The average annual cost of higher education has increased dramatically in the last decade. And with education debt continuing to rise along with the increase in costs, many people face a tough financial situation. FDIC Consumer News offers these tips to help students and their families avoid debt overload as they plan for — and pay for — college, graduate school or other education.
Start saving early to reduce the amount you may need to borrow. In particular, Section 529 college investment plans, which are mostly offered by individual state governments, are a helpful tool for building a savings fund. One type of 529 plan gives you the right to lock in future tuition at today’s prices. The other allows you to place funds in an investment or deposit account and receive tax benefits. Our Raymond James Financial Services Dept. can help answer any questions you may have on the 529 plan. Give them a call at 605-882-4280.
U.S. Savings Bonds are another way to save for the future and, for qualified taxpayers, to benefit from a tax exclusion if the money is used for education expenses. To learn about Savings Bonds, start at www.treasurydirect.gov/indiv/indiv.htm. For information about the tax exclusion, go to www.treasurydirect.gov/indiv/planning/plan_education.htm.
Find ways to cut costs. High school students who take advanced courses or pass special college-level exams can earn college credits before they set foot on campus. “It’s never too early or too late to start saving on future tuition expenses and reduce the amount you’ll need to borrow for college,” said Denise Waters, an FDIC Consumer Affairs Specialist.
Other ways to save include going to a nearby school and living at home; choosing a college regarded as both high-quality and low-cost; and attending a community college for a few semesters before transferring to a more expensive, four-year institution.
If you must take out a loan, understand the different options. Federal student loans usually have lower interest rates and more flexible repayment options than private loans from non-government lenders such as banks and credit unions. Under current law, all federal student loans are obtained through the Federal Direct Loan Program administered by the U.S. Department of Education. The easiest way to apply for a federal loan, as well as federal student aid and most state and college aid, is online at http://www.fafsa.gov/. And, to learn more about federal student loans, start at http://federalstudentaid.ed.gov/students.html.
iHELP student loans are the easiest and most affordable way to cover your cost of education. Designed for the "gap" between the cost of education and the amount you can borrow under the federal programs. The iHELP® program provides private student loans designed to supplement, but not replace scholarships, grants and other financial aid including Federal Student Loans currently offered on college campuses. Please find out about all your Federal Student Aid options. Then if you still have a college financing gap, the iHELP® student loan is a great low interest way to pay for all your remaining college costs.
iHELP™ loans are provided through the Independent Community Banks of America (ICBA) and are originated and serviced by Student Loan Finance Corporation (SLFC). Visit iHelp to learn more.
Private loans are available for expenses not covered by savings, financial aid or federal loans, but do your homework before borrowing. “Many private student loans have interest rates that may change periodically, which could increase your monthly payments,” said Heather St. Germain, an FDIC Consumer Affairs Specialist. “It also is difficult to find a private lender that provides repayment options as attractive as those offered by the federal government.”
“Some private loans can carry high interest rates that may be difficult to repay on the salary of the typical recent college graduate,” added Evelyn Manley, a Senior Consumer Affairs Specialist at the FDIC.
Choose the best repayment plan. For federal student loans, a monthly, fixed payment over a standard, 10-year term is the most cost-effective arrangement and minimizes the total amount of interest you’ll have to pay. However, there are alternatives, including repayment periods up to 25 years, graduated repayment plans that start low and increase every year or two, and monthly payments that increase or decrease based on your annual income (for certain loans). For guidance on whether income-based repayment may be right for you, visit http://studentaid.ed.gov/ibr.
Securities offered through RAYMOND JAMES FINANCIAL SERVICES, INC. Member FINRA / SIPC •NOT FDIC Insured •NOT GUARANTEED by the bank •Subject to risk and may lose value •Not a deposit •Not insured by any government agency •Raymond James is not affiliated with the financial institution Reliabank.
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