Rethinking Your College Plan and Funding

Have a Better College Plan and Funding Plan

As we approach a new college planning season, many schools will be hosting financial aid nights.  Now is a good time to reassess your college plan and funding goals.  This is not just for high school seniors but for any parents of college-bound students.  There are major changes that parents and students need to recognize in this new career environment.  With many of the changes starting after 2000, we as parents did not need to include these factors in our college decision.

Due to the growth in technology and professional requirements, the need for post-college degrees and credits has grown substantially.  According to a 2020 supplemental census report, the number of people with post-college degrees has almost doubled since 2000.  With that trend, we as parents need to rethink our child’s college plan and funding goals so that they can avoid a life of student loan repayment.  With proper planning, use of college funding sources, family cash flow, debt structure, and loan repayment better outcomes can be attained.  We need to make decisions on not just admissions but the desired outcome.

Need For Post-College Degrees Trend

Since 2000, there are 13.7 million more people with post-college degrees.  Undergraduate degrees are up to over 18.4 million people during the same period.  This is a different world than most of us as parents faced when we were making our college decision.  According to this report, the investment in education will result in a better financial life.  The question is how to fund this?

Increase in college and post grad degrees

In this new competitive world, college planning needs to include career goals.  My recommendation is to investigate the career requirements of each major during the college selection process. Often, our focus is only on the next step of finding the college. Families need to also see the full picture and the financial outcome which may include some form of graduate school.

You may be surprised at some of the careers that require post-college credits or degrees.  As an example, CPAs need 150 college credits to take the CPA Exam.  Some states require their Public-School teachers to have a post-graduate degree or the equivalent within 5 years of employment.  Investigating your child’s possible career path should be included as a part of your college list process.

College and Graduate School Funding Trends

We are all aware of the student loan problem that many borrowers are facing.  What many do not realize is the growth in student loan debt is directly related to the increased need for more graduate school funding.  Currently, most families only plan for the funding of a child’s undergraduate studies, and with today’s tuitions that is a herculean task in itself.

As you can see in the chart below in the increase in graduated school attendance has resulted in a significant rise in both Unsubsidized federal loans and Grad Plus Loans.  Since 2014, Grad Plus loans have increased by 128.3%.  The Unsubsidized federal loans have also increased significantly but there is a $20,500 limit for graduate school that the Grad Plus does not have.

Change in various federal student loan types

With this information, more families should rethink their college decision if their child’s career path looks like it many need graduate school.

Growing Importance of Debt Structure

With the knowledge of graduate school being required, the structure of proper planning of college funding becomes vital. For federal loans, the interest rates and fees are much higher for graduate school than undergraduate.  To achieve the lowest financial cost during the college decision time, families need to combine both proper planning of student debt structure and family’s college fund.

As you can see in the chart below, the different interest rates by federal loans for this year have been published.  In most cases, students should take the Direct Stafford Loans starting in freshman year through graduation.  If the family has the resources they can then pay the remaining outstanding balance with college funds and cash flow.  This will allow any remaining college fund to offset the higher graduate school debt resulting in an overall lower financing amount.  To accomplish this, the student and parent will need to complete a FAFSA each year.

2021-22 Federal Student Loan Interest Rate Chart

Rethinking College Your College Plan and Funding Summary

As careers and the demand for higher trained individuals increases, students and parents need to adjust to improve the financial outcomes.  For most parents, this is the most expensive financial decision you make before retirement.  For students, proper financing and required education decisions could impact your financial life for 20+ years.  That is why a step back to evaluate the goal of a college education and the college selected is so important.

The new world for high school students and parents who are approaching college is not only what major but also, what will the child look like at the age of 25.  The need to look at how much education will be needed, the financial outcome, and the debt structure need to be thought through before the initial college decision is made.

The PayForED software helps families navigate both decisions.  The College Cost Analyzer allows students and parents to compare colleges side by side.  This helps them find the best college value.  Once you are in college, the In College Payer helps the student navigate their total debt structure and calculates their loan repayment at graduation.  With both tools, families can make informed college financial decisions.

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