How to Limit Your Child’s Student Loan Debt to a Minimum
Do you have a child under the age of 18? If that’s the case, are you concerned about their ability to attend college without incurring too much debt? Here are some ideas for easing your children’s student loan debt:
1) Make a backup
If you don’t have any high-interest debt, have a sufficient emergency fund, and are on schedule for retirement, it doesn’t harm to start saving now, especially if your kid is still young enough to benefit from years of saves and investment returns.
You may use this calculator to estimate how much you’ll have to pay to your child’s school costs, as well as this calculator to estimate how much you should save for your objectives.
Check out this summary of the benefits and drawbacks of 529 savings plans and other tax-advantaged strategies to save for college once you’ve chosen how much to save.
2) Encourage your youngster to enroll in advanced placement classes
Advanced Placement classes, if offered by your kid’s high school, can be a fantastic opportunity for your child to gain college credits while also increasing his or her chances of earning merit-based scholarship money.
Your child may not even need to take an AP test to get college credits in some instances. I was able to earn 6 SUNY credits for my AP French and English classes without taking the AP test and then transfer them to NYU while I was in high school.
Whether your school does not offer an AP class in a topic in which your student excels, investigate if they may still take the exam. Even though my school didn’t offer such subjects at the time, I was able to get credits by taking the AP History and Government examinations. As a result, I was able to graduate in three years, save a year’s worth of college fees, and get an additional year of wages and job experience.
3) Borrow money under your child’s name
That’s because, compared to a limit of 5.64 percent of assets in your name, roughly 20% of the money in your name is assessed for financial aid eligibility (save for retirement account holdings, although any withdrawals are recorded as student income).
If that doesn’t terrify you, bear in mind that after your child reaches a specific age, depending on your state, they can spend the money anyway they choose. Before you fill out the financial assistance paperwork, make sure you utilize that money for their advantage, such as a car or a school computer.
4) Compile a list of net costs
When looking at the annual prices of many institutions, it’s easy to experience sticker shock, yet practically nobody pays list price today. You may use the school’s net price calculator to estimate what the cost will be once financial aid eligibility is taken into account for a more accurate comparison. Don’t be shocked if a costly private school with plenty of financial assistance ends up costing you less than a public school.
5) Consider starting at a community college
If even the net expenses are too expensive, your child might start at a community college and then transfer to a four-year institution to complete his or her degree. Because your child will most likely be commuting from home, this can save not just tuition (many are less than $2k for a full-time semester), but also housing and board.
If students perform well at community college, they may be able to transfer to a better institution than they would have been able to get into otherwise. That is a win-win scenario.
6) Look at student loan options
You might wish to look for other scholarships online in addition to the college’s financial assistance department. The majority of them are based on skill, academic achievement, or affiliation with a certain organization, but there are a few unusual ones, so you never know what you’ll uncover. Paying a price to a scholarship search service for something you can accomplish yourself should be avoided.
A home equity loan is one option to assist pay for your child’s education if you have enough equity in your house and good credit. The interest rate is usually significantly lower than that of a student loan. You are, however, putting your house at risk if you are unable to make the payments.
Another alternative is to borrow from your employer’s retirement plan because the interest is paid back into your account. But that doesn’t make it free. If you quit your employment, whatever you don’t pay back within 60 days may be considered a withdrawal and subject to taxes and a 10% penalty if you’re under the age of 59 1/2. The payments on these loans are generally due in as short as 5 years, so they may be fairly high.
Finally, if you have an IRA or a retirement plan that may be rolled into one, you can use the funds to pay for your children’s eligible school expenditures without incurring any penalties, although there are certain restrictions. First, double-check that you won’t need this money in the future. After all, financial help isn’t given out for that. Second, with student loan interest rates remaining low, there’s a high possibility you’ll make more money from the IRA money than your child would pay in student loan interest by keeping it invested.
Finally, remember that you’ll have to pay taxes on it, so you could be better off saving the money until you’re in a lower tax rate in retirement and then using it to assist your children pay off their student debts.
7) Decide on a value
Once you’ve determined the expenses, browse for a college the same way you would for anything else: search for value. It’s unknown how much the higher earnings of graduates from top institutions are due to the school and how much is due to the student.
When comparing students with identical talents and goals, a renowned research by Stacy Berg Dale of the Andrew W. Mellon Foundation and Alan Krueger of Princeton revealed that students who attended more selective and less selective institutions earned approximately the same.
In other words, if your child is good enough to get into Harvard, he or she will most likely make the same amount of money even if they attend a less expensive but less distinguished institution instead.
However, there are a handful of exceptions. For kids from financially disadvantaged families, attending more selective institutions had larger payoffs, according to the same study. A lot also relies on your child’s interests.
A more prominent degree might pay dividends if they wish to work in a sector like investment banking or management consulting, as many firms only hire from elite institutions. On the other hand, if they want to be a teacher or start their own business, it might not be worth it.
8) Motivate them to get to work.
Having your youngster gain some skin in the game might be a smart idea. Students may learn the worth of a dollar and how to budget through working. It also gives you significant experience that might lead to a full-time job when you graduate.
In my instance, I know that my future financial employers were far more interested in my success selling cutlery in people’s homes while in college than in my economics degree. Part-time employees may be eligible for tuition aid from some companies.
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