My son’s college bill came in the mail this month and there is a very large number that we still need to pay. Given the amount, I should expect the envelope to be gilded in gold. Or, some fancy Town Crier to be at my doorstep eloquently announcing this silly amount of monopoly money. Exactly how do I come up with it?
How do I Fill the College Funding Gap?
How many of you share these thoughts? Tens of thousands, unfortunately, and this number continues to grow each year. One of the culprits, and another number growing rapidly each year, is the Cost of Attendance (COA). This figure comprises the cost of tuition, housing, food, books, and miscellaneous expenses (check out Tracie’s article – How Much Does College Really Cost – to learn more). On average, the Cost of Attendance is $22,261 for in-state public four-year colleges and $43,289 for private according to recent studies.
Given these soaring costs, how can the average American, let alone an 18 year old, afford college these days? Let’s add some salt to this wound. Consider that over the past 30 years, the median family income has increased by 147%, yet COA has increased by a whopping 439% during this same period. To put it simply, college costs have escalated at a pace that most Americans simply can’t afford without borrowing money.
For this very reason, I get a kick out of articles that place blame on banks for lending. If you do not have the full amount tucked away in savings, a 529 Plan, investments, or equity in your home, what are your alternatives? Under the Federal Loan Program, an incoming freshman can borrow $5,500 – this leaves families short by $16,761 (in-state public four-year), $29,812 (out-of-state public four-year), and $37,789 (private four-year). If only we could go back in time to 1960’s….but why is this the case?
Historic Limits haven’t Kept Pace with Current Costs.
Under a law that passed in 1965, Americans were able to borrow up to 95% of the Total Cost of Attendance. Specifically, an 18 year old could borrow up to $1,000 and the cost to attend a four-year public college was just $1,050 (on average).
Unfortunately, our government still thinks college costs the same as it did in 1965. The Federal Loan Program today covers a mere 25% of today’s public four-year costs compared to 95%…where is that support today? Queue up the Righteous Brothers…gone, gone, gone, wooooooh!” (For the younger generation, this is the song featured in Top Gun – the bar scene – see the 41 second mark).
Nevertheless, thousands of Americans still find ways to pay for education despite the constant year over year increases to costs. President Obama is leading the charge by encouraging the pursuit in hopes to make the United States the world leader in college attainment by 2020. Today, the United States is not even in the top 10. But, in order to achieve this goal, families and students need help.
Recent Changes in Federal Student Lending Practices.
Albeit small ones. To that end, we finally have some good news, as Legislation passed just last week that lowers the interest rates on Federal Education Loans. According to the White House, it offers an average savings of $1,500 in interest for an undergraduate. This new provision links student loan interest rates to the 10-year Treasury note and caps interest rates at 8.25% for undergraduates and 9.5% for graduate borrowers.
Many speculate this as short-term relief given expected interest rate increases over the next five years. Yet, everyone can agree that some action is always better than no action that has become synonymous with Congress as of late. This still doesn’t help families find the thousands of extra dollars, but it certainly decreases the cost of the dollars that can be borrowed from the government.
Filling the Funding Gap RESPONSIBLY.
To find the extra dollars, many will leverage private student loans from their local credit union or bank. These loans are designed to help finance the remaining gap that exists between the Cost of Attendance and what has been found or awarded in grants, scholarships, and federal loans. Check out these resources as you do your homework:
- Our scholarships, grants and federal work study page
- Our recent post – finding and applying for scholarships and grants
- Our recent post – what to know before applying for student loans
The best advice, however, before borrowing any money is to spend time educating yourself. Weigh the advantages of general education courses at a community college (check out my post on community colleges). Aggressively seek out and exhaust potential grants, scholarships, and institutional gifts. Learn what expected salaries are in the fields of study that you intend to pursue and an expected monthly budget upon graduation. And, lastly, don’t forget to ask for help from the experts in this field – the financial aid personnel at the school(s) you are considering. This is what they do every day of the year and they are quite good at it.
At the end of the day, I know this can seem daunting (believe me, I’m right there with you), but by leveraging the resource available to effectively lower the amount you owe and taking the time to research and compare your options, you can find the financing solution that’s right for you.
FREE Help is Available.
Need some extra help? I recommend contacting our financial aid experts through our FREE ScholarHelp service. They can help you and make navigating these waters a little easier. Remember, leverage all the free resources you can before you borrow. If you do still need financing assistance, we can help you find a credit union to meet your needs: