What do you think is the best way to pay for college?

Well, besides having someone else pay for you . . . that would be nice. So let's talk about that for a moment. 

Scholarships

Here's the truth:

• There are no rich people out there waiting to jump at the chance to pay for your child's college education.
• Scholarships tend to fall into two categories: Merit, based on very low income; and Merit, based on exceptional achievements.
• There are others, and they are often very narrowly defined as to eligibility.
• Scholarship searches should be done no later than the summer between 11th and 12th grade. Deadlines for application are typically early in 12th grade year.

Cash

Remember, you finance every purchase you make. Either you pay interest to a borrower, or you lose the interest you could have earned had you kept the money invested. That is what opportunity cost is all about. Spend $80,000 for your student's college education, at in-state tuition rates. What could that eighty-grand, well-placed, have earned for you between now and your retirement? That is the true cost of paying cash.

Loans

• Borrowing from the right source may, actually, be very efficient. Here's an example: You know you can earn 5% - 6% using proven, financial strategies.
• Students can borrow (2020-2021 rates) at 2.75%
• Why take money out of account earning 5% or better, when you could use someone else's money @ 2.75%?

I am not recommending loans, nor am I recommending paying cash. What I am advocating is that you consider all options; and especially those that an experienced college planner, with financial expertise, may suggest.

The news is filled with stories warning about student debt, lamenting student debt, highlighting political promises to forgive student debt. I have yet to see a news story that reveals the true cost of a college education with or without loans.

One factor in understanding true cost is to add in opportunity cost. Another factor is missed income because a student took more than four years to graduate. A third factor is the one most people think about, interest rates.

Let's look at them in reverse order. Interest rates on Direct Student Loans are actually as low as current mortgage rates; currently 2.75% for students borrowing for the academic year 2020-2021 (FSA Student Loans). Furthermore, undergraduates hit a borrowing ceiling of $27,000 over four years. A $27,000 loan at 2.75%, amortized over ten years will incur a monthly debt service of less than $276.00. That is not crushing debt service for a college graduate.

Are you wondering, then, where all the stories come from about crushing student debt? The answer is found when students "need" to borrow beyond the $27,000 federal, direct loan. Then they go into the private lending market. Sallie Mae is a big player in that arena, and interest rates there can be as high as 12%. Here's an example of what can happen:

• Wilma decides she must attend "Bigtime U" at out-of-state rates of $31,750.

• $31,750 multiplied by 4 years is $127,000. She borrows $27,000 @ 2.75% using the Direct Student Loan privileges. The remaining $100,000 is picked up at Sallie Mae, and let's say her consolidated loan interest rate is fixed at 10%; amortized over ten years.

• Total, monthly debt service is $1,586.00. Yes, that is one thousand five hundred eighty-six dollars per month for ten years ($1,310 to Sallie Mae; $276 to Federal Student Aid).

• Furthermore, her Sallie Mae loan required a co-signor. So now a $100,000 obligation is sitting on mom's, dad's or grandparent's credit report.

We're not done. Hang in there. Keep reading.

If Wilma takes five years to graduate with a B.S. in something, that fifth year will cost her the full, out-of-state tuition, plus other costs; let's say $50,000. In addition to borrowing another fifty grand at current interest rates, she will not be earning $45,000 in her first career track job (The 4-Year Myth). Therefore, the cost of the fifth year is actually $95,000; nearly equal to the cost of the first four years. We have previously written a 3 part series on The 4-Year Myth. You can click here to read part 1,
part 2,
and part 3.

Finally, factor #3 is opportunity cost. Let's keep this simple and not even factor in the interest Wilma is paying. Let's just look at the principle sum of $177,000 ($127k for years 1-4, and $50k for year 5). If Wilma had put that amount of money into an investment account earning a modest 5% interest, compounding annually during her working career, she would have, at age 67, more than two million dollars to live on in retirement. I hazard a guess to say she will struggle to achieve that with her college degree, and $1,586 per month debt service.

You can find a better path. Be a smart consumer.

Did Hough High school students really receive $14,000,000 in scholarships?

That is how the headline read in the blog "Cornelius Today."

"How come my student didn't get that kind of money?" you may painfully wonder.

"I'm going to find those scholarships for my child!" you may resolve.

Take a deep breath and let's dig into the numbers.



Click this link and see the table breaking down all high schools in Charlotte-Mecklenburg's system.

$13,953,220 awarded in 287 scholarships. I could go on all day, but I will refrain and make just four, simple points.

