Avoiding college debt

College debt can add up quickly, as explained in CNNMoney's recent article, "The other reason grads are drowning in debt" by Jon Marcus.

The best way to avoid college debt? Plan in advance. There are several different ways to save for college, some of which include 529 plans, Uniform Transfer to Minor (UTMA) accounts, education savings accounts, and others. Check into all of your options, and also see which plans offer tax advantages. Talking to a professional could be extremely beneficial to make sure you receive all the benefits available.

How not to blow it with financial aid

In Rachel Louise Ensign's Wall Street Journal article "How Not to Blow It With Financial Aid," she explains common mistakes parents and students make when seeking help with college costs.  Some of the common mistakes include:

• Earning too much at the wrong time.
• Letting the wrong family members hold college money.
• Making assumptions about what schools will offer.
• Thinking merit money is all about grades and SATs.
• Not applying for all the aid you're eligible for.
• Figuring the "expected family contribution" is all you're paying.
• Going for the loan with the lowest interest rate.
• Thinking an aid offer is set in stone.
• Figuring aid will be about the same all four years.

Click here to read the full article for more information.

College Costs: Tuition Is Just the Beginning

The Wall Street Journal's Emily Blazer discusses costs you may not typically consider when budgeting for your child's college education. Food, clothing, transportation, extracirricular activities, storage, and many other miscellaneous expenses can add up! Click here to read the full article.

Asking for Student Loan Forgiveness

I found this article on Business Week about former students asking for student loan forgiveness. Robert Applebaum, a 35-year-old attorney in New York, started a Facebook group in January called "Cancel Student Loan Debt to Stimulate the Economy." The group now has 292,703 members.

Here’s an excerpt from the article:

“Applebaum is one of thousands of graduates struggling with the repercussions of student loans years after graduation. There were nearly $131 billion in outstanding private loans in 2008, according to Mark Kantrowitz, founder of FinAid.org, which tracks the college financial aid industry. In addition, there is $544 billion in outstanding federal loans for fiscal year 2009, up from $502 billion in 2008, according to the Education Dept.”

To read the rest of the article, click here.

Check your insurance when sending a kid off to college

So you've sent your kid off to college. Congratulations!

But by chance did you consider the ramifications on your insurance?

Walletpop.com has a few great tips and things to consider if you've got a kid off at school. For example, in some situations, your kid's stuff in a dorm room is covered if it gets lost, damaged or stolen. But the minute they move off campus, it's not. Great tip. Read on for more:

http://www.walletpop.com/blog/2010/09/10/5-tips-for-students-and-parents-on-insurance-at-col/?utm_source=twitterfeed&utm_medium=twitter

Columnist warns against college debt; Dan disagrees

By Dan Danford
Family Investment Center

Michelle Singletary's column often preaches against debt. Any kind of debt. She's a product of her upbringing by a conservative grandmother who saw the ravages of the Great Depression.

I sometimes agree with her - but this latest column has me steamed.

She suggests in her column that it is not worth the debt to get a college degree.

Here's what she asserts:

I hate it when people say a student loan is good debt. There is no such thing as good debt. There is only debt. With that in mind, of course I side with the growing number of experts who are boldly arguing that racking up a lot of debt for college isn't such a great investment after all.

Totally absurd and irresponsible. Education is a good value, no matter how you get it. (And, incidentally, not all debt is bad.)

Having said that, you should use your head before borrowing for school or anything else. If you are going to be a teacher (noble, but not necessarily high paying), choose a college you can afford. Many regional or community colleges offer tremendous value and you'll get every penny back from the education investment you make.

On the other hand, an Ivy League school may not be the best choice for an education degree, especially if you have to borrow $200,000 to attend there. Probably shouldn't borrow $200,000 to satisfy your or your parents' ego, either.

This kind of column just makes me cringe. Education isn't a product, it's a life-time process. You don't earn a job along with your diploma, and - even if you did - smart people wouldn't spend $200,000 for a $30,000 per year job. Who makes that kind of decision? Where were the parents and school counselors, and financial aid advisors? And journalists, for that matter?

Of course, it's worth borrowing to get an education if that's the only way your can afford it. All the studies say so and millions of us prove the case. Don't let a few anecdotal stories lead you astray. Just use your head.


http://www.washingtonpost.com/wp-dyn/content/article/2010/08/19/AR2010081902753.html

Why we hate savings bonds

Editor's note: We field questions here from readers from time to time. Please post your question in the comments section. We'd love to hear from you.

