Saving for college — personal and 529 college savings plans
My 529 college savings plan has fallen in value this year. What can I do?
If it's any consolation, your 529 has probably fallen less than if you had invested the money straight into the stock market. Also your money has been growing tax-free for as long as you've been contributing. So, you're probably in better shape than those who saved using other options.
A new IRS regulation allows 529 account owners to change their investment allocation twice in calendar year 2009, rather than only once. If you feel you need to change your 529's investment allocation to one that you think better reflects the changing economic situation, this new ruling gives you more flexibility to do so this year. To learn more about college saving investment options and the various features and benefits of college savings plans, visit https://uii.s.upromise.com/.
How much is tuition likely to be in the five- to ten-year range from September 2009? And how much do I need to save each month to meet 75% of the costs for two kids?
Sallie Mae's Education Investment Planner enables you to project what your children's total cost of attendance would add up to down the road at different colleges or universities. You can also explore various scenarios using different amounts of savings, income, scholarships, and loans to build your family's own customized paying for college plan. The Education Investment Planner is free for anyone to use and is available at www.SallieMae.com/plan.
In addition, Upromise offers a free college savings calculator that helps you estimate what you need to save each month to achieve your desired college savings goal. Good luck!
Scholarships
I was recently laid off and have decided to go back to school. How can I get assistance (grants, private loans) to support my family and pay my bills while going to school?
You may be eligible for grants, scholarships or loans to cover the cost of attending college, including some cost of living expenses. However, financial aid isn't intended to cover the costs associated with raising a family and paying bills unrelated to school costs so you may need to earn some income while attending school to meet all your expenses.
Begin the process by filing the FAFSA (Free Application for Federal Student Aid: www.fafsa.ed.gov) and educating yourself on Sallie Mae's 1-2-3 approach to paying for college: First, use free money, such as grants and scholarships, then explore federal student loans, and third, consider a private student loan. You also want to create a budget that outlines your college costs, your living expenses, your income and the role education loans might play in helping you meet your budget.
How will the recession affect my scholarship?
If you've been approved for a scholarship for the 2009–10 academic year, you probably don't need to worry about any reductions to that award this year. However, it's important that you start planning early for next year. Apply early, apply often, and branch out. Many groups have already announced intentions to reduce the size and number of their grants and scholarships, so you don't want to find yourself unprepared.
Do your homework regarding scholarships and your financial aid package as well. Check to ensure that your school applies any outside scholarships first to unmet need, then to reducing student loan or work-study awards. At some colleges, a scholarship from an outside organization simply replaces one you've already earned directly from the college. On the other hand, some colleges offer matching awards up to a certain dollar amount — so if you earn a scholarship from an outside organization, the college may offer you an additional award up to that amount. Doing the work to bring in a scholarship could be “doubly” rewarding!
I didn't think that I needed a scholarship, but now I do. Where do I start?
First, check with any organizations of which you're a member. If you're already in school, talk to your financial aid office. Then start doing your research! There are tons of scholarships out there and, even with the reductions anticipated for next year, there's free money to be had if you're willing to look.
You can become a fan of Sallie Mae's scholarship search tool on Facebook! Share the application with your friends and be their best resource for free money for college.
What's the difference between a scholarship and a grant? Can I get both?
Neither grants nor scholarships have to be repaid, but grants are most often offered through federal programs, though they may be offered through state programs or directly from colleges.
Scholarships are generally offered directly from the college, from state programs, or from third-party groups such as community-based associations, your parent's place of employment, foundations, companies, or service organizations.
You might be eligible for both.
With more people going for scholarships this year, I'm worried that there won't be anything left for me.
While reductions are a concern for the coming fall, it's still important to go ahead and apply for the scholarships in which you're interested. If you don't, you definitely won't get that money, but if you do, who knows?
I don't think I qualify as "low-income." Are there scholarships out there for me, even if my parents make a good amount of money?
Not all scholarships are focused around your family's income. A lot of them focus on areas of interest, so go ahead and apply; it's the only way you may get that free money.
I'm a minority student. Does being a minority help my chances in getting a scholarship?
