MONEY money advice

Money Advice for the Class of 2015 From 8 Recent College Grads

Who better to give real-world financial advice than recent grads who are making the transition to financial adulthood

To help new college graduates prepare for the financial challenges ahead, MONEY lined up a panel of experts: young adults from the Class of 2014 and other recent years who have already made the transition to post-college finance. These recent grads have taken big steps to launch their financial futures, and their tips address everything from managing everyday spending to planning for retirement. No matter what your age, you can learn plenty from their experience.

  • José Anaya

    150414_FF_CollegeAdvice_JoseAnaya
    Jose Anaya

    Biola University Class of 2014
    Age: 22
    Home town: San Francisco
    Master of: Debt management

    Planning his wedding and prepping for real world expenses while still a senior in college, José Anaya decided to take a conscious step toward securing his financial future. After hearing rumblings on campus about Dave Ramsey’s Financial Peace University, he started attending sessions to boost his financial savvy.

    Upon graduation, Anaya and his wife, Adaline, applied Ramsey’s strategy of assigning every dollar a purpose. The purpose they chose? Paying off their approximately $117,000 in student loans. The couple pays more than $1,100 a month and are on track to meet the government’s standard 10-year repayment plan, but for the Anayas, that’s just not fast enough.

    “We are talking with different long-term planners to figure out how to expedite our game plan,” José says. “We are trying to get rid of debt as quickly as we can.”

    Advice: “College debt and financial needs ahead could create a lot of stress. The only way to overcome that stress is by looking at the facts, crunching the numbers, and creating a game plan to tackle the financial challenges ahead. Be honest about what you owe and what it will take to pay that off, and have courage.”

  • Lisa Bernardi

    150414_FF_CollegeAdvice_Bernardi
    Lisa Bernardi

    American University of Paris Class of 2014
    Age: 22
    Home town: Chicago
    Master of: Long-term career planning

    When Lisa Bernardi returned to the United States after studying abroad, she knew she wanted to move to Chicago. With the help of a recruiting agency, she pursued two separate offers and negotiated her salary with each company. Then she took a surprising step: she accepted the lower offer.

    From her research, she had found that one of the companies had tripled in size in over a year, while the other had started small and stayed small for over a decade. “I’ve gained much more responsibility than I would have at the other one,” she says of her current position with the fast-growing company. “I also considered the offices and how happy people were here, and saw it was not the same atmosphere.”

    Even though the recruiting agency tried to convince her to take the higher-paying position, Bernardi stuck to her guns. “People don’t expect desperate college grads to stand up for themselves,” she says. “I took that risk for myself.”

    Advice: “It’s tempting to take the first offer you get, especially when you’ve been applying for months, but make sure you take some time to think it through and ask yourself about your long-term potential in that position. Where do you see yourself in six months, two years, five years, if you follow that path?”

  • Megan Beatty

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    Megan Beatty

    Biola University Class of 2014
    Age: 22
    Home town: Denver
    Master of: Thrift

    After graduation, Megan Beatty was dismayed by the amount of money she saw going toward tasks that she felt she could tackle on her own. So she starting working on do-it-yourself projects that she considered just “a Google search and an hour away.” Now Beatty has a wealth of money-saving knowledge of cars, home repair, technology, and taxation. When her laptop stopped working, for example, she fixed it on her own with tools that cost her $80 — thus avoiding an estimated $500 repair bill from Apple.

    Her research doesn’t stop there. Instead of using Uber or Lyft to get in to work every day (like some co-workers), Beatty researched cheap parking lots in the city and, through her employer, was able to use pretax dollars to pay for parking.

    Advice: “Financially, never take the first easy way out. The most accessible, easy option is always going to be the most expensive.”

  • Kirk Leonard

    150414_FF_CollegeAdvice_Leonard
    Kirk Leonard

    Lamar University Class of 2013
    Age: 24
    Home town: Nederland, Texas
    Master of: Retirement Planning

    When Kirk Leonard started his job as an office manager of a dialysis facility, the company didn’t offer a retirement plan. After witnessing a colleague leave the company in favor of a competitor that offered better benefits, he knew it was time to do something about employee retention.