QUESTION: I usually buy my grandchildren savings bonds to help them save for their education. My son has asked me to instead give him money to put in their 529 plan. He’s concerned about losing the savings bonds, and said they don’t get a good return. Is he right? Do I have any other alternatives?

ANSWER FROM DAN DANFORD: You picked the wrong guy to ask. I HATE savings bonds. They are awkward to buy, store, cash, and - as your son notes - find when you need them! Some of my worst horror stories as an advisor involve boxes of savings bonds left behind by ancient relatives! In my parent's day, savings bonds were one of the few places to set aside money each month. Now, they are an anachronism from a distant era and I absolutely loathe them as investments! Do I need to be clearer?

529 plans are the right choice for education savings today. You can choose between multiple investments, ranging from conservative bond funds to aggressive stock funds. Depending on your grandchildren's age, I often recommend a more aggressive approach. After all, five years is the usual benchmark we use for investing; if the money won't be spent in five years or less, then stocks usually provide a better returns. Even as your child or grandchild nears college, some of the money likely won't be spent until their college senior year. If people error, it's usually by being too conservative.

Seriously, savings bonds are rarely a good choice today. There are hundreds of options for investing that weren't around when my parents were young. Time to update your investment awareness!

Private schools: worth the cost?

By Robyn Davis Sekula

Here where I live in Indiana, our local school district announced four elementary schools are closing, including our school, Silver Street Elementary. My immediate reaction is dismay, followed by the natural question, "What are we going to do now?"

As I see it, a parent in this situation has three choices. They can home school, go with the new school the child is assigned to, or choose a private school. Our oldest child will be in the first grade this fall, and there are two more coming along behind her.

Whenever I don't know what to do, I do research. So, since I didn't know yet what elementary school would be ours next year, I started calling private schools and Googling private options. I discovered that all three of our children can go to a local Catholic elementary school for about $8,000 or less. That's a good price. I know it's a good education.

But I hesitate for this reason: if you start with a private school in the first grade, you're likely in it for the long haul, and just because costs are reasonable this year doesn't mean they will be in the future. That would leave us possibly having to yank our kids from private school down the road if our income dips, which is entirely possible. I'm self-employed, and my father's health is failing. I anticipate that I'll have more and more trips back home to Lynchburg, Va., where he is, and that one day, I'll also be caring for my mom. That responsibility will eat into my work schedule. I really don't want the pressure of paying for private school followed by college.

I've continued to gather information. The school district released maps showing us as redistricted to Fairmont Elementary School. I had a negative impression of the school, but as I thought about it more, I couldn't tell you why. So I decided to go on a fact-finding mission, if you will, and visit for myself. The school's principal and counselor took me and my husband on a 90-minute tour. We visited classrooms and every public space in the building, and I was incredibly impressed. I don't see private school as necessary.

The tough thing about evaluating education is that there are few ways to compare other than test scores and cost. Everything else is extremely open to interpretation, and usually is evaluated in more of an emotional way than anything else. It can be of vital importance for some families to have religion mixed in with their school day. For me, that's not preferable. I'd rather the school spend its time and energy teaching my child the stuff I don't know how to teach and that's factually based - math, science, history, English, etc. - and let me teach the religion at home. Religion is extremely easy to screw up, and the most subjective subject matter there is. I attended a very religious, conservative school, and I wince at some of the things I learned there. I'd rather teach my child that myself.

The summary: private school education should be evaluated on a cost basis first. If you can't afford it, or are barely affording it, don't do it. That's your first hurdle. Too many people think private primary education is crucial, and I'm just not convinced. It's not a fundamental right, and you aren't entitled to it.

Before you dismiss your public school as not good enough for your child, visit, ask a lot of questions, and evaluate. We discovered that Fairmont has the district's English as a Second Language program, and the kids in it are mixed in with the rest of the students and speak English quite fluently for the most part, which is a big bonus to me in terms of diversity and learning about the world. We also learned that Fairmont has a terrific and active theater program, which I think my oldest child would enjoy. We learned that the principal is an advocate for the school in every fashion, and that the school has zero tolerance for bullies (which is confirmed by a parent I know).

I'd love to hear your thoughts on private versus public education. If you have children, what choice have you made?

Dad's Divorce: Saving for college

Paying for college is one of the most daunting financial challenges parents face. It can be done, but it takes strategy and patience. Dan Danford reviews the best steps to take and some of the vehicles available to parents (and grandparents) in his latest podcast for Dad's Divorce.

