Student debt – the monster in the closet

The rising costs of education continue to put the “squeeze” on my clients’ retirement plans.  The truth is that paying for your children’s college educations can cause real strains on vital retirement assets.
Sometimes, it’s too late for clients to re-establish their own retirement savings if paying the college expenses for their children has drained their financial resources. That’s something we may have been able to manage, and to prepare for, if these well-meaning people had met with me five or ten years earlier. 
Unfortunately, financing your children’s college educations looks to be getting tougher rather than better in the short term.  Tuitions are escalating, and many parents and students have been, and will continue to be, more and more reliant on student debt.
Like the monster in the closet, what we imagine is very scary, indeed:
•  Student debt in the United States now exceeds consumer debt
•  Student debt exceeds one trillion dollars.
•  The average student debt load upon graduation is now over $25,000 per student.
What does it mean for students?
•  If they do have jobs, significant debt loads may cause them to defer buying a home, or having children,
•  If they don’t yet have jobs, and they can’t meet their minimum payments, they can anticipate:
          o  Increasing the debt by accruing interest, penalties and fees,
          o  Risking wage and tax refund garnishments,
          o  Lower credit scores,
          o  Disqualification from the help they desperately need.
What does it mean for parents?
• More “squeeze” on parents trying to help launch the kids while taking care of their own financial needs.
• Deferred retirements
What Can You Do Now?  
If a student and/or parent is paying down debt, and is still having trouble, there is an Income Repayment Plan and a Public Service Loan Forgiveness program to investigate. I have discussed this program in the past.  http://www.financialplanningfocus.com/2010/06/10/question-when-is-education-not-the-key-to-success/
For students who have not yet taken out any loans, and their parents, it’s well worth exploring federal loans that offer favorable terms, i.e. fixed interest rates.  These loans are available for up to $31,000, regardless of assets and income thresholds.  You will also want to understand how to fill out the Federal Application for Student Aid, or FAFSA, and how to improve your score in order to qualify for maximum aid.
Seems complicated?  I can help.  I can help you fill out the FASA; provide more information on loan options for your student and you; and, equally important, show you the impact of college costs on your own retirement plans.
Get in touch today. Hopefully, we can put the monster in the closet to rest, before life gets too scary.

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