In some cases, yes. Certain scholarships aim to help minority students. The Sallie Mae Fund offers Black College Dollars and Latino College Dollars scholarship directories. These free online scholarship resources, geared to African-American and Latino-American students respectively, compile information on more than 300 scholarships each.
My friend told me about this great scholarship search tool, but it costs money. Is it a scam?
More than likely. Scholarship information is available free to anyone and is conveniently available online. If your scholarship search tool charges you fees, of any kind, it's possible that it's a scam.
Some trustworthy (and free!) resources for scholarships include www.fastweb.com, www.scholarships.com, www.upromise.com/scholarships, www.thesalliemaefund.org, and Sallie Mae's free online database, with more than 3 million scholarship awards worth over $16 billion!
Tuition payment plans
My stepdaughter is in her last semester and my husband is about to take out a loan or cosign the loan with her since she is not able to qualify for this on her own. What are resources for getting an interest free monthly payment?
The interest-free option is called a tuition payment plan. Many colleges and universities offer tuition payment plans that allow you to pay in smaller, manageable monthly installments. For example, Sallie Mae's tuition payment plan is offered by 800 schools nationwide. A tuition payment plan is not a loan and no interest is charged. Depending on your school's plan, you'll be charged a low annual or semester non-refundable application fee, usually around $55.
Each college or university develops its own tuition payment plan and determines the payment options available and when the payments must start in the academic year. Talk with the financial aid office and bursar's office to explore tuition payment plans and other options at your school before you make this decision. Good luck!
FAFSA
The FAFSA asks us to report 2008 income but, since I just lost my job, I think my 2009 income is likely to be much less than 2008. What do I put on the FAFSA?
You still need to enter your 2008 income on the FAFSA, and you should contact the financial aid offices at the colleges your child is considering to provide supplemental information and ask for a review of these special circumstances. A financial aid officer can then review your situation and may be able to make a change to your family's expected contribution.
Families who have experienced a steep reduction in assets reported on the FAFSA, such as a drop in a college savings plan, should also contact the financial aid offices at the colleges under consideration. Unusual medical bills not covered by insurance or elementary or secondary school tuition paid for other children in the household may also be considered by the financial aid officer when developing an award package.
Our family income has changed since I completed the FAFSA. Should I submit a correction?
You should only file a correction to your financial information if it was incorrect on the day you signed the FAFSA. If your income has changed since the form was filed, then you should contact your financial aid office to provide supplemental information and ask for a review of your situation, but you should not change your FAFSA.
With all the dismal news about state and federal budgets, will there really be financial aid available? Is it still worth doing the FAFSA?
A resounding yes! It's still worth submitting the FAFSA. In fact, the new economic stimulus bill increases what is already the largest federal student financial aid grant program: Pell Grants. For academic year 2009–2010, more families will qualify for Pell Grants and the maximum grant will be higher (up to $5,550 from $4,731).
Some grants, particularly state programs, are first come, first served, so it's wise to submit the FAFSA as soon as possible after January 1.
The FAFSA is also your ticket to access to low-cost, fixed-interest Stafford loans, which are available to most U.S. citizens regardless of credit history, assets, or income.
Borrowing
What type of loan can I get on a stand alone basis? My parents can't cosign.
First, be sure you are following the 1-2-3 approach to paying for college: Use free money first, explore federal student loans, and third consider a private student loan. Federal student loans such as Stafford loans do not require cosigners and in fact are available to most U.S. citizens with a high school diploma, regardless of credit history or income.
If you have maximized your use of federal student loans and still have a gap, then you may want to consider a private student loan. Generally students are more likely to qualify and can receive better interest rates if they apply with creditworthy cosigners. Cosigners promise to repay a loan if the primary borrower does not, so it is not a commitment to be made lightly. If your parents cannot or will not cosign, you may consider approaching a grandparent, other relatively, or close family friend.
My family is looking into borrowing a private parent loan for my son's college expenses next year. What are our options in borrowing a private parent loan?
Before you take out a private loan be sure you are following the 1-2-3 approach to paying for college: Use free money first, explore federal student loans, and third consider a private student loan. Be aware that there is a federal loan available to parents of undergraduate students called the PLUS loan. For a PLUS loan you must pass a basic credit check or have an endorser.
