PHILADELPHIA PA – It’s common knowledge that the cost of higher education has skyrocketed over the years, and many students end up struggling with a flood of college loan debt once they graduate. In fact, the average student loan balance last year was $24,803, a whopping 70 percent higher than it was during 2004. Over those same years, total student loan debt nearly tripled to $966 billion.
As students prepare to head back to the books, college planning is on the minds of many families. If you’re concerned about college costs, the Pennsylvania Institute of Certified Public Accountants offers this advice:
Examine the Numbers
If you are planning to take out loans to finance the cost of a college education, determine what impact a student loan could have on your or your child’s future. That means taking a hard look at the numbers to see exactly how much debt you’re likely to incur, what kinds of payments will be necessary after graduation, and how long you’ll be making those payments.
Those are important questions because, according to a survey conducted by the American Institute of CPAs, only 39 percent of student loan borrowers and their parents said they fully understood the burden that debt would place on their future. In addition, the survey found that 60 percent now have some regret over their choice of education financing. Be sure you understand the commitment you’re making, and believe it is worth it.
CPAs recommend that your total undergraduate loan balance should not exceed your first year’s earnings after you graduate. If you think you’ll be able to earn about $25,000 per year in your first job, then a balance no higher than $25,000 is probably prudent.
If your balance is higher than that, it may be time to consider other financing options. At the same time, don’t take on credit card or other debt that will add to your obligations when you graduate.
If the costs of the colleges you’re looking at are going to bust your budget, it may be time to consider alternatives.
For example, if you attend community college for the first two years, then transfer to a four-year college after that, you will still get the same degree but at a significantly lower total cost. Living at home instead of on campus is another way to trim expenses, or you can pay off many of your tuition costs before you graduate if you work while going to school part-time.
Start Saving Early
Do your children receive money from relatives or friends on birthdays, holidays, and other special events? Why not put aside half of what they receive in a special college account? That’s one of many steps you can take to make saving for college automatic. Getting an early start will help you build the biggest possible nest egg and give you more time to accumulate interest or earnings on your money.
Pay Off Sooner Rather than Later
The longer your debt is outstanding, the longer you’ll pay interest on that debt and the higher your overall cost will be. That’s why it’s best to set your monthly payments as high as you can afford once you graduate so you can be debt-free as soon as possible.
College financing may seem like a daunting challenge, but there are many ways to cut your costs down to size. Whether you want to set up a realistic and tax-efficient college savings plan or evaluate your college financing options, a CPA may be able help.
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