Welcome to today's live chat! Joining us today is Jane Clark, Kiplinger’s college editor. Jane is certified by the National Institute of Certified College Planners, and is well-versed in many aspects of college financial planning. She'll be taking your questions for the next hour. Thanks for joining us, Jane!
Thanks for having me. I look forward to answering any questions.
Students are graduating with an average of $25,000 in student debt these days. If you have to take out a loan, what's the best place to look first?
The federal student loan program is definitely your best bet. Stafford loans, also called Direct Loans, have a fixed interest rate and flexible repayment terms, making them a better deal than private student loans.
Great. Now, let's start with our first question.
The amount simply reflects the average amount borrowed, among students who borrow at all. Some students do borrow much more, however.
Next question is from Jay S
The financial aid formula does not factor in your credit card debt; that is, you won't be considered to have more need based on that debt. You could use assets to pay down the debt, which would potentially result in more need-based aid, but your income has a much bigger impact on need-based financial aid than assets.
Next question comes from collegegradxx
Well, savings is always the best way to go, but if you don't have enough savings (and most people don't, given the cost of college these days), you may have to borrow. You can get federal loans, such as Staffords, and GradPlus loans, to help finance your education. I'd also look into grants through the grad-school departments you're considering, and at independent organizations that offer scholarships. You can find out more by searchign for Money for Grad School at kiplinger.com.
Next question is from Art.
I believe you are right but am not sufficiently versed in New York State law to confirm.
Art, we'll send your question to our Ask Kim columnist and try to confirm. Thanks for your patience.
Next question is from Casey
The rule of thumb is to not borrow more than you would reasonably expect to make in your first year out of school, so if you were to make $50,000 as a starting salary, theoretically $50,000 would be a reasonable amount. Of course, you would have to be confident that you could find a job in that profession fairly quickly. I don't really like putting a number to debt limit, though, as everyone's circumstances differ.
Interesting rule of thumb. Next question comes from Lisa.
Thanks for your comment. I'm glad you like the chat format.
Great feedback, KConstant. Jane, when you reply to someone's question, would you mind putting their name first?
Lisa, that is a great question. Some colleges guarantee a scholarship for all four years, assuming you meet the qualifications (ie, maintaining a certain GPA), but others offer only a first-year scholarship as a way of attracting students. You should find out how each college handles scholarships upfront.
Next question is from Jennie.
You should look into other options before deferring. For instance, you may qualify for income-based repayment, which can lower your monthly payment to as little as $50 (or even to zero, depending on your ratio of income to debt). You can get an idea of whether you qualify by going to ibrinfo.org and using the calculator on that site. The other good thing about the income-based repayment is that it offers the possiblity of loan forgiveness after ten years for people in certain professions. If you are teaching in a public school, you would probably qualify. Deferral is always an option, but it just postpones your obligation to repay, and if your loans are unsubsidized, the interest will keep building during deferment, leaving you with a bigger debt.
A good question for you Jane, from Greg S.
We have free copies of our 100 Top-Money Saving Tips for those of you who asked some great questions. Art, Jay, Jennie, Greg, CollegeGradxx and KConstant, please e-mail me at email@example.com for instructions on how to receive your free copy. Thanks!
Greg: Sorry, false start there. College financial advisors can be helpful in advising you on how to save for college and on how to position your finances to give a fair picture of your situation when you are applying for financial aid. I would be leery, however, of any college financial advisor who guarantees you a certain amount of financial aid.
Next question is from Sue.
The general advice is to not tap your retirement savings for college because you can always borrow for college (or go to a less expensive school or get scholarships or whatever), but you can't borrow or get a scholarship for retirement. And withdrawing money from a 401(k) has tax consequences, as I'm sure you know. Also, depending on when you withdraw the money, you could affect your eligibility for financial aid. So I would not recommend this strategy.