Is Your Child Headed To College Next Fall? It’s Time for Both of You
to Take a Crash Course on Borrowing and Spending.
Even if you’ve planned relatively well for your future college student’s expenses, the credit crunch and downturn in
investment income for colleges have changed the game for financial aid at many schools. That means both parents
and students need to approach the college financial aid scene with unprecedented caution.
Harvard University, the world’s richest school, announced in February that it was slashing 25 percent of its
investment staff after its $36.9 billion endowment lost 22 percent of its value in the previous four months and could
decline as much as 30 percent by the end of June. In two separate surveys released in January, the Commonfund
Institute and TIAA-CREF, in a survey done for the National Association of College and University Business
Officers, reported that college endowments fell on average 23 percent in the five months ended Nov. 30, 2008.
Why is this important? It’s true that endowments at schools of all sizes mostly pay for faculty and facilities. But they
also provide both grants and scholarships for talented students who need them and have been under significantly
more pressure to do so. When students have a tougher time finding lower-cost school financing, the demand for
scholarship and grant funding goes sky-high. In many cases, students are forced down the borrowing chain to
increasingly risky loan options.
The private student loan sector has also been hit by reports of questionable practices in the last two years. In
December, 2009 New York Attorney General Andrew M. Cuomo reached an agreement with the College Board
– the developer and administrator of the SAT and AP – to stop discounting products and services in exchange for
a ranking on colleges’ preferred lenders list. The College Board will now invest $675,000 to develop a set of tools
to help financial aid administrators to help students and parents compare student loan offers and identify the lowest
cost loan options.
What can you do? The smartest thing is to work with a planner when kids are young to amass the right amount of
savings for college, but it makes good sense for both parents and students to meet with a planner before school
starts to underscore the complete list of financial issues the student will face. These include:
Planning alternatives for financial aid shortfalls: Over the past few years, colleges have not been able to offer
adequate amounts of funding through Perkins, Stafford and Plus federal education loans, and private student loans
through banks have closed up with the credit crunch.
Here’s the catch – many college students get in trouble with debt because they are unaware that many for-profit
companies advertising access to federal loans pull their financing from private sources that cost the borrower far
more than actual federal loans would. The ability to plan for college well in advance and work with an expert to sift
through proper loan alternatives can make the difference between an affordable debt load when a student graduates
and potential bankruptcy.
Setting a budget as early as possible for basic expenses: Until the student gets to school it will be tough to tell what
actual expenses will be, but it won’t hurt to set a tentative budget that involves taking full account of the student’s
savings, the parents’ (and possibly the grandparents’) contribution to everyday expenses and any planned income
from work-study or other sources. For a template of a budget written specifically for college students, go to:
http://www.aie.org/Calculators/budgetworksheetinschool.cfm
Start managing credit and debit cards before school starts: The time to start managing credit and bank accounts
isn’t freshman year. While a teenager won’t build a credit history as an authorized user on a parent’s card, it’s good
to get a little practice using it under a parent’s watchful eye. When a child goes on to college, the challenge will be
looking for the best credit card offer amongst many and managing that credit responsibly. This is another good
reason for both parent and student to meet with a financial planner ahead of school to discuss proper credit card
usage and monitoring of a student’s fledgling credit score.
©2006-2011 Yardley Wealth Management, LLC. All rights reserved.
to Take a Crash Course on Borrowing and Spending.
Even if you’ve planned relatively well for your future college student’s expenses, the credit crunch and downturn in
investment income for colleges have changed the game for financial aid at many schools. That means both parents
and students need to approach the college financial aid scene with unprecedented caution.
Harvard University, the world’s richest school, announced in February that it was slashing 25 percent of its
investment staff after its $36.9 billion endowment lost 22 percent of its value in the previous four months and could
decline as much as 30 percent by the end of June. In two separate surveys released in January, the Commonfund
Institute and TIAA-CREF, in a survey done for the National Association of College and University Business
Officers, reported that college endowments fell on average 23 percent in the five months ended Nov. 30, 2008.
Why is this important? It’s true that endowments at schools of all sizes mostly pay for faculty and facilities. But they
also provide both grants and scholarships for talented students who need them and have been under significantly
more pressure to do so. When students have a tougher time finding lower-cost school financing, the demand for
scholarship and grant funding goes sky-high. In many cases, students are forced down the borrowing chain to
increasingly risky loan options.
The private student loan sector has also been hit by reports of questionable practices in the last two years. In
December, 2009 New York Attorney General Andrew M. Cuomo reached an agreement with the College Board
– the developer and administrator of the SAT and AP – to stop discounting products and services in exchange for
a ranking on colleges’ preferred lenders list. The College Board will now invest $675,000 to develop a set of tools
to help financial aid administrators to help students and parents compare student loan offers and identify the lowest
cost loan options.
What can you do? The smartest thing is to work with a planner when kids are young to amass the right amount of
savings for college, but it makes good sense for both parents and students to meet with a planner before school
starts to underscore the complete list of financial issues the student will face. These include:
Planning alternatives for financial aid shortfalls: Over the past few years, colleges have not been able to offer
adequate amounts of funding through Perkins, Stafford and Plus federal education loans, and private student loans
through banks have closed up with the credit crunch.
Here’s the catch – many college students get in trouble with debt because they are unaware that many for-profit
companies advertising access to federal loans pull their financing from private sources that cost the borrower far
more than actual federal loans would. The ability to plan for college well in advance and work with an expert to sift
through proper loan alternatives can make the difference between an affordable debt load when a student graduates
and potential bankruptcy.
Setting a budget as early as possible for basic expenses: Until the student gets to school it will be tough to tell what
actual expenses will be, but it won’t hurt to set a tentative budget that involves taking full account of the student’s
savings, the parents’ (and possibly the grandparents’) contribution to everyday expenses and any planned income
from work-study or other sources. For a template of a budget written specifically for college students, go to:
http://www.aie.org/Calculators/budgetworksheetinschool.cfm
Start managing credit and debit cards before school starts: The time to start managing credit and bank accounts
isn’t freshman year. While a teenager won’t build a credit history as an authorized user on a parent’s card, it’s good
to get a little practice using it under a parent’s watchful eye. When a child goes on to college, the challenge will be
looking for the best credit card offer amongst many and managing that credit responsibly. This is another good
reason for both parent and student to meet with a financial planner ahead of school to discuss proper credit card
usage and monitoring of a student’s fledgling credit score.
©2006-2011 Yardley Wealth Management, LLC. All rights reserved.
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Michael J. Garry, CFP®, JD/MBA, owner of Yardley Wealth Management, LLC,
is an independent Financial Advisor who provides Fee-Only financial planning
services and investment management in Newtown, PA.
is an independent Financial Advisor who provides Fee-Only financial planning
services and investment management in Newtown, PA.
| Address: 41 University Drive Suite 400, Newtown, PA 18940 Phone: 267-573-1019 Toll free: 877-251-4393 Fax: 267-604-9164 mgarry@yardleywealth.net |