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Parent
FAQ
How much should I save?
How much you need to save depends on the school your child attends.
Tuition and fees at public colleges are generally lower than those at private
schools. Regardless of the school, though, education costs have been rising,
and are expected to continue increasing over the next decade.
Here’s how much college funding you'll need to save
to send one child to an average four-year private or public
college. Don't let these numbers frighten you. Start implementing
your college savings plans today.
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| Child's Age (Years) |
Average Cost1 Private College |
Average Cost1 Public College |
| One |
$257,543 |
$118,312 |
| Four |
$222,475 |
$102,200 |
| Eight |
$183,031 |
$84,080 |
| Twelve |
$150,580 |
$69,173 |
| Sixteen |
$123,884 |
$56,909 |
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Which is better, a prepaid tuition
plan or a college savings plan?
A prepaid tuition plan offers a conservative approach to
investing for college, and can be right program for students
planning to attend
a state college. And, if tuition costs increase, you win-the
number of credit hours you purchased remains the same, regardless
of any changes in college costs.
The NextStudent Scholar’sEdge™ savings
plan is more flexible, allowing you to save for any attendance
at any college. The amount you invest, plus the accumulated
return on your investment, may well exceed college costs
so you’ll come out ahead.
Both plans are tax-deferred, and allow tax-free withdrawals
for education-related expenses.
If savings may impact my child’s federal aid
eligibility, why should I save at all?
Whether you save or not, you will be expected to contribute
to your child’s education to the extent possible. If
you haven’t put away any money at all, then you may
have to take out loans either as part of your financial aid
package or to pay part or all of your Expected Family Contribution
... or both. Even though you and your child may be eligible
for low-cost loans, any type of loans means paying interest
whereas saving money means getting interest.
How much will I be expected to contribute toward
my child’s
education?
To meet the cost of attendance, each school looks to the
students and parents to make an Expected Family Contribution
(EFC). The EFC is based on your family's ability to pay,
and is determined by need analysis derived from the information
reported on your child’s Free Application for Federal
Student Aid. The EFC normally includes both a student's share
and the parents' share, both of which take into account income
and assets. The total EFC is calculated using a standard
formula established by law so that, regardless of the college
your child attends, your EFC will be the same.
How will contributing to a 529 impact financial aid eligibility?
Although your savings will be considered in the EFC calculation,
income is a bigger factor than assets. However, both types
of 529 plans will impact your EFC.
A college savings plan, such as the NextStudent Scholar’sEdge
plan, is considered the parents’ assets and is factored
into the EFC at 5.6% so that a portion of the assets are
considered in the financial aid calculation. A prepaid tuition
plan, on the other hand, is considered to be the student’s
asset, and reduces financial aid dollar-for-dollar.
Who should save—me or my child?
While there are potential tax benefits to saving in your
child’s name, there are also potential financial
aid implications. Parent assets are factored into the EFC
at low rate-5.6%, while student assets are assessed
at 35% of assets and 50% of after-tax income over $1,750.
Who should borrow—me or my child?
You should definitely investigate loans for your student first, such as the
Federal Stafford Loan. These are the lowest-cost aid available and offer
significant benefits such as flexible repayment, deferment and forbearance,
and consolidation.
How is a Federal PLUS Loan different from a Stafford Loan?
Both loans are federally guaranteed, but the Federal PLUS
Loan is made to the parents of Dependent undergraduates,
while the Stafford Loan is made directly to the student
in his or her name. Other differences are:
- Interest rates: The interest rate on a Stafford
Loan is generally among the lowest available (currently
3.62%). The Parent PLUS Loan interest rate is slightly
higher (4.22%
as of 07/01/03), though still quite low compared to other
types of consumer financing.
- Repayment: Repayment on Federal Parent PLUS Loans begins
within 60 days of disbursement whereas Stafford Loan
repayment is deferred until after graduation.
- Loan Amounts: Parents can borrow
up to 100% of college education costs, including room
and board, books and tuition. Federal
Stafford Loan borrowing is capped at $2,625 and $3,500
for first- and second-year undergraduates, respectively (Independent
students may borrow an additional $4,000), and $5,500
for third- and fourth-year students (Independent students may
borrow an additional $5,000).
Is there a credit check required for a Federal PLUS Loan?
Yes, parents must pass federal guidelines for creditworthiness.
These guidelines are generally less stringent than for
other types of consumer credit, such as home equity loans
and credit cards.
What if I’m not approved for a PLUS Loan?
A student whose parent(s) have been turned down for a PLUS
Loan may be eligible to borrow additional funds through
the Unsubsidized Stafford Loan Program, subject to the
school's approval.
How much does a Federal PLUS Loan cost?
The Federal PLUS Loan has a 3% government origination fee
and a 1% guarantee fee, which is normally waived. Fees are
taken out of the proceeds of the loan, so there is no up-front
money required to obtain the loan.
How are Federal PLUS Loan funds disbursed?
The school’s financial aid office will distribute the
funds directly to the student in scheduled payments over
the course of the academic year. All federal loans have at
least two disbursements, typically one for each school term.
At most schools, the last disbursement will take place in
January, and the repayment will normally start between February
and March.
Are there any prepayment penalties on the Federal PLUS loan?
No.
1. The source for the year 2001 cost averages
is the annual Survey of Colleges, The College Board, 2001-2002.
Average college funding costs include four years of tuition,
fees, books and supplies, transportation and other expenses,
as well as the assumed 5% annual inflation rate. These illustrations
use the actual 2001 cost averages in order to project the
hypothetical future costs.
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