patrick@maccofinancial.com

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

College Planning: Advance Placement, College Selection, & Military Benefits

Does the potential cost of college have you worried?  Today we are going to talk about ways to plan for college costs.  There are several ways, but we are going to focus on 3 that I think you can control. This is near and dear to me as I have 6 kids, with the first one just entering her 2nd year of college. Possibly 5 more to go, so I appreciate any avenue to save money while still getting a good value in this area.

Personally, I think the overall strategy for college planning should be one of pursuing a good return on investment for the time and money spent on college.  There are really two ways to get a better return on investment – either lower the amount invested, or increase the return.  Today we are talking about lowering the amount invested, making it easier to afford to go. We are also going to stick to the things that are almost completely within your control – advanced placement credits, college selection, and military benefits. In a later video we will talk about some things that are nice, like scholarships, but not completely in your control.

Early on, long before a child is selecting a college, you can start to reduce your potential college costs through courses known as Advanced Placement courses your high school may offer. In our case, our local high school offered “AP” courses starting as early as sophomore year. How the basic AP courses work is that the child takes the course at their high school, and at the end of the year they sign up for a test for about $100. If they do well enough on the test, then many colleges will accept that as completed college credits. For example, my oldest daughter left high school with more than a full year of college credits (about 30 credits). The total cost for this was maybe around $1,000. Think about that. That boost allows her to get into higher level courses sooner, and likely get a double major in the same time that others would get a single major. What’s the downside? Not every college accepts the credits. The colleges least likely to accept the credits seem to be the prestigious schools, such as some of the Ivy League schools. However, most of the state schools do allow for AP credits.

Likewise, college selection makes an enormous impact on total cost. The average published tuition cost for local 2 year colleges is about $3,500 a year, compared to around $32,000 for private 4 year colleges.  Public Universities are in the middle, around $9,500 for in state students in around $24,000 for out of state students. To help students and their families calculate these costs, many colleges have net cost calculators available on their websites. These calculators will ask a number of questions regarding your situation, let you know of certain scholarships that you may automatically qualify for based on factors such as GPA, SAT or ACT test scores, and analyze your financial situation giving you an estimate of expected aid to help determine what the rough net cost will be. The net calculators are important, since several of the private schools with quite large published tuition rates, will regularly discount to attract good students.

The last of the controllable costs is military benefits. The reason I am including them is that, for the most part, healthy young high school graduates could take advantage of them. And the benefits are quite significant. There are two basic benefits, the first being ROTC, or Reserved Officers Training Corps, and the second being the GI bill. The ROTC program is quite good.  It varies by branch, but typically ROTC will pay your full tuition and a small monthly stipend through school at 1,000 or so schools. Some of the branches cover room and board at some colleges too. In exchange, you must serve in the military over the college summers and for a few years. It varies, but 4 years is typical. You also enter the military as an officer. It’s important to note that the military offers this program for medical school as well. The GI bill is used after service when looking to return to school. The benefits are impressive. Generally, if you serve 3 years and have a normal honorable discharge, you typically qualify for these benefits:

• Up to 100% paid tuition (in state), or up to about $21,000 per year at a private school.

• A monthly housing stipend – equal to the military Basic Housing Allowance, which seems to be a minimum of $800 per month, and possibly quite a bit more.

• $1,000 a year for books and supplies.

I bring these military benefits up because they are so impressively good, and so many people could qualify. Next time, we will talk about other scholarships, namely Academic, Athletic, Workplace, and Community and Specialty scholarships.

Respectfully,

Patrick Stoa

Financial Advisor.

patrick@maccofinancial.com

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Opinions expressed are those of Patrick Stoa and are not necessarily those of RJFS or Raymond James. All opinions are as of this date and are subject to change without notice.