    Though the company had talked for years about implementing a 401(k) for employees, high fees always halted the process. Already a savvy negotiator — during the hiring process he negotiated a 10% pay bump — he got to work researching options. He ended up proposing to his employers a Simple IRA with a 3% match, which his company agreed to implement. Now he and 35 of his colleagues have a new retirement savings plan.

    Advice: “Basically, confidence is key. Notice I said confidence, not arrogance. There’s a fine line between the two that I am constantly having to watch.”

  • David Russell

    150414_FF_CollegeAdvice_Russell
    David Russell

    Texas Christian University Class of 2012 / Oklahoma State University (M.A.) 2013
    Age: 24
    Home town: Dallas
    Master of: Negotiation

    David Russell is prepared. By researching compensation on websites like Glassdoor, he was able to interview for an analyst position with a wealth management firm in Dallas with a target salary in mind. “It’s important to do your homework,” he says. “You can’t just pull numbers out of nowhere.”

    And when you have a number in mind, don’t settle. When Russell was interviewing straight out of graduate school in 2013, he was offered a position with a starting salary that was lower than he wanted. With each party standing firm, Russell decided to walk away and pursue other options. “A few minutes later they emailed back with the number I wanted,” he says. “I think confidence and persistence at the end of the day will lead to a better negotiation as long as you’ve done your homework and show you’ve done your research.”

    Advice: “If a company is giving you a second or third interview, they are interested.”

  • Elizabeth Bybordi

    Elizabeth Bybordi
    Elizabeth Bybordi

    University of Central Florida Class of 2011
    Age: 25
    Home town: New York City
    Master of: Money management

    Elizabeth Bybordi manages daily spending with a simple comparison: value vs. price. “I’d much rather bring lunch and have a night out or go to brunch on Sunday with my friends than buy a $10 salad for lunch every day,” she says.

    To keep herself focused, she views her money as lump sums. After moving 33% of her paycheck into a savings account (from which she makes automatic contributions to her Roth IRA), she lives on the remaining 67%. After rent and bills, she can spend down her remaining funds because she’s already taken care of important expenses and savings.

    Her penny-pinching strategies include walking 30 minutes to work to avoid paying subway and cab fares, and lugging her laundry from her Manhattan apartment building — which lacks a laundry room — to a self-service laundromat down the street. These small sacrifices allow her to spend money on things that are important to her.

    “I don’t want to just deny myself everything,” she says. “What’s the point of living in New York City when you’re young if you can’t enjoy it?”

    Advice: Check your bank account daily. “If you’re going over, at that point reevaluate to see where you have to cut back and determine what’s wasteful or unnecessary.”

  • Kristine Nicolaysen-Dowhan

    Kristine Nicolaysen-Dowhan, University of Michigan class of 2012
    Dustin Aksland

    University of Michigan Class of 2012
    Age: 24
    Home town: Grosse Ile, Mich.
    Master of: Housing, Saving, Retirement Planning

    For Kristine Dowhan, the transition back into her mom and stepdad’s home after graduation was fairly easy. An independent youth, she was already used to doing her own laundry and buying her own specialty food items. And rent? Her parents didn’t charge it.

    How do parents feel about kids who boomerang home? “I think with parents, they don’t necessarily mind,” she says, “as long as they don’t feel that they’re going to be stuck with you forever.”

    And Dowhan took advantage of her low-cost housing. Her first paycheck went to necessities like new work clothes, the second went to paying off her credit card, and the third went to Christmas presents. By that time she received her fourth paycheck, she qualified for her company’s 401(k) and began directing 75% of her income into retirement savings.

    “If you’re only home four nights a week because you’re visiting friends the other nights,” she says, “why waste money on your own place?”

    Dowhan lived at home for a year, during which she spent enough time at her job to know it was a good fit. She also saved up enough money to buy her own house: a fixer-upper with spare rooms she may rent out.

    Advice: “You never know where life will take you, or what opportunities might come up. So don’t rush.”

  • Sean Starling

    Sean Starling, Morehouse College class of 2013
    Dustin Aksland

    Morehouse College Class of 2013
    Age: 25
    Home town: Atlanta
    Master of: Budgeting

    After graduation, Sean Starling was shocked by the financial realities that hit him.

