Financing Higher Education
Did you know:
- These days, a four-year college education may cost much more than $100,000?
- If you attend a highly selective college or university, just one year of tuition, room, and board may cost you more than $35,000?
- Historically, college costs have increased at a rate exceeding the rise in inflation (The College Board, Trends in College Pricing). Predictions are that college tuition will increase by about twice the rate of general inflation, year after year. This would mean, in 20 years, the average annual cost of tuition for a four-year public program would rise from today’s $5,132 to $19,859 and the cost of a private program from $20,082 to $77,711.1
- Over the last decade, average tuition costs rose at nearly four times the rate of family income. Factor in room, board, supplies, personal expenses and plenty of midnight pizzas, and you can see how many families wonder how they’ll pay for it all – or if it’s even worth it.
Well, consider this. New information from the U.S. Census Bureau reinforces the value of a college education. Workers 18 and over with a bachelor’s degree earn an average of $51,206 a year, while those with a high school diploma earn $27,915. Workers with an advanced degree make an average of $74,602, and those without a high school diploma average $18,734.
According to the US Department of Education, families with children in college today rely primarily on the following three sources for college expenses:
- Personal savings
- Current income
- Loans
More than half of today’s college students receive some form of financial aid, which often comes in the form of Student Loans, such as:
Federal Student Loans - These are the largest source of student loans. They have low interest rates, are often subsidized by the government, offer grace periods and delays for repayment, longer repayment periods and less-strict credit requirements.
There are two types of Federal Student Loans - the Federal Stafford Loan and the Federal Perkins Loan.
The Federal Stafford Loan is the most common federal student loan. They are available to both graduate and undergraduate students and both subsidized and non-subsidized loans are offered. These loans cover tuition and fees, transportation, room and board, books and supplies, etc.
Stafford loans are available through two sources: Federal Family Education Loan Program (FFELP) and Federal Direct Loan Program (FDLP). Although they both offer the same loan programs, they are offered by different lenders and have different application and repayment programs. There are usually more repayment options under the FFELP, but the FDLP has an easier application.
The Federal Perkins Loan is a low-interest loan for students with exceptional financial needs. Although they are similar to the Stafford Loans, they have no fees and a longer grace period. These loans are awarded by participating colleges, and the financial aid office determines who qualifies, and how much money they receive.
Private Student Loans - These loans are generally used to supplement federal loans. They are available from a wide variety of sources, including schools and banks, and they are not guaranteed by the federal government.
Terms on private student loans generally vary, and are normally based on the borrower’s credit history. Lenders take a higher risk on these loans, so the interest rates and fees are usually higher than government-backed student loans.
State aid - Many states offer financial assistance to students attending college in their state. Contact your state higher education agency for more information.
If you own your home, you might consider a home equity loan or line of credit to fund you or your child’s schooling costs. According to the Consumer Bankers Association, about 5% of the money borrowed through home equity lines of credit in recent years has been used for education purposes.
Why use your home’s equity? A home equity loan or line of credit generally requires minimal paperwork, may close in a matter of days, and the interest you pay on the loan may be tax deductible. (Consult your tax advisor for details). If you choose a revolving line of credit, you’ll be able to access as much as you need, when you need it, and only make payments on the amount you use. This can be a convenience when funding a long-term expense, such as 4-8 years of college.
Just for Fun: Lindenwood University in St. Charles, Missouri will accept pigs as payment for tuition. The college will accept 25 hogs as trade for 1 year of education!
Fast Facts: The District of Columbia’s population had the highest proportion with a bachelor’s degree or higher at 45.7 percent, followed by Massachusetts (36.7 percent), Colorado (35.5 percent), New Hampshire (35.4 percent) and Maryland (35.2 percent)*.
The Northeast had the highest proportion of college graduates (30.9 percent), followed by the West (30.2 percent), the Midwest (26.0 percent) and the South (25.5 percent) ².
1College Board, Trends in College Pricing 2004, accessed 08-12-05.
2US Dept. of Education
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