Make your family's education as debt-free as possible

(ARA) - Whether you intend to send your child off to college or plan to pursue an academic or vocational path for yourself, reducing student debt load makes good financial sense, especially since the sticker shock of almost all kinds of post-secondary education can be daunting.

The net price of four-year colleges has risen rapidly since 2002 and the average increase in tuition and fees at public four-year colleges in 2008-2009 was 6.5 percent, according to the College Board. Twenty percent of students attending colleges and universities experienced an increase of 9 percent or more.

Unfortunately, this has occurred against the backdrop of the current recession, which has meant the elimination of many scholarship programs. According to U.S. News and World Report, financial aid will get tougher for anyone hoping for free money from any of the three main sources of scholarships: governments; charities, foundations and corporations; and schools.

Now is the time to learn the ins and outs of funding a post-secondary education. Here are some tips to help you get "smart" about paying for education costs.

* Start an education savings plan. If your children are quite young, or if you are making plans of your own, you may want to consider putting savings aside, taking out a prepaid tuition plan or establishing a 529 plan. Your relatives and friends may also want to participate in your family's savings strategy by contributing to your education savings as part of their holiday gift-giving, or to mark special occasions such as a marriage, anniversary or birth of a child. Or, you can decide to set aside any such cash gifts and keep them in an education savings account to redeem later, when needed.

* Check out scholarships. Beyond scholarships offered by individual colleges and universities, look for scholarships in unusual places. Community foundations, civic groups, religious groups, chambers of commerce, charitable trusts, public companies and private organizations also offer scholarships. For example, Foresters provides members with innovative life insurance products and benefits of membership such as a competitive scholarship program for its members, their spouses and dependent children. The scholarships, which recognize volunteering and community service in equal measure to good grades, are designed to encourage and support those who make volunteering an important part of their lives. Up to 350 scholarships are available for many kinds of post-secondary education, including vocational and trade schools, colleges and universities, and, unlike many other scholarship and loan programs, can be applied to tuition as well as room and board. It's also important to familiarize yourself with tax considerations related to scholarships, as scholarships are tax-free on certain qualifying tuition and fee (but not room and board) costs.

* Consider the impact of inflation. College prices today are not going to be the same as they will be in the year 2027, when children born in 2009 will likely begin their freshman year. The College Board reports that published college prices rise more rapidly than other goods and services, a trend that has persisted for more than 30 years. Continuing this compounding trend forward 18 years, this could result in four-year education expenses costing literally tens of thousands of dollars more than an equivalent education today. So it is important to budget and save in accordance with the cost of education in the future and not simply base a savings plan on the cost of an education today.

* Plan for the long term. Having a life insurance plan can add financial security for your family's education. If you haven't put a life insurance plan in place, now is a good time to do so. For example, should your heirs need financial assistance after you've passed away, a life insurance benefit could be used to help pay for their post-secondary education.

By taking these steps and seeking help from qualified financial advisors, you have a better chance of making your family members' post-secondary education as debt-free as possible.

Courtesy of ARAcontent

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Sallie Mae Launches New Income-Based Repayment Plan

(BUSINESS WIRE)--Sallie Mae, the nation’s leading saving-, planning- and paying-for-education company, today announced a new repayment plan to help eligible federal student loan customers substantially lower their monthly payments.

The new “income-based repayment” option, or IBR, which was authorized by federal law to begin on July 1, will enable federal student loan customers experiencing financial difficulty to cap their monthly bill at 15 percent of their discretionary income. IBR also allows eligible customers making qualifying payments to extend from the standard 10-year term to up to 25 years, after which any remaining balance will be forgiven.

For example, a new college graduate with an entry-level job at $31,000 and $31,000 in federal Stafford loans would pay approximately $170 less per month compared to the payment due under the standard plan.

“Sallie Mae is committed to providing students not only with the resources needed to invest in higher education, but also with the tools to help them succeed afterward,” said Albert L. Lord, CEO. “We are pleased that our value-added IBR seminars have assisted students on all types of college campuses, including Direct Lending schools. This is another example of how competition leads directly to enhanced services for students and schools.”

With today’s launch, Sallie Mae offers a new student loan repayment calculator, available at www.SallieMae.com/repaymentcalculator, to help customers assess whether they qualify for the new plan, compare it to alternatives, simulate IBR results under different income assumptions, assess the likely time to pay in full and evaluate the total cost of each option. An eligibility worksheet, an in-depth repayment options presentation and materials geared for students who are likely to qualify, as well as information on loan forgiveness for public service professions, are also available from Sallie Mae at www.SallieMae.com/ibr.

These new resources build on other outreach efforts Sallie Mae has undertaken to build awareness about IBR and assist students on customer and non-customer (Direct Lending) campuses. In January, Sallie Mae began holding workshops and in-person visits to educate financial aid professionals and their students about the program. In March, Sallie Mae identified students likely to benefit from the new repayment plan and started educating those individuals about it with targeted counseling.

“Income-based repayment is an important new tool to help our graduates stay on track to financial success,” said Tara Olsen, director of financial aid, Tufts University School of Medicine. “Sallie Mae’s repayment strategies sessions did an excellent job of translating complex details into practical tips, and as a result our graduating students have a much better understanding of their options. As we transition to a Direct Lending school this year, we are grateful that Sallie Mae has continued to provide assistance with the education of our students.”

Under federal law, student loan customers are eligible for income-based repayment if they demonstrate financial need as defined by the Department of Education based on a formula that considers the individual’s income, federal student loan balance and household size. The monthly payment is capped at 15 percent of discretionary income and is reset each year.

The IBR option provides an alternative payment schedule for individuals with high federal student loan payments relative to their income. It may be particularly helpful to new college graduates who are unable to find employment at the levels they had expected—or for those with advanced degrees, such as law school graduates or medical residents, who have accumulated higher-than-average federal loan balances through their undergraduate and graduate programs. IBR, however, may not be the best option for all eligible customers as they may end up paying more in interest charges over the life of the loan since the option extends the repayment term.

Additionally, July 1 will bring other changes to help college-bound students make the investment in higher education. The maximum Pell Grant award will rise to $5,350, an increase of $619, and more families will be eligible to claim an expanded tax credit of up to $2,500 for higher education. In addition, account owners of tax-advantaged 529 college savings plans will be able to count the purchase of a computer for a beneficiary college student as a qualified education expense in 2009.

Finally, for the second year in a row, interest rates on need-based subsidized federal Stafford undergraduate loans will decline: the interest rate for newly disbursed loans will be 5.6 percent, down from 6.0 percent last school year. In accordance with current law, undergraduates with unsubsidized Stafford loans and graduate students will continue to pay fixed interest of 6.8 percent. In addition, the origination fee the government charges for each new Stafford loan will change to 0.5 percent, down from 1 percent.

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