BY JOHN MANOCCHIO | Moonshine Ink
In the United States today, student loan debt is a presumed part of paying for college. According to the Center for Economic Data at the Federal Reserve Bank of New York, total student loan debt at the end of 2019 stood at $1.51 trillion. That unimaginable mountain of debt is the result of student loan debt having more than doubled over the past decade. It is now the second highest consumer debt category in the U.S. behind only mortgages.
It’s no wonder student loan debt has exploded. In 1996, at the time I graduated from Cal Poly San Luis Obispo, registration and tuition fees were approximately $1,000 annually. Today, those same fees are more than $9,000 each year.
Graduates from our Truckee/North Lake Tahoe community are accepted into very prestigious schools: University of California Santa Barbara, Stanford, Harvard, and Boston College to mention a few. Still others decide to attend our local community college, Sierra College. Regardless of the school chosen, college-bound seniors face increasing costs for continuing their education. And long before even considering schools, parents are thinking about what their child’s education will cost and how they will pay for it.
Loans are one way to pay for college, but they are not the only option. There are solutions that both parents and students can take to ensure that college is accessible without accruing a large mass of debt.
SAVE EARLY IN AN EDUCATIONAL ACCOUNT
Setting up an educational savings account early for your child is one of the best ways a parent can make an effort to avoid potential future student loan debt. Contributions to educational savings accounts may have tax benefits, which makes creating such accounts even more attractive.
Examples of educational savings accounts include Section 529 plans, Coverdell Educational Savings Accounts (CESA), and IRAs, which can be used to fund education.
By setting up a savings account, no matter the amount your fund reaches by the time your child goes to college, it will undoubtedly be beneficial to him or her financially in the long run.
ASK FOR HELP: SCHOLARSHIPS
Applying for scholarships is a great way to avoid taking out excessive student loans. Right here in our community, there are many excellent organizations awarding scholarships. The Tahoe Truckee Community Foundation facilitates an online application process for more than 90 local scholarships. In 2019, the TTCF awarded $867,400, and applications for this year are being accepted through March 31. More information can be found on the TTCF website (ttcf.net). Other organizations with their own scholarship review committees in the community (which can all be reached via TTCF) include the Truckee Optimist Club, Truckee Rotary Club, Independent Order of Odd Fellows, P.E.O., Tahoe Mountain Resorts Foundation, Tahoe Donner Giving Fund, and Martis Camp Community Foundation. These are excellent community resources for school costs providing significant aid; for example, in 2019, the Truckee Optimist Club awarded local students 14 scholarships totaling $26,000.
CONSIDER COMMUNITY COLLEGE
All students have to take and complete general education (GE) courses as both a prerequisite to enrolling in upper division courses and also graduating from any four-year institution. Community college is a good option for completing these courses. The cost is often a fraction of the price of attending a four-year university and both offer the same GE required courses.
COLLEGE-LEVEL EXAMINATION PROGRAM (CLEP)
Just as community college may allow a student to take and complete general education courses in a more cost-effective manner, CLEP offers 34 exams that cover intro-level college course material. With a passing score on one of these exams, a student is eligible for college credits at more than 2,900 US colleges and universities. These college credits earned may lessen the time and money needed to graduate.
TAX CREDITS FOR EDUCATION
There are a couple of tax credits available to those families and students that qualify. A tax credit is a dollar for dollar reduction in income tax due.
The American Opportunity Tax Credit (AOTC) can provide up to $2,500 per student. The Lifetime Learning Credit (LLC) can provide up to $2,000 per family.
Along with qualifying criteria to receive these credits, there are also some restrictions on the expense to which these credits apply.
PART-TIME WORK WHILE IN SCHOOL
I worked part-time jobs while going to college. On a weekly basis, it wasn’t a lot of hours, and it didn’t interfere with my schoolwork. Working part time is a great way to gain experience in the work force and actively contribute to an education. And depending on parent contribution, scholarships, and loans, it may also provide some extra cash for expenses such as food, going out with friends, and other miscellaneous expenses for a new freshman in college.
STUDENT LOAN REPAYMENT AND FORGIVENESS
If you are like me, there may be no alternative than to take student loans. If you are carrying student loans, there are income-driven repayment plans which may help to lessen the burden of those loans. There are four plans that set monthly loan payments intended to be affordable based upon income and family size: the Revised Pay As You Earn (RePAYE) plan, the Pay As You Earn (PAYE) plan, Income-Based Repayment (IBR), and IncomeContingent Repayment (ICR). These income-driven repayment plans apply only to federal student loans and each has an eligibility requirement that must be met to qualify.
For those that work in public service after graduation, there is an opportunity for Public Service Loan Forgiveness (PSLF). This plan applies to employees of government organizations at any level in the U.S. (federal, state, local, tribal) and employees of nonprofits organized under Section 501(c)(3) of the Internal Revenue Code. Those qualified for this plan are eligible for loan forgiveness of an outstanding loan balance after 120 qualifying payments on federal student loans. More specifically, only loans received under the William D. Ford Federal Direct Loan Program are eligible for this forgiveness plan. However, if a federal student loan is other than a William D. Ford Direct Loan, it may be possible to consolidate those loans into a Direct Consolidation Loan which may be eligible for forgiveness.
This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Please consult your financial advisor prior to making financial decisions. John Manocchio is a financial advisor with Waddell & Reed and can be reached at (530) 412-3757. Waddell & Reed Inc. member FINRA/SIPC
Main Image Caption: LOCAL AID: The Tahoe Truckee Community Foundation, along with other local groups, provides scholarship opportunities to lessen the necessity of student loans. This smiling graduate is one of many recipients of scholarships that TTCF has offered over the past few years. Courtesy photo