    Accustomed to living in a dorm and eating on a meal plan, Starling “didn’t really know much about how far the dollar went,” he says. Once he became responsible for bills and rent, he knew he had to get a handle on his spending. “What I really had to do was just budget and determine what was a need versus a want,” he says. He started using the finance tracking website Mint.com, which he says gave him a clear, concise way to look at what he was saving versus what he was spending. Later on, he found he was more comfortable tracking his money with an Excel spreadsheet, so he used that instead.

    Advice: “Whether you use a piggy bank or Mint or an Excel spreadsheet, find a way to make the savings process your own.”

MONEY Viewpoint

5 Things We Can Do Now to Solve the Student Loan Problem

IOU notes in piggy bank
Anthia Cumming—iStock

The plans currently in place to help student loan borrowers don’t do enough. So how can we really begin to address the problem?

The U.S. Department of Education recently unveiled a new and improved methodology for calculating student-loan payment delinquencies. Where it once figured the late-payment rate of student loans as a whole to be 17%, the department has now determined that when the same data is expressed in terms of individual borrowers, it’s as high as 38%.

However, the new calculations don’t even take into account the borrowers who are currently in default or have had their payment plans modified by loan servicers so that their accounts no longer appear to be past due – even though many technically are. Taking all that into consideration, the number of distressed borrowers approaches 50%.

There are two problems with the ED’s latest effort to convince a skeptical world that it really does know how to manage the more than $1 trillion of directly-originated and government-guaranteed student loans that are on its books.

The first problem is, frighteningly, the ED has demonstrated that it really doesn’t know what it is doing — not with all its restated metrics and loan-administration mishaps. The second is that even this latest parsing of payment-performance data has yet to inspire anything more than a frustratingly incremental approach to solving what is clearly a rapidly deteriorating situation.

Starting with the manner in which performance is evaluated, there are three categories of loans: those that are not in default, those that are and those that are someplace in between because the contracts have been temporarily restructured (granted forbearance) or permanently modified (via the government’s Income-Based Repayment and Pay As You Earn plans).

True, the above three categories combine to make up the aggregate value of student loans currently in repayment, but each of these types must be separately tracked and analyzed, for two reasons: first, so that migrations between delinquency statuses (30-, 60-, 90-days past due, for example) can be monitored and corrective actions (with regard to servicing) taken; second, so that the activities of the loan servicers can be more closely scrutinized than they currently are.

These private-sector companies are compensated for managing payment performances to within predetermined standards. So it’s reasonable to be concerned about the temptation to improve upon the results, such as by temporarily accommodating delinquent borrowers so their loans no longer appear as past due.

These dreadful metrics should inspire lenders and servicers to find a comprehensive solution, but don’t. The plain truth is that the plans to help student loan borrowers — those currently in place (income-based repayment programs) and proposed (such as Sen. Elizabeth Warren’s reintroduction of the Bank on Students Emergency Loan Refinancing Act) — don’t do enough.

Here’s why: PAYE and IBR are helpful but cumbersome. Not only must borrowers re-qualify for the relief they need every year, but as their incomes grow, so will the value of their monthly payments. That makes it harder for households already under pressure to set budgets, let alone plan for the future.

What Can Be Done?

A loan portfolio in which roughly half the borrowers are either in trouble or treading water is one that is in obvious need of restructuring. So let’s stop wasting time pointing fingers about how these loans were first approved or structured, or why borrowers are still struggling as the economy improves, and solve the problem. Here’s how.

  1. Restructure every loan—without regard for origination channel and payment status—for terms of up to 20 years. Longer repayment durations will do more for affordability than monkeying around with interest rates, although these, too, should be reconfigured because the consumer-unfriendly rate-setting mechanism that Congress put into place in 2013 has more to do with politics than it does finance.
  2. Permit partial and full prepayments—without penalty. Just because a loan has a lengthy duration shouldn’t mean that it can’t be settled ahead of time. Penalty-free prepayments—where the additionally remitted amounts are appropriately applied against the principal—will help borrowers to limit the amount of interest they pay overall.
  3. Expunge previous credit histories for loans that are subsequently refinanced. The standard 10-year repayment plan that was originally put into place is to a large extent responsible for the problems many borrowers have had. Creditors should therefore be more concerned about repayment performance after the contracts have been restructured.
  4. Offer student-loan borrowers the same tax relief that has benefitted homeowners. Waive taxation on the value of the debt forgiveness that may be granted on an exception basis, just as it has been for distressed home mortgages that were permanently modified after the crash.
  5. Permit student loan debts to be discharged in bankruptcy. This will motivate recalcitrant owners and servicers of government-guaranteed loans to come to the bargaining table with tangible, sustainable solutions.

