Church Pension Group | Student Loans

Student Loans

Paying for college or a graduate degree is expensive. Whether you are sending your child to college or financing your own education, there are a number of options you should consider. Start with research to identify scholarships, grants, and other sources that will pay a portion of the tuition for you. Then, research the financing options available, and be sure to understand the repayment options before you borrow.

When choosing a college, an important consideration is the cost of tuition, room and board, and fees.

Schools provide the total expected cost to attend so you can compare. The information is generally provided on the school’s website.
Consider a state school or community college for the first two years, as they are generally less expensive than private colleges. Many private colleges accept transfers from state or community colleges, saving you tuition and allowing you to earn a diploma from the private school.

A number of good resources, including government resources, are listed below.

Financing Options

Having a financing plan before enrolling is essential.

- 529 Savings Plans – 529 Savings Plan are state-sponsored savings plans offering tax breaks and other advantages such as tax-free earnings. These plans are generally used to save for your children’s, or grandchildren’s, college expenses. Most plans allow you to invest a lump sum or make periodic deposits. There is an annual cap on how much can be contributed without paying gift tax.
- Savings – Savings may be a good source of funding for education, especially if you are paying for your own education.
- Scholarships – Many scholarships are available for students with a special interest or talent. Don’t leave this money on the table.
- Parent/Grandparent Help – If someone is able to help the student pay for higher education, bypass the student and pay the college directly. Payments made directly to the college aren’t considered taxable gifts.
- Payment Plans – Check to see if the school offers a plan that allows you to spread annual tuition payments over eight or ten months.
- Financial Aid – Aid is based on two factors:
  - - The cost to attend the school, including tuition, fees, room and board and other
  - - Your family’s ability to pay. This is the expected family contribution (EFC).
  To begin the financial aid process you must fill out the Free Application for Federal Student Aid (FAFSA) after January 1 of the year you will attend college. The FAFSA is also required for all Government grants and loans.
- Private loans – Private loans should be used only after all federal options have been exhausted. These loans may have higher interest rates than government-sponsored loans, may require a co-signer if the student is the borrower, and may not have a deferment option.

Repayment Options

The first thing you should know is your student loans are not likely to be canceled or discharged! You must repay a student loan even if finances are difficult. If you don’t make your monthly loan payments, you will risk becoming delinquent and risk going into default. The good news is that there are a number of repayment options.

- Standard repayment plan. This is the original repayment plan. With a standard plan, you generally pay a fixed amount each month for up to 10 years.
- Graduated repayment plan. With this, your payments start out low but increase later in the 10-year term. This plan is tailored to individuals with low current incomes who expect their incomes to increase in the future. Note: you'll pay more for your loan because more interest accumulates in the early years of the plan when your outstanding loan balance is higher.
- Extended repayment plan. With an extended plan, you extend the time you have to repay your loan, usually from 12 to 30 years. Your fixed monthly payment is lower than it would be under the standard plan, however, you'll ultimately pay more for your loan because of the interest that accumulates under the longer repayment period.
- Options for Federal loans
  - - Pay As You Earn (PAYE). Under PAYE, borrowers typically pay 10% of their discretionary income toward their federal student loans each month, and all remaining debt is generally forgiven after 20 years of timely payments. Your monthly loan payment is based on your income, family size, and state of residence. It is readjusted each year based on these criteria.
  - - Qualified public and non-profit service. Typically loans can be forgiven after 10 years for those in qualified public service if all payments are made on time and other requirements are met.

Resources

We've done some of the research for you, here is a list of websites to help you along the way.

- Free Application for Federal Student Aid (FAFSA^®)
- Use FAFSA4caster to get an estimate of how much aid you might receive from the U.S. Department of Education.
- The U.S. Department of Education offers a variety of federal grants:
- The U.S. Department of Education offers a variety of federal loans:
  - Direct Subsidized Loans are made to eligible undergraduate students who demonstrate financial need.
  - Direct Unsubsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
  - The Federal Perkins Loan Program is a school-based loan program for undergraduates and graduate students with exceptional financial need. The school is the lender.
  - Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students
- Many organizations offer scholarships or grants to help students pay for college.
- Learn about all your options at Federal Student Aid, an office of the U.S. Department of Education.
- The Consumer Financial Protection Bureau’s private student loan ombudsman may be able to assist you if you have concerns about your private student loan. Click the "Submit a complaint" button.
- See the IRS website for information about The Lifetime Learning Tax Credit, American Opportunity Credit, and Student Loan Interest Deduction.

Tips & Resources - Student Loans

Check the financial aid options available from your state. Many states offer lower-cost loans, grants, or scholarships to students.

Using retirement savings to pay for education should be your very last option. More resources are available for funding an education than a retirement, and you are giving up valuable earnings on any savings you withdraw.

Know your grace period. Most student loans have a six-month grace period, which means you won’t have to make payments until six months after you graduate, drop out, or drop below half-time status.

Depending on your income, there may be tax deductions and credits available. Please make sure you discuss the American Opportunity Credit and The Lifetime Learning Tax Credit as well as the Tuition and Fee Tax Deduction with your tax preparer.

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