If it's an expense you're facing the next few years, there’s no time like the present to get prepared. We spoke to Mark Kantrowitz, the publisher of Fastweb.com and Finaid.org, about the best ways to save for school before you get there. Here’s what he told us about being prepared.
Channel One News: What’s your best college savings advice for a teen who wants to go to school and will be paying on their own?
Mark Kantowitz: Every dollar you save is a dollar less you will have to borrow. Every dollar you
borrow will cost you about two dollars by the time you've repaid the loans. So
it is literally cheaper to save than to borrow.
Also, time is your
greatest asset. You will accumulate more money by starting to save
sooner.
C1: What would you tell a sophomore about saving for college?
MK: If your state offers a state income tax deduction for contributions to the
state's 529 plan, save in your state's plan instead of another state's plan. The
tax deduction outweighs the benefit of lower fees when college is just around
the corner.
C1: How would you advise a senior to prepare to pay for school?
MK: It isn't too late to start saving. Seniors can also apply for scholarships (as
can students in earlier grades, even in elementary school).
C1: How can a young person make the most of the money they earn at an after school or summer job to pay for tuition?
MK: Save the money, instead of spending it. Don't work too much. Working more than
12 hours a week will interfere with academic performance.
C1: What can parents do to help their teen prepare to pay tuition?
MK: College is the start of a transition from a sheltered existence to the real
world. Be open with your children about the family finances and what you can
afford. Teach them about financial literacy and about smart borrowing. Teach
them about investing. Help them understand the complicated world of financial
aid. Paying for college is a partnership between student and parent.
Neither
should do all the work. Few students can afford to pay for college on their own
without help from their parents. But they can chip in by applying for
scholarships, working a part-time job in college, borrowing from federal student
loan programs and by getting good grades.
C1: Based on expectations for finding a job after college, is there a reasonable proportion of debt to expected income that a student should consider taking on?
MK: Total education debt at graduation should be less than the student's expected
starting salary, and ideally a lot less. If the total debt is less than the
annual income, the student should be able to repay the loans in ten years. If
the debt exceeds the income, the student will need alternate repayment plans to
afford the monthly loan payments.
These repayment plans reduce the loan payments
by stretching out the term of the loan. Not only does this mean that the student
will still be paying back his or her loans when his or her children enroll in
college, but he or she will pay much more interest over the life of the loan.
Students who borrow more than twice their starting salary are at very high risk
of default.
C1: Any other suggestions that could help students graduate without student loan debt?
MK: Enroll at a lower cost college, such as an in-state public college. Buy used
textbooks and/or sell your textbooks back to the bookstore at the end of the
semester. Minimize trips home from school to save on travel costs. Live like a
student while you are in school so you don't have to live like a student after
you graduate.
Eating a pizza a week costs $2,000 over a 4-year college career.
If you use student loan money to pay for the pizza, it will cost you about
$4,000 by the time you've paid back the loans. Before spending student loan
money on anything, ask yourself if you'd still buy it at twice the price, since
that's realistically what it will cost you.
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