Congress has recently made it possible for parents to defer payments on their PLUS loan until after their student's graduation and even for six months beyond that. Although this option may help a parent manage cash flow while the child is in school, it will result in a higher amount paid over the life of the loan. Sallie Mae encourages parents to make at least interest-only loan payments, if they are able, while their children are in school to keep costs down.
Parents can also help a student qualify for a private loan by cosigning the application.
I would like to get a commercial drivers license (Ohio) thru Southern State Community College; can you guide me in getting a loan for this purpose?
Education loans are available for a wide variety of career training programs. Be sure to follow Sallie Mae's 1-2-3 approach to paying for college: Use free money first (grants and scholarships), explore federal student loans, and third consider a private student loan. Begin the loan process by requesting information from your school's financial aid office. If your school participates in the federal student loan programs, file a Free Application for Federal Student Aid (FAFSA).
For a federal loan or for most private student loans, your school must certify your enrollment and the cost of the program (your unmet need) in order for you to be eligible for a loan. In addition, especially for private student loans, you will need to meet the lender's credit criteria to qualify.
We have a loan with Sallie Mae and need to apply for more money. How do we go about doing this?
Generally, families apply for education loans annually, estimating the amount they need to borrow against the current academic year cost of attendance, less other financial aid received. However, some families underestimate their budget and come up short before the academic year is through. If you have not borrowed the annual maximum, you may apply for a subsequent loan for the same academic year. Your school will have to certify that your student is still enrolled and is eligible to borrow additional funds for this school year based on cost of attendance minus other financial aid including loans already received.
Can you use student loans for off-campus housing? How does that work?
Your student loan is part of your financial aid package and is to be used to cover the cost of attending your school including tuition, fees, books, housing, meals and other costs related to attending your school. You may not use federal financial aid to pay for bills unrelated to attending college. Never borrow more than you need. As tempting as it may be in the short term to borrow, it's better to modify your expenses as best you can, and use the savings to cover bills than borrow and add to your debt.
I am a grad student and my tuition exceeds my subsidized loans. With the current economic status, are you planning to increase the amount of subsidized loans and remove the cap of $8,500?
Federal Stafford loans awarded in a financial aid package may not always be enough to cover your financial need, depending on the cost of your tuition, due to the loan limits on this particular program. The subsidized loan limit for graduate students is set by the federal government and is currently $8,500 per academic year.
However, you may borrow an additional $12,000 of unsubsidized Stafford loan money per academic year. Although the subsidized loan is a great deal because no interest accrues while you are enrolled, an unsubsidized Stafford loan is still a good investment with a fixed rate of 6.8% for graduate students. Graduate students requiring additional funds beyond the total $20,500 in Stafford loans can consider a federal Graduate PLUS loan or a private student loan to meet remaining costs.
I'm interested in a career training loan to take a Paralegal course. The course costs approx $4,900 + $550 supplies. Can you help me with this loan?
Education loans are available for a wide variety of career training programs. Be sure to follow Sallie Mae's 1-2-3 approach to paying for college: Use free money first (grants and scholarships), explore federal student loans, and third consider a private student loan.
Your school and the program in which you enroll must participate in a loan program and, in most cases, the school must certify your enrollment and the cost of the program for you to be eligible for a loan. In addition, especially for private student loans, you will need to meet the lender's credit criteria to qualify. Begin the loan process by asking your financial aid office about which loan programs you may qualify for. If your school participates in the federal loan programs, file a FAFSA.
Even if my expected family contribution (EFC) is zero, what loans will help pay all of my tuition costs?
Student loans awarded in a financial aid package — specifically Perkins and Stafford loans for undergraduate students — may not always be enough to cover your financial need due to the loan limits on these particular programs. Circumstances such as a limited amount of funding capacity of other financial aid resources at your school (including grants, scholarships, or work-study), and your year in school — which determines your Stafford loan amount, combined with the cost of attendance at your school — may have resulted in an "unmet need" gap in your financial aid award.
To meet that gap, first try to secure scholarships from outside the school — use a tool like Sallie Mae's free scholarship search. If you still haven't got enough aid to cover college costs, consider a federal PLUS loan, or a private education loan to close the gap.
