If your child is college bound, how to make it affordable

Can college be affordable to students who “make the grade” and seek

higher education as a career path to higher earnings? Yes and no.

Fact: According to the College Board, the nation’s four-year

public colleges and universities increased tuition and fees by nearly

10% in 2002. There was a 6% increase in room & board charges, raising

the average cost of attending a four-year public school to $9,663, up

$672 from the previous year. Nationwide, private four-year colleges

had tuition climb 5.8% to $18,273 with room & board costs rising 4.6%

to an average of $6,779. If you plan to attend a public school in a

state other than the one in which you reside, add an average of

$6,347 out-of-state-tuition to public college costs.

Fact: According to the National Center for Public Policy and

Higher Education, state spending for public colleges and universities

dropped sharply in 2002, while at the same time tuition and mandatory

fee charges rose significantly across the country with some states

reducing their student financial aid programs.

Fact: College is an investment. According to the College Board,

people with a college degree earn 81% more on average than those with

just a high school diploma. Over a lifetime the gap in potential

earnings between a high school diploma and a BA is more than $1

million.

The Price of Admission and How to Lower Costs

* Searching and Applying for College - Narrow the list to four to

six schools. Applying to 15 to 20 schools costs $800 to $1,000 in

application fees, alone. Ask how much costs will increase each year.

* Campus Visits - Take one trip to see the schools on a long

weekend. Consider campus size, location and curricula. Have your

child bunk with a friend in the dorms to see if they’re comfortable

in the surroundings.

* Apply Early - Apply to your first choice early. Finding out if

you’re accepted in mid-December, prior to when the first round of

applications are due, can mean savings. The most competitive schools

offer this option.

Saving for College

According to the College Board, a family that saves $50 a month

from the time their child is born will realize more than $16,000 in

savings by the time he/she graduates from high school. Nearly $6,000

of this is interest earnings.

What are the Savings Options?

1. * State “529” College Savings Programs - Save money through

state-sponsored investment accounts. Earnings and withdrawals are

federal tax-free, you can use the funds at any college or university

in any state. Current financial aid formulas only count 5% of

parental assets when determining a family’s need figure.

* State-Managed Investment Accounts - Pays for tuition, fees, room

& board, books and supplies. Zero Residency Restrictions and no cap

on income level. Some element of risk.

2. * State “529” Prepaid Tuition Programs - Lock into the tuition

price being charged at the state’s public universities in the year

your child is enrolled in the program. Earnings are guaranteed by the

state to match in-state public tuition inflation. Considered like

scholarships, reducing financial need on a dollar-for-dollar basis.

Most allow funds to be transferred to private and out-of-state

schools.

* Prepaid Tuition Plans (PEAs) - Families buy all or part of a

public in-state education at current prices. The state guarantees to

meet or exceed annual in-state public college tuition inflation which

is usually 5 to 8%. Plan costs vary. The state will at least match

in-state college tuition increases and they are low risk, usually

outperforming savings accounts or CDs. Limited to state residents and

geared to public institutions, it reduces your eligibility for

financial aid and plans differ on what college costs are covered.

3. * Coverdell Education Savings Accounts (ESAs) - Formerly called

Education IRAs, these accounts allow families to put away $2,000 for

each beneficiary per year and use the money tax-free to pay for

college expenses.

4. * Roth and Traditional IRAs - Roth: Withdraw your contributions

to pay for college expenses without incurring income tax or a 10%

early withdrawal penalty. Traditional: You can withdraw money for

college expenses without paying the 10% early withdrawal penalty; you

owe income taxes on the amount you withdrew.

How Financial Aid Works to Help Make College Affordable

Financial aid is intended to make up the difference between what

your family can afford to pay and what college costs. More than $74

billion in financial aid goes to college students every year. What

decides how much your family is able to contribute is referred to as

the Expected Family Contribution or EFC. The federal government and

financial aid offices use “need formulas” to analyze your family’s

financial circumstances. Check with the college you plan to attend to

see what percentage of need they will meet. To apply for financial

aid you must fill out the Free Application for Federal Student Aid

(FAFSA) which is used to calculate a student’s eligibility for

federal aid programs. Most financial aid offices require you apply

for financial aid every year because your financial situation can

change. Renewal is based on satisfactory academic progress toward a

degree, a minimum number of credits and your GPA.

Fact: According to the College Board, you’re likely to contribute

about the same amount whether you apply to a low-cost school or a

high-cost institution. So, don’t automatically rule out colleges with

higher costs.

Financial aid includes grants or gift aid, given to students by

organizations. They don’t need to be repaid and you don’t need to

work to earn them. These come from federal and state governments as

well as from the school. Some are based on merit rather than need.

Scholarships are awarded to students for achievements ranging from

athletic to academic and community service. They vary in value.

Bursaries differ from scholarships in that financial need is a strong

consideration. Loans must be repaid so consider interest rate,

subsidized or unsubsidized types, loan fees and repayment options.

The lower the interest rate, the less expensive the loan and the less

you’ll have to repay. Loans based on financial need are subsidized

(federal government pays the interest on the loan). If you qualify,

borrow a subsidized loan first and borrow only what you need.

Consider origination and processing fees.

The least expensive loan is usually the one with the lowest

interest rate. In order, they are: Perkins (need-based loans awarded

by the financial aid office with a 5% interest rate); Subsidized

Stafford/Direct (need-based loans with a 3-4% interest rate and

federal government pays the yearly interest rate; Unsubsidized

Stafford/Direct (not based on financial need, you are responsible for

paying the interest while in school; and Private (by lenders and

financial institutions, they are not need-based and have a higher

interest rate than federal need-based loans. Check out interest

rates. Private organizations and foundations also have loan programs.

Parent Loans are also available.

Editor’s Note: A great resource on college financing is “Meeting

College Costs: What You Need to Know Before Your Child and Your Money

Leave Home” by the College Board (2003 Edition, $13.95).