College deals

By Robyn Davis Sekula

A few months ago, we did a post on the most expensive colleges in the U.S. It seems only fair to now post a link to what the Princeton Review is calling the best value colleges for 2010.

I'd like to say as a native Virginian, I'm proud to see University of Virginia topping the public schools list, and Virginia Tech also making the top 10. Why isn't my alma mater, James Madison University, on that same list? No idea.

Here's what the story says about the criteria:

The selection process took into account a wide range of data that included more than 30 factors in three areas: academics, cost of attendance, and financial aid. Academic factors included the quality of students the schools attract as measured by admissions credentials as well as how students rated their academic experiences. Cost of attendance factors included tuition, room and board and required fees. Financial aid factors included the average gift aid (grants and scholarships, or free money) awarded to students, the percentage of graduating students who took out loans to pay for school, and the average debt of those students. Also included was survey data on how satisfied students were with the financial aid packages they received.

Have a look through the list and see what you think.

http://today.msnbc.msn.com/id/34810203/ns/today-today_technology_and_money/?GT1=43001

Pre-paid tuition may not be best deal

Editor's note: On Mondays, we answer a financial question from a reader. If you have a financial question you'd like addressed in this space, e-mail robynsekula@sbcglobal.net, or post it in the comments below. You can also DM us on Twitter @family_finances.

QUESTION: I think that the pre-paid tuition plans that many states offer are probably a good deal – pay college tuition now, at today’s rates, for your child’s future education. But I hesitate to do this. My children are very young, 5 and 3, respectively, and I wonder if the plans will still be in tact when they’re ready for college, or if there are any other possible pitfalls to consider. What do you think, in general, of these plans? Or is there another way to save for college

ANSWER from Dan Danford: I think anything you can do to prepare your family for the expenses of college is a good thing. My only hesitation about "pre-paid tuition" is that the plans are usually tied to a specific institution. Sometimes, they are tied to institutions in a specific state. That worries me because it reduces flexibility, and if you follow anything I write, you know flexibility is key to financial success.

I have three daughters. All three graduated from college, and two of the three have already finished grad school. My youngest is in grad school today. As I sit and think about this, we've paid tuition and fees to Columbia College, Missouri Western State University, Texas Christian University, Emporia State University, Chicago Portfolio School, University of Missouri (Columbia), Southwest Baptist University, and the University of Missouri (Kansas City). That's three (very successful) daughters over nine years, and my simple point is this: it's hard to predict what your child will want or need a decade or more in advance. Any investment plan that ties benefits to a particular school or state could be a problem later.

My suggestion is to use a 529 plan for education-specific savings. These plans don't impose limits on where your child or grandchild might attend. Virtually any accredited college, university, or trade school will qualify. Also, for maximum flexibility, I recommend a family investment account (in parents' joint name) to augment the 529 plan. That way, there's a cushion for expenses that might not be direct education costs. Help with a car, for instance, or travel to and from school.
Higher education is extremely important today and will simply get in importance over coming years. It's important to plan ahead and set aside money to help your children or grandchildren. Keep in mind, though, that the longer the time horizon, the more need for financial flexibility. Keep as many options open as possible.

Boo! Frightening college costs

Here's something scary: The 10 most expensive colleges in the United States are all above $50,000 per year. For a four year education, you're looking at probably close to $250,000 by the time you've paid books and fees at these universities.

As we've said time and again here, there is no good reason to spend that amount on an education. There are lots (and lots!) of good, solid state colleges and universities. It's what you do with your education that matters. If you are wealthy and you can afford to send a child to one of these universities, hey, have at it. But do not mortgage your home or do anything scary to pay for college for your kids.

Have a look at the list here:

http://bit.ly/1AcvcF

And here's something REALLY scary. If you have a baby this year, and you want to send that child to one of the universities highlighted that's $50,000 a year now, you'll pay $518,641 for their education by the time they're ready for college. If college costs rise at 5 percent a year, your annual cost will be $120,331 (up from $50,000 over 18 years). The total cost for 4 year(s) will then be $518,641.

Here's the calculator we used to get those figures. Use it to look at the cost of your education or your child's education.


http://apps.collegeboard.com/fincalc/college_cost.jsp

Save up now to pay for your kids’ college

By Robyn Davis Sekula

I frequently listen to Dave Ramsey. I like his straightforward advice, but I don’t always agree with him. One of the things I don’t see eye-to-eye with Dave on is paying for kids’ college education.