The money exists to pay for all this.

It’s no secret that the ED rakes in enormous profits from its student loan programs. Much of that is a result of the risky manner in which the government has chosen to finance this activity (low-rate, short-term borrowing is used to support its high-rate, long-term lending at a time when the Federal Reserve is contemplating raising rates). But even if the ED were to “match fund” its portfolio as lenders often do, it would still earn substantial profits from the combination of fees and interest that are charged.

What’s not so well-known is how these profits end up appropriated by Congress to offset the national debt. Said differently, lawmakers are, in effect, taxing the very same constituents it should be helping.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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This article originally appeared on Credit.com.

MONEY College

What to Make of the Government’s College Watch List

Everest Institute in Silver Spring, Md. Corinthian Colleges, which owns Everest, Heald College and WyoTech schools, is being sued by the federal Consumer Financial Protection Bureau for what it calls a “predatory lending scheme,” the agency said Tuesday, Sept. 16, 2014.
Jose Luis Magana—AP Everest Institute was part of the troubled Corinthian Colleges.

A list of schools that are under the microscope for financial reasons was recently made public. How risky is it to attend a troubled school?

Regulators recently made public a once secret watch list of around 550 colleges under scrutiny for financial irregularities. But inclusion on the list doesn’t automatically mean the schools are about to fail, according to Department of Education regulators, college officials and even the reporter who triggered the release of the list with his Freedom of Information Act requests.

The list gained attention because of the Corinthian Colleges collapse last year. The education department placed Corinthian on the “heightened cash monitoring” watch list over concerns about the for-profit chain’s practices and finances, and then last summer restricted its access to federal financial aid, including loans, grants and work study. Within weeks the already weakened chain ran short of money and agreed to sell or close most of its 107 campuses.


Some of the chain’s 72,000 students are eligible for student loan forgiveness because their campuses closed. Those whose campuses were sold, however, are typically stuck with their debt even if their programs are no longer offered.

So the risks of attending a troubled school are significant. Until last week, though, the education department kept the list a secret, citing concerns that revealing a school’s regulatory status could cause it “competitive injury,” said Michael Stratford, the reporter with trade publication Inside Higher Ed who filed repeated FOIA requests over several months for the information to be made public.

In a blog post that accompanied the watch list’s release, department Under Secretary Ted Mitchell said publicizing it was “another step to increase transparency and accountability,” but said inclusion on the list “is not necessarily a red flag to students and taxpayers, but it can serve as a caution light.”

Mitchell wrote, “It means we are watching these institutions more closely to ensure that institutions are using federal student aid in a way that is accountable to both students and taxpayers.”

Stratford agreed that being on the list “is not an obvious indication of a problem” but is “certainly not a badge of honor.”

“A college can land on this list for any number of reasons, ranging from the really mundane things like not filing paperwork with the department on time to serious things such as the department having concerns about the financial viability of the college on a short-term, immediate basis,” Stratford said.

More than half of the institutions on the list are for-profit programs, including beauty, trade and healthcare training institutes. The list also includes small religious colleges and other private non-profit schools, a few public colleges, and several foreign institutions, including The Hebrew University of Jerusalem and Middlesex University in London.

The majority of the institutions are subjected to the less stringent of two levels of monitoring. Instead of the federal government advancing them money for financial aid, which is normally the case, they must finance themselves and apply for reimbursement. Colleges subject to this “level 1″ scrutiny include several Le Cordon Blue campuses, which are owned by Career Education Corp, and the Art Institutes, part of Education Management Corp, which has said inclusion on the list has not harmed students’ ability to access financial aid or its financial standing.

But 69 institutions are subjected to the higher level of review, which requires they submit detailed documentation for each aid recipient. Education department employees must review and approve the documentation before the financial aid is reimbursed.

The education department initially redacted the names of several of the 69, citing ongoing investigations, before releasing the names Monday. Most of them are flagged as having “severe findings” after audits.