• There were approximately 700 seniors in Hough's Class of 2020, and 287 scholarship winners reported. +/- 400 students (apparently) were awarded $0.00.
• Do the math and the average scholarship is $48,618, yet the cost-of-attendance at most UNC System universities is under $26,000
• At the bottom of the report critical data is noted: over $23,000,000 were athletic grants-in-aid. That is NOT "Scholarships." Athletic-grants-in-aid are awarded to athletes for athletic prowess. Some athletes report only modest academic achievements.
• Finally, the $48,618 average scholarship is an aggregate number. In other words, as students heard back from 4, 6, 8, 10 (or more?) colleges, and as each college tendered an offer of, let's say $3,000 per year, or $4,000 per year, maybe even $10,000, all of the numbers were added together for that student to aggregate at $48,000+

Let me tell you about Michael. He was awarded (rounding off) $30,000 by Rose-Hulman, $28,000 by Rennselaer Polytechnic, $3,000 by the University of Maryland**, and $22,000 by Virginia Tech. Using the criteria above, I could have reported that my student, Michael, was awarded $83,000 in scholarships. Instead, my report is that Michael is at Virginia Tech paying in-state tuition as an out-of-state student. An excellent deal for his family!

As the saying goes, if it seems to good to be true, it probably is.

Before I go, here's a final, encouraging note. Michael will pay around $100,000 - $110,000 for his bachelor's degree in engineering. Do you want to guess how Michael is spending his summer, between college junior and senior years? As I write this (June 18) he is starting an internship with General Motors in Detroit, working in the autonomous, electric vehicle research division.** I expect him to be amply rewarded for his excellence in academics, and to recoup that $100-G's quickly.

** University of Maryland and General Motors will not hyperlink. Copy and paste the URLs here:
https://umd.edu
https://www.gm.com/masthead-story/electric-vehicles-AV-EV.html

Are you coming back for part 4, or are you reading this Blog first?

If you are reading this one first, scroll down to find the first 3 of this series.

Keep moving. You don't have as much time as you may be thinking. Between now August 2020, when applications open for the Class of 2021, you have a lot to think about and decide. Financial aid is also tied to your good work now.



Here are the topics, and in reverse order.
5. Where are you going to apply?
4. Have I visited every college I am applying to?
3. What are my academic qualifications?
2. What will I major in?
1. What do I see as my future career?

At any college, ask anyone in admissions and they will tell you, "Don't come here if you haven't visited first."

That may seem to be an odd statement for someone whose job it is to enroll students in their college. However, hard experience and many tears inform the wisdom of the advice. Remember, college is the place you will live and work nine months per year, for four years. You'd better love the place!

Campus visits are not complicated, but they are important. First of all, do you, the student, feel at home when you set foot on campus? That is a matter of taste and preference. Some people like modern; some traditional; some open spaces and some an urban jungle. Your tastes, what makes you happy is key.

Second, is the school too far from home for weekends; or too close for comfort? Again, it's your judgment that matters.

Third, is the school too big, too small, or (as Goldilocks found with baby bear's bed) just right.

Fourth, what do students do for fun? When they are not in class? On weekends? Find out and think about how those things line up with your ideas of fun.

Finally, it's a good idea to go to the building where you will be taking most of the classes of your proposed Major. Meet the professors who will be teaching you. Check out the classrooms where you will spend many hours over four years. Watcha think?



It's okay to visit every campus under serious consideration once. It's better to visit your top three twice; and your top two three times. You're about to spend A LOT of money, and invest forty-eight months of your life on a college campus. Be sure.
 

Are you coming back for part 3, or are you reading this Blog first?

If you are reading this one first, scroll down to find Blog 1 and Blog 2 of this series.

Keep moving. You don't have as much time as you may be thinking. Between now August 2020, when applications open for the Class of 2021, you have a lot to think about and decide. Financial aid is also tied to your good work now.



Here are the topics, and in reverse order.
5. Where are you going to apply?
4. Have I visited every college I am applying to?
3. What are my academic qualifications?
2. What will I major in?
1. What do I see as my future career?

Do you play sports? Video games? Anything competitive?      

There is a competitive aspect to college. Not every student in every class will earn an A. Not everyone will earn a C. The difference between a C and an A is determined, in part, by how well the entire class is assimilating the subject matter.

Really good teachers (the kind we all want) feel out the academic ability of the class and adjust their teaching.