I want to help my child as much as I can, but the value of my 401(k) has plummeted and I've got to build it back up rather than shell out money for my child to go to college. How can I help without actually paying?
The first thing you can do is to help your child complete and submit the Free Application for Federal Student Aid (FAFSA). This federal form is your application for money for college.
After you learn what free money your child is eligible for, you can consider other options to help meet the cost of attendance. A tuition payment plan is an interest-free option that allows you to make payments in monthly installments. More information is available at www.tuitionpay.salliemae.com.
Your child would be eligible to borrow in his/her own name through the federal Stafford loan program. The interest rates and terms of Stafford loans are set by Congress, making them immune to market conditions. They do, however, have limits to the amount that your child can borrow. If you find that your child needs to borrow beyond that limit and you do not intend to borrow on your child's behalf, then the next best option may be a private student loan.
A private student loan is a credit-based loan that your child may take out to cover any remaining financial need. If you cosign a private loan your credit history may help your child qualify for this loan and possibly lower the interest rate. As a cosigner, you're responsible for the loan if the primary borrower does not pay. Read more about private student loans.
You might also consider helping by becoming a Upromise member to earn rewards for eligible purchases on the things you buy every day — like groceries, gasoline, online shopping, and more — at over 40,000 participating retail stores and services. In fact, family and friends can also join for free to help save for your child's education. You can withdraw the money earned to pay college costs now. Or, should your child take out a student loan, you can use the money to help him or her pay down a loan. To find out more about Sallie Mae's saving-for-college rewards program, visit upromise.com.
I thought I had saved enough for my child's education, but the stock market has taken a toll on my college savings account. Now I'm not sure I have enough money. What can I do?
Many families have had to revisit their paying-for-college plan as they respond to the market's effects on their college savings accounts. Using our free Education Investment Planner, you can quickly calculate how much your child's education will cost and see how much money you'll need beyond what you've saved so far. Visit www.SallieMae.com/plan.
Make sure that your child applies for financial aid by submitting a Free Application for Federal Student Aid (FAFSA). This will help your son or daughter tap into any "free money" he or she might be eligible for such as federal and state grants and scholarships. Learn more about submitting your FAFSA.
Next, ask yourself if you can contribute to the cost of college out of your monthly cash flow. If so, you may want to consider paying for some of your child's college expenses through a tuition payment plan.
If you want to borrow on your child's behalf, look into a federal PLUS loan. The terms of this loan are set by Congress, and your eligibility is not based on your income, assets, or collateral, though parents do need to pass a basic credit check. Everyone who qualifies gets the same interest rate. Read more on PLUS loans.
You should discuss budgeting with your child. Many parents shy away from financial discussions with their children. But without defining expectations about who is responsible for living expenses beyond direct college costs and setting limits on discretionary spending, you may find your college student calling home and asking for handouts or, even worse, running up credit card debt.
What are the interest rates on student loans?
- Federal Perkins loans are offered by higher education institutions to students with the most financial need and have a have a fixed interest rate of 5%. To qualify, the student must file a Free Application for Federal Student Aid (FAFSA).
- The interest rate on undergraduate subsidized Stafford loans is 5.6% fixed for the life of the loan for loans first disbursed July 1, 2009–June 30, 2010. Interest is not charged on subsidized Stafford loans while the student is in school.
- All unsubsidized Stafford loans and subsidized Stafford loans for graduate and professional students have a fixed interest rate of 6.8%. Interest accrues during school, but the student is responsible for the interest, but does not have to make payments while in school. To apply for a Stafford loan, the student must file a FAFSA.
- Federal PLUS loans carry a fixed interest rate of 8.5%. These are loans that a parent takes out on behalf of a dependent undergraduate student or that a graduate/professional student takes out on his or her own behalf.
The interest rate on a fixed-interest rate loan never changes over the life of the loan. It's set when the loan is taken out and stays the same until the loan is paid in full.
Federal Stafford loans are taken out by the student for the student and are available regardless of financial need. Subsidized Stafford loans are for those who have demonstrated financial need on their FAFSA form and unsubsidized Stafford loans are for everyone else. Learn more about federal student loans.