Six public institutions also are under increased review, including Roxbury Community College in Boston; Fort Berthold Community College in New Town, North Dakota; VEEB Nassau County School of Practical Nursing in Uniondale, New York; Taylor Technical Institute, Perry, Florida; Pike Lincoln Technical Center in Eolia, Missouri; and Eastern Oklahoma State College, a community college in Wilburton.

Although the list can give families a heads-up that a college is facing extra regulatory scrutiny, it’s not really “a consumer information tool,” Stratford cautioned.

“It might be a good jumping-off point for students and families that want to do more in-depth research,” he said.

MONEY College

Former Corinthian College Students Won’t Pay Their Debt

Students of the now-defunct Corinthian College are refusing to pay off their student loans, saying that the for-profit college left them saddled with unreasonable debt.

MONEY College

Principal: Colleges’ Chintzy Financial Aid Offers Betray the American Dream

150331_FF_CollegeChintzyOffer
iStock

Colleges and states are expecting students to take on an insane amount of debt.

Editor’s note: One of the nation’s leading public high school principals, a 2014 winner of the prestigious Harold W. McGraw Jr. Prize in Education, wrote this after viewing the financial aid awards sent by colleges to the seniors at his Philadelphia magnet high school. Two-thirds of his students at the Science Leadership Academy are minorities, and one-third are considered economically disadvantaged.

This year has been a fantastic year for Science Leadership Academy college acceptances. We’ve seen our kids get into some of the most well-respected schools in record numbers—and many of our kids are the first SLA-ers to ever get accepted into these schools.

Whether or not they are able to go to is another question.

Today, I was sitting with one of our SLA seniors. She’s gotten into a wonderful college—her top choice. The school costs $54,000 a year. Her mother makes less than the federal deep poverty level. She only received the federal financial aid package with no aid from the school, which means that, should she go to this school, she would graduate with approximately $200,000 of debt.

She would graduate with approximately $200,000 of debt—for a bachelor’s degree.

Now, how in good conscience could a college do that? I’ve sat with kids as they’ve opened the emails from their top choice schools. Watching the excitement of getting into a dream school is one of the real joys of being a principal. It’s just the best feeling to see a student have that moment where a goal is reached.

And as amazing as that moment is … that’s how horrible it is to sit with a student when they get the financial aid package and counsel them that the school just isn’t worth that much debt.

I sat with my student today and pulled up a student loan calculator. I showed her that $200,000 of debt would mean payments of $1,500 a month until she was 52 years old—and then we pulled up a budgeting tool so she saw how much she would have to make just to be able to barely get by.

(Are you in the same situation? Here’s how to negotiate for more aid.)

Then we looked at the state schools she’s gotten into, and we talked about what it would mean to be $60,000 in debt after four years, because Pennsylvania has had so much cut from higher education that Penn State is now $27,000 / year—in state, and we’ve noticed that their financial aid packages have dropped by quite a bit.

So we have to tell the kids to apply to the private schools because the aid packages the kids get from private colleges are sometimes significantly better than what the public schools are offering. Kids have to apply to a wide range of schools and hope. And then we sit down with kids and help them make sane choices, as the $60K a year schools send amazing brochures and promises of semesters abroad and pictures of brand new multi-million dollar campuses, all while promising that there are plenty of ways to finance their tuition.

(Check out Money’s lists of the 100 Best Private Colleges For Students Who Don’t Want To Borrow, 25 Most Affordable Colleges and the 10 Colleges With The Most Generous Financial Aid.)

Dear colleges—you are doing this wrong.

It doesn’t have to be this way. When I was a teacher in New York City even as recently as ten years ago, I felt that kids could go to amazing and affordable CUNY and SUNY schools if the private schools didn’t give the aid the kids needed. But Pennsylvania ranks 47th out of 50 in higher ed spending by state, and as a result, seven of the top 14 state colleges are in Pennsylvania.

And as private colleges hit times of financial crisis and public colleges become more tuition dependent, students are being asked to take out more and more loans, which is putting a generation of working class and middle class students tens—if not hundreds—of thousands of dollars in debt to start their adult lives.

The thing is—I still powerfully agree with those who say that a college education is a worthwhile investment. And on the aggregate, it is true – especially because the union manufacturing jobs of the last century have been lost. But when we look at the individual child, and the choices that kids and families are being asked to make, we have to ask how we can ask kids to take that kind of risk and take on that kind of debt.