• Is the class getting it, and catching on? Accelerate the curriculum.
• Is the class giving you that deer-in-the-headlights look? Slow down. Take more time to explain each concept.
• Tests and grades are based on what has been presented.

I was a soccer referee for many years. I worked just about the entire spread of players' abilities from recreation matches for children, to college and professional players. The child who is the
star of the recreation program team might well sit the bench, or even not make a premier level, youth team. There are college athletes who, although good, will not make the cut in a professional team tryout.

Applying the analogy to colleges, there is a difference between the academic rigor of a school like the University of California at Berkley and California State University at Chico. A student who will find his comfort level at one may not feel pushed enough at the other. Turn it around, and a good fit at one may well struggle to keep up at the other.

Look at a college's most recently published, First Year Cohort. What are the SAT/ACT score ranges? What is the average GPA of the incoming class; average Class Rank?

Another tactic is call the university you are considering. Ask about academic rigor. Tell them you are determining where to apply based, in part, on that criteria. They will pick up the conversation from there.

Come back next week for answers to questions 4 and 5 above.
 

I'm in 11^th Grade what else should I be doing now for college admissions and financial aid?

Are you coming back for part 2, or are you reading this Blog first?

If you are reading this one first, here is a synopsis of the previous Blog. But, please, after you read this, find the Dec 2-7 Blog and read it.

Keep moving. You don't have as much time as you may be thinking. Between now August 2020, when applications open for the Class of 2021, you have a lot to think about and decide. Financial aid is also tied to your good work now. Figure out what is a great career fit. Four years of college will be fun and rewarding if you graduate and land a great job.


Here are the topics, and in reverse order.
5. Where are you going to apply?
4. Have I visited every college I am applying to?
3. What are my academic qualifications?
2. What will I major in?
1. What do I see as my future career?

Once you identify well-suited career choices, address the question of what to major in to be best prepared for that future. Some choices are obvious plan to be an electrical engineer? Major in EE. Some choices are less obvious. Many students pick generic such as business major; psychology major; sociology major.


They are generic until you have a specific career track for which that degree prepares you.

• Which specific courses, as a college junior and senior should, you take within that major?
• Will you need to master's degree? a PhD?
• Do you want to go to school that long?
• Will the potential income justify the probable costs of Bachelor's + Master's degrees + PhD?

Next and this is really big does the college or university offer that major? If so, how many students do they graduate with that degree? For example, if a college has a total graduating class of 3,000 (in all majors), and your proposed major only accounts for 10 of those 3,000, is that really a program you want to invest in for 4 years, at somewhere around $80,000 - $100,000 (or more)?



Check out the college's website. Call the admission office. Gather the information.

Stay tuned for answers to questions 3,4,5 above.

If you would like our one-to-one, personal, highly tailored coaching, please tap the "Contact Us" tab at the top of this page, or "Schedule an Appointment" upper right corner on our Homepage. There is no cost and no obligation. We'll enjoy talking with you.
 

$24,000 every year that's what one, state-supported university publishes as the cost to attend for residents.  Out-of-state students add another $27,000 to make it $51,000 every year.
 
How do you manage to pay for that?  Heard of the 529 Plan?  It takes its name from the section of the IRS Code that stipulates its requirements and advantages.  Not a bad plan, in that you deposit money from your take-home-pay (yes after you've had your taxes withheld) into an account that, from then on, will grow without tax obligations IF . . .
 
That is a big IF. 

• If you do not need it for something else urgent and expensive.
• If those education costs line up with the approved list of expenses.
• If your children attend college and spend all of the 529 account.
• If your plan does well in the stock market.
• If, when you need the money, the market isn't having a major correction.
• If you do not mind paying a hefty penalty plus the tax owed if an if happens.

 
Let's just say, for the sake of conversation, you dodge all of that.  There is still the small matter of once you spend the money for approved college expenses, that's it.  All gone.  Account balance zero.
 
You managed to save $100,000 for each child.  Each child now has a college diploma and is looking for work, getting married, sprouting your grandchildren, trying to buy a house and all of those hundreds of thousands of dollars you had scrimped and sacrificed to save poof! -- are gone.
 
What if, instead of filling up that college savings tank full of money, and then draining it dry, you could have collateralized those funds?
 
What if your children, who earned the diploma, helped pay that all back as part of their future retirement?
 
In other words, what if your hundreds of thousands of dollars could have kept compounding interest while you used them as collateral to pay the expenses of a college education?