Dave once said on air that he was talking to someone who was a wealthy celebrity, who decided for his kids’ own good, he would not pay for their college – he’d make them work their way through. Dave applauded him. But I listened to that and shook my head in disbelief.

That’s just plain wrong. If you can pay for a child's education, WHY wouldn’t you? I understand the idea of working and earning money, but paying for college, on your own, is really daunting, and getting more so every year. There are kids who drop out every year because they simply can’t afford it, and it only gets harder as the years go past.

But let’s get one thing straight right now: if you can’t afford it, don’t do it. And don’t feel obligated to pay for a pricey private college education you can’t afford. If your child wants to attend a private school, and you don’t have the money to pay for it, they will have to take on debt or get scholarships. Perhaps offer to contribute what you would have paid for a public education and let them make up the difference. You shouldn’t sacrifice your own financial security to help out an adult child.

My parents paid for my college education. I wanted to attend a pricey private university two states away. We visited, and then my parents leveled with me and told me it would be very difficult for our family to afford, and asked me to consider in-state public universities. I chose James Madison University in my native Virginia, which, as it turns out, was a great fit for me and my parents (GO DUKES!). I am very grateful for their financial support – and years later, I realized that their ability to pay for my college education allowed me to start out my adult life without debt, which changed the very nature of where I could live and what I could do. I wanted to pursue journalism, and with any form of student loan whatsoever, I would not have been able to afford that career path. I met friends in journalism who worked collection jobs while they paid off their debt so they could then become a reporter. I’m so glad I never had to detour.

If you’re wealthy and willing to pay for any college they want to attend, great. Do it, and know that you’re giving your kids a wonderful gift.

If you cannot afford an expensive university without going into tremendous debt, then tell your children that. Be up-front about what you can afford, and what you cannot. I do agree with Dave Ramsey that most of the time, a solid state university can provide an education that’s near or equal to the education at a pricey private university. It’s what you do with the education that matters.

Do set some ground rules for your children, though. Tell them they are expected to maintain a certain grade point average. Tell them you expect them to finish in a certain number of years – four if that’s appropriate for their field – and that you won’t pay beyond that. In other words, you aren’t writing a blank check. If you want to pay for graduate school, and you can afford to do so, you can make that offer, but I would advise you to wait until they are well into college before agreeing to anything.

We’ve started saving for our three daughters’ education. I hope to be able to pay for them to attend a solid state university. I know that I’ll have to ramp up the savings to get them there. Yes, it’s daunting – but it’s a gift that will stay with them for the rest of their lives.

Options for paying for college

By Dan Danford

We get asked by members of the media periodically to give advice for specific financial situations. One that we've often run across is paying for college. We answered a few questions this week from Geoff Williams, who is a regular contributor to WalletPop.com, an excellent personal financial blog.

I'm happy to be quoted on any financial matter, but especially on paying for higher education. When it comes to higher education, there's a vacuum for solid information. People with children see it as an "eventual" need, and use all the usual avoidance techniques to ignore it. Finally (and much faster than anyone expects), it's upon them. Whoa. The college learning curve is way steep and very brief. This type of post really helps.

Here's a link to it:
http://tinyurl.com/racp3v

Pre-paid tuition plans may not be best option

Editor's note: On Mondays, we answer a financial question from a reader. If you have a financial question you'd like addressed in this space, e-mail robynsekula@sbcglobal.net, or post it in the comments below. You can also DM us on Twitter @family_finances.

QUESTION: I think that the pre-paid tuition plans that many states offer are probably a good deal – pay college tuition now, at today’s rates, for your child’s future education. But I hesitate to do this. My children are very young, 5 and 3, respectively, and I wonder if the plans will still be in tact when they’re ready for college, or if there are any other possible pitfalls to consider. What do you think, in general, of these plans? Or is there another way to save for college?

ANSWER: I think anything you can do to prepare your family for the expenses of college is a good thing. My only hesitation about "pre-paid tuition" is that the plans are usually tied to a specific institution. Sometimes, they are tied to institutions in a specific state. That worries me because it reduces flexibility, and if you follow anything I write, you know flexibility is key to financial success.
I have three daughters. All three graduated from college, and two of the three have already finished grad school. My youngest is in grad school today. As I sit and think about this, we've paid tuition and fees to Columbia College, Missouri Western State University, Texas Christian University, Emporia State University, Chicago Portfolio School, University of Missouri (Columbia), Southwest Baptist University, and the University of Missouri (Kansas City). That's three (very successful) daughters over nine years, and my simple point is this: it's hard to predict what your child will want or need a decade or more in advance. Any investment plan that ties benefits to a particular school or state could be a problem later.
My suggestion is to use a 529 plan for education-specific savings. These plans don't impose limits on where your child or grandchild might attend. Virtually any accredited college, university, or trade school will qualify. Also, for maximum flexibility, I recommend a family investment account (in parents' joint name) to augment the 529 plan. That way, there's a cushion for expenses that might not be direct education costs. Help with a car, for instance, or travel to and from school.
Higher education is extremely important today and will simply get in importance over coming years. It's important to plan ahead and set aside money to help your children or grandchildren. Keep in mind, though, that the longer the time horizon, the more need for financial flexibility. Keep as many options open as possible.

