RETIREMENT TIPS: Containing College Costs

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AlanKondo-238x300By ALAN KONDO, CFP, CLU

College graduates are increasingly having to learn a new lesson — one in debt management. And many of them are failing.

Student debt is widely understood to be a serious and growing problem in the United States. According to the Department of Education, 10% of college graduates defaulted on their loan repayments within the first two years and nearly 15% after three years.¹ More than 35% of loans taken by those under 30 are delinquent.²

Total student debt is nearing $1 trillion, at $966 billion as of the end of 2012. Today, the average student leaves college with a debt of over $24,000.

The news gets worse. While unemployment for recent college graduates was at 6.3% in 2012 — significantly less than the national rate — 48% of them are working in jobs that do not require a college diploma.³

What can you do to help contain costs for your college-ready child? Here are some tips.

Start locally. Attending a community college for one or two years could substantially reduce costs when compared with a four-year public or private school.

Tap into federal loans first. Find out more at the Federal Student Aid website (http://studentaid.ed.gov/), created by the Department of Education. Federal Student Aid provides more than $150 billion in federal grants, loans, and work-study funds each year. The site also provides information on repayment options for those with loans.

Consider private loans as a last resort. These loans are tricky, as graduates find themselves locked into loan terms that can make repayment difficult as they navigate the job market and struggle to find steady work.

Additionally, there are ways your college graduate can obtain loan forgiveness, including the following.

Join the military. Each branch of the military has its own loan forgiveness program.

Get a government, public service, or nonprofit job. Anyone who borrowed money under the William D. Ford Federal Direct Loan Program can apply to the Public Service Loan Forgiveness Program if they work in public service or for a nonprofit. The remainder of their outstanding debt will be forgiven after they successfully make 120 qualified loan payments.

Investigate Income-Based Replacement (IBR). Available for federal student loans since 2009, IBR caps monthly payments at a manageable share of income and forgives any debt remaining after up to 25 years of payments, or as few as 10 years of payments for those working for public or nonprofit employers. The program adjusts workers’ monthly loan payments to be no more than 15% of their “discretionary” income (the amount of money they make that falls above the federal poverty level).

Become a teacher in a low-income area. The Teacher’s Forgiveness Program will forgive up to $17,500 of federal Stafford loans or the entirety of Perkins loans if they work for at least five consecutive, full-time years as a teacher.

¹ U.S Department of Education, “Default Rates Continue to Rise for Student Loans,” September 2013.

² The Federal Reserve Bank of New York, Student Loan Debt by Age Group, March 2013.

³ The Center for College Affordability and Productivity, “Why Are Recent College Graduates Underemployed?” January 2013.

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

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  1. Takasumi A Kojima on

    This is a good article except for attending graduate schools like in Law, Business Administration and other techinal schools; going to a second tier schools like in Law will get you no-where and even in Engieering only schools like Cal-Berrkeley, Stanford, MIT and Cal Tech are the schools where employers look for their staff. Take Law, only such schools like Cal-Berkeley, Stanford, Harvard and Yale are where the top law firms recruit for their staff.

    It does not pay to go to a second tier collge even if you save some money because you will not get a decent job and you will suffer the rest of your life; even Federal and State jobs recruit from top schools.

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