College Education: Investment or Liability?
By: Shelley Honeycutt
College is still worth the investment; but like any other large investment you need a plan to get the best return. Doing research can protect your college investment. The typical pitfalls are choosing the right college, selecting a major based on an occupation, and understanding how much debt you can afford based on your future occupation.
Choose a college with a good four-year graduation rate. Most students graduate in five or six years now. Taking an additional year to graduate can substantially increase your educational debt. Choosing a college that is a good match academically, socially, and financially will increase your chances of graduating on time and save you money. Graduation rates are available at the FAFSA.gov website under the school code search option.
During the college planning years, students and parents need to investigate occupations and their corresponding majors more thoroughly. Understanding starting salaries for their new occupation is key. More importantly, does this occupation require a graduate degree in order to work in the field? If so what is the salary pay off for obtaining a graduate degree. A great resource for this type of research is “What’s it Worth? The Economic Value of College Majors” published by Georgetown University.
Once you understand what your salary will look like, you can back into how much educational debt you can afford. Experts like Mark Kantrowitz of FinAid.com suggest that your educational debt should total no more than 10-15% of your projected gross salary.
Since a college education will likely be the largest investment you will make, doing research only makes sense. Education for education’s sake is a luxury that most of us cannot afford these days.
The President’s New Plan for Student Loan Debt
By: Shelley Honeycutt
Many students with college debt are interested in how the President’s new plan can help them better manage their debt. Recent college graduates have been the focus of much media attention due to the persisting unemployment and under employment plaguing their generation. The President’s new plan may not really be all that new but it may offer some relief for borrowers that qualify. It is also bringing media attention to existing Programs that borrowers have been overlooking. Below are the highlights that would interest most borrowers.
Need to Lower Federal Loan Payments?
Old Program: The Income Based Payments (IBR) plan was enacted as part of the College Cost Reduction and Access Act of 2007 and became available on July 1, 2009. IBR payments allow borrowers to make monthly payments based on their actual income and family size. Essentially, the payments are based on 15% of a borrower’s discretionary income.
New Program: After January 1, 2012 the Income Based Repayment (IBR) formula (also referred to as “pay as you earn”) will be changed to 10% of a borrower’s discretionary income. Payment charts for the new formula should be available at www.StudentAid.ed.gov after January 1, 2012.
Want Federal student Loan Debt Forgiven?
Old Program: Under the Income Based Payments (IBR) plan after 25 years, any remaining debt will be discharged or forgiven.
New Program: Under the new Income Based Payments (IBR) plan after 20 years, any remaining debt will be discharged or forgiven.
Want to Consolidate your Federal student Loans?
Old Program: Under the old Federal consolidation rules you could consolidate your Federal student loans into one Federal consolidation loan and stretch the repayment term up to 30 years depending upon the amount you borrowed. The Consolidation interest formula was a weighted average of all loans being combined rounded up to the nearest 1/8th of 1 percent.
New Program: Federal loan borrowers that consolidate after January 1, 2012 can receive up to a .50% interest rate reduction. Borrowers would receive a 0.25 percent interest rate reduction on their consolidated FFEL loans and an additional 0.25 percent interest rate reduction on the entire consolidated balance. Read the Fact Sheet released by the White House on October 25, 2011.