ABC News turns to us for help on explaining 529 plans

ABCnews.com recently contacted us for thoughts on saving for college. As always, we're happy to help members of the media, and by extension, the public, understand the finer points of financial education. Here's a link to the story. Dan Danford is quoted in the last section.

http://a.abcnews.com/m/screen?id=7392258&pid=74

Teaching your kids about money

We give out a daily financial tip on Twitter @family_finances. During the past two weeks, we've given out tips for teaching your children about money. We thought it would be valuable to list all of the tips here together.

Can you explain your household budget to your kids? Get them involved early so they understand how money works.

An allowance should be earned by doing small chores. Teach your kids money is earned, not freely given.

When your kids receive money, require them to save some and give some to charity, and only spend a portion.

Do your kids know that you support charities? If not, it’s good for them to know. Teach them why you support what you do.

When it comes time to choose a college, don’t allow kids to think you can afford anything they want. Tell them there are limits to what you will spend.

Don’t bankrupt your own retirement to pay for kids’ college. They can borrow for college. You can’t borrow for retirement.

Help kids understand your values and why you won’t buy certain things. Give them a good reason and you’ll teach them something.

Grown children need to support themselves. You aren’t doing them any favors by giving them handouts.

Watch the spending on fast food. It adds up quick and it’s not healthy, either. Teach your kids how to eat on the go without fried food.

Live your financial life in ways that are consistent with what you teach your kids. They’ll notice if you aren’t consistent.

529 plans still a good bet

My local paper, the St. Joseph News-Press, did a story looking at Missouri's 529 plan, which, for the uninitiated, is a plan to help parent save for their kids' college expenses. I was quoted in the story. Nice piece that points out that Missouri's plan has done much better than most. Link below.

http://www.stjoenews.net/news/2009/mar/30/college-savings-mostly-fine/?business

Saving for college

This question came from @creditgoddess on Twitter. Are you following us on Twitter? We give out a financial tip every day and respond to questions. @family_finances

Q: Investing in 529 plan, but not happy with the results. Because of the current economy, should I put it somewhere else?

A: It sounds like this is a performance issue, not really related to the account type. A 529 Plan allows tax-free growth for educational purposes. Some states offer a tax deduction for contributions, and many parents and grandparent use 529 accounts to help build funds for future education. Generally, withdrawals used to pay college, vocational, or professional schools, or related expenses (including housing and books) are free of state or federal income taxes. Though many plans are administered by state governments, students can use the money for schools anywhere.

Originally, these plans had to be offered through a state government, and each state established the investment options and fee structure. States negotiated separately with fund and investment professionals, so some plans are better than others. Some states offer more and better investment choices. Similarly, some states offer better tax incentives to contribute. Basically, each person should review the plan where they live, and see if the incentives and investment options are strong. If not, they can choose a differing state (although non-residents wouldn't enjoy a state tax benefit). Also, regulations have changed to allow mutual fund and other companies to offer 529 plans. Be wary of plans offered through brokers or banks, though, because they feature expensive sales commissions that you can avoid by buying directly through a state.

With those background explanations, no one recently has been thrilled with any investment performance. Stock funds are down by half in the past few years, and bond or money market funds pay ridiculously low interest. It really hasn't mattered if we're talking 529 plans, or IRAs, or 401(k)s, or general brokerage accounts. This is just a very tough time for investing, and the type of account likely doesn't matter very much.

My 529 plan review would start with the plan offered through the state where I live. I'd carefully review the plan fees and investment options. If satisfactory, that's where I'd invest. If not, I'd compare nearby states using these same criteria. Internet sites and personal finance magazines offer comparative 529 plan data. Last, I wouldn't abandon a good plan just because investment returns are bad - virtually everything is bad right now. There will be better days coming, and good plans, like any good investments, will prosper again. That's your best bet for funding future education costs. Good luck.