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Paying for College: What They Don’t Tell You

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Remember, the college giving you financial advice has its own money needs

A college education can come cheaply and offer huge personal and financial rewards. But just as easily, it can be enormously expensive — for the student and/or parents— and do far too little to advance a life and career.

With such frighteningly varied outcomes, best to be forewarned and forearmed.

“You need a college degree to function in our modern economy.”

What they don’t tell you: It doesn’t need to be a four-year degree. And certainly not from a private school that doesn’t give a hefty aid package.

Associate degrees (typically two years) are all the credentials needed for plenty of careers.  And don’t get all googly-eyed over a name school; even there, your future earnings potential can vary widely based on what program you’re in.

If you’re up for some Excel spreadsheet scouring, there’s a database that provides key earnings info on which college programs at what schools pay off, as well as the ones that don’t.

“The PLUS loan program enables virtually every parent to borrow from the federal government to pay for a child’s college education.”

What they don’t tell you: If you can actually afford the debt.

The federal PLUS program allows parents to borrow the full cost of an undergrad’s college costs, minus any aid. That can end up being tens of thousands of dollars. Yet unlike other big-ticket borrowing, such as for a car or a mortgage, there’s no process to check if you can afford to borrow. No one checks your income, or your debt-to-income ratio. There’s only a cursory check to see if you’ve recently declared bankruptcy or are behind on bills.

And no one sits you down to carefully walk through the long-term ramifications. Survey after survey shows many parents who borrow for college are worried they aren’t saving enough for their own retirement.

Moreover, PLUS loans charge a higher rate than what students are charged for undergrad loans. And there’s a stiff 4.228% origination fee.

Taking out a PLUS loan may be easy, but it also may be a financial mistake.

“We’ve got a great financial aid offer for you.”

What they don’t tell you: “Read those offer letters very carefully.” Some schools like to slide in parent PLUS loans as “aid.” That is to say, aid from the Bank of Mom and Dad (see above).

“We are required to list the standard cost of attendance at our school.”

What they don’t tell you: “We actually offer steep discounts if we want you badly enough.”

Every school is required to publish the average net price that it charges attendees. The net price is the typical all-in cost a family will pay after the school coughs up some aid. At public four-year schools, the net price is more than 25% less than the list price. At private, nonprofit four-year schools, the average net price is 45% less than the list price.

But to snag a lower net price you need to be a student the school is eager to land. You can get an idea of the net price for various colleges by using a net price calculator.

“A graduate degree is a smart (and maybe necessary) career move.”

What they don’t tell you: This is where borrowing can be a very deep financial sinkhole.

Student loans for undergrad degrees come with borrowing limits that make it pretty hard to emerge from school with crushing debt. The maximum annual amount that can be borrowed (by juniors and seniors) is $7,500 for each year. And the total allowed for federal undergrad loans is $31,000.

Grad school loans literally have no limits. The standard federal grad program allows up to $138,500 in borrowing (this includes any undergrad degree debt). But if you need more than that, grad students can borrow through the PLUS loan program. The PLUS program for graduate students spits out loans to cover all expenses not already covered by grants and other loans. A graduate degree that leaves you with crushing debt is not the ticket to a flourishing career.

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