How much should I borrow? Should I take out a little more if the recession lasts even longer?
Never borrow more than you need. Your school will calculate the cost of attendance for one year at school. This will include the student's budget items like tuition, fees, room, board, supplies, transportation, and personal expenses. You don't want to borrow over this figure.
And, if you've received other financial aid, then you don't want to borrow more than the difference between the cost of attendance and your other financial aid received. Be debt savvy with your education money.
Remember, every penny you borrow will need to be repaid. Consider a part-time job during the school year or over the summer to earn some extra money to help cover college expenses. According to the most recent National Postsecondary Student Aid Study from the U.S. Department of Education, 79% of enrolled college students work while in school to help cover college costs.
Visit the Education Investment Planner to forecast what your monthly loan payment would be once you graduate and calculate the starting salary you need to make to ensure it covers your student loan and other costs.
Is it better to borrow from my 401(k) or take out a student loan?
Ask your financial planner, who may be best able to provide an answer in the context of your own financial situation.
A few considerations, however:
- You can borrow to pay for college, but you can't borrow for your retirement.
- Withdrawing money from a 401(k) now may mean that you “lock in” a recent market loss.
- 401(k) withdrawals must be repaid within five years or immediately if you change jobs; otherwise you may have to pay penalties.
- There are student loans that the student can take out in his or her own name, loans that the parent can take out on behalf of the student, and still others that the student could take out and a parent could cosign.
For an overview of considerations on different sources of borrowing, go to
Your financing options and Finding a student loan.
My parents have been turned down for a PLUS loan. Do I have any more options for federal loans?
Another option your parents might consider is an endorser on their PLUS loan. PLUS loan borrowers who are not eligible on the basis of their own credit may become PLUS eligible with a creditworthy endorser. For more information, visit federal Parent PLUS loans.
If they are still turned down or cannot find an endorser, there is another option. Dependent students whose parents do not pass the basic credit check for PLUS loans can receive the higher Stafford loan limits available to independent students. Talk to your financial aid office to ask them to review your award package.
Miscellaneous
I had to leave school after the 6th week because of health issues, and financial aid revoked my student loan. Can they do that?
Your student loan is considered part of your financial aid package and is meant to cover the cost of attending your school. If you are no longer attending school, you are not eligible to receive funding associated with the cost of attending after the date you leave school. You may also want to contact your school's financial aid office to discuss your situation.
I did not take out all of my loan for 2008–2009 school year and was wondering if I could take it out now to pay some bills?
Your student loan is part of your financial aid package and is to cover the cost of attending the school that certified your loan eligibility. You may not use federal financial aid to to pay bills unrelated to attending college. Never borrow more than you need. As tempting as it might seem in the short term to borrow, it's better to cut your expenses as best you can and use the savings to cover your bills rather than borrow and add to your debt.
I'm starting to wonder if college is really worth the cost. I'm considering staying out this fall to work for a while instead.
Only you can make that decision for yourself. As you weigh the pros and cons, keep in mind that those with college degrees experience unemployment at about half the rate as those with only high school degrees.
Many people find that the best time to stay in school and improve their education and skills is during a recession when jobs are scarce. That way, they may become more marketable when they re-enter the job market.
Be aware that if you have already taken out some student loans and you drop out of school, you'll be responsible for making payments even though you haven't finished your degree. Be sure to talk with your academic advisor, your college financial aid office, and family and friends as you make this important decision.
You might consider other ways to cut costs rather than dropping out:
- Can you live at home and avoid paying housing costs?
- Are there less expensive schools in your area that offer the same program you're currently enrolled in?
- Would you consider military service upon graduation and sign up for the Reserve Officers' Training Corps (ROTC), a college-based, officer commissioning program that helps pay for college?
- If you feel you cannot continue full time, you could consider attending part time, which will reduce your immediate costs and allow more time to work and earn money to cover those costs.
- If you stay enrolled full time, be sure to get full value for your tuition. Know the maximum number of course credits you're allowed to take per semester and take them — and know which classes are required for you to earn a degree in your major. Taking the right courses and the maximum credits will reduce your having to take extra courses which, for some students, can add an additional full year or two to tuition costs.
Learn more from Finding ways to pay for college.