Of course, all of this is exacerbated for kids from economically challenged families and for kids who are the first in their families to go to college. And if you are thinking about leaving a comment about kids getting jobs in college to help make it affordable, you show me the job market for college kids to make $30,000 a year while in school full-time. I must have missed those listings in the morning paper.

A college education can—and should—be a pathway to the middle class.

Colleges should have a moral responsibility to offer sane packages that don’t saddle students with unimaginable debt to start their adult lives.

Work hard, go to college, live a meaningful life. That is what we hear promised to children all the time from President Obama to parents across America.

Colleges and universities have to be honest and fair agents in that dream. Asking students to take out $30,000 and $40,000 of debt a year for access to that dream is a betrayal of the educational values so many of us hold dear.

Chris Lehmann is the founding principal of the Science Leadership Academy, a Philadelphia public high school. This story first appeared on his blog, Practical Theory.

MONEY Student Loans

22 States Where You Could Lose Your License for Not Paying Your Student Loans

female driver handing over license to officer
Jeremy Woodhouse—Corbis

You have a lot to lose if you default on your student loans, and in some states, that includes state-issued licenses.

Failing to repay student loans has all sorts of terrible consequences, but in some states, more than just your financial well-being is at risk — student loan default could cost you your professional certification or even your driver’s license.

Two state legislatures (Iowa and Montana) are considering bills that would repeal laws that allow states to suspend the driver’s licenses of student loan defaulters, Bloomberg reported in a March 25 piece on the topic. Even if those repeals succeed, several other states have such laws in place. Some states suspend licenses needed to practice in certain fields, from health care to cosmetology, though license suspension can extend to driving, too.

Repeal advocates argue that license suspension is a counterintuitive punishment for student loan defaulters, because it may keep them from working, which theoretically enables them to repay their debts. That’s the case Montana state Rep. Moffie Funk is making for the bill she introduced to repeal the state’s law that allows driver’s license suspension, Bloomberg reports.

According to a list from the National Consumer Law Center, 22 states have laws that enable suspension of state licenses issued to student loan defaulters. The professions and licenses affected by suspensions vary by state and cover a wide range of earning potential, but some of them include doctors, social workers, barbers, transportation professionals and lawyers — the lists can be quite extensive. If your state is on the list and you’re at risk of defaulting, you might want to research the details:

Alabama
Alaska
California
Florida
Georgia
Hawaii
Illinois
Iowa
Kentucky
Louisiana
Massachusetts
Minnesota
Mississippi
Montana
New Jersey
New Mexico
North Dakota
Oklahoma
Tennessee
Texas
Virginia
Washington

Student loan default trashes your credit, and the loans continue to incur interest and fees as long as they remain unpaid, so getting out of default can be very challenging. If you have federal student loans, as most people who borrow do, there are many options available to you before you’re 270 days past due on your student loan payments (that’s the definition of default): You can apply for income-based repayment or pay-as-you-earn programs, in addition to applying for an extended repayment period, which will raise the cost of your loans in the long run but make them more affordable now.

If you want to see how your student loans are affecting your credit, you can get your free credit scores, updated monthly, on Credit.com. You can check your credit reports for free once a year from each of the three major credit reporting agencies at AnnualCreditReport.com. Because student loans are generally not dischargeable in bankruptcy and default can be catastrophic for your credit, it’s crucial to prioritize making your loan payments on time.

More from Credit.com

This article originally appeared on Credit.com.

MONEY College

How to Decipher a Financial Aid Letter

magnifying glass over $5 in dark
Alamy—Alamy

The financial aid letters that colleges send accepted students are often confusing. Here's how to figure out how much a school will really cost.

When colleges start releasing their admissions decisions toward the end of March, it’s easy for applicants and their parents to figure out the end result: You’re in, you’re out, or you’re on the waiting list.

Unfortunately, when those same schools release their financial aid decisions for accepted students, the results aren’t quite so clear.

Over the years that I’ve worked with families as an independent college admissions counselor, I’ve learned that the financial aid letters that arrive in the mail can be terribly confusing. Parents’ sweat turns icy cold as they try to figure out which college offers the best deal. It takes some work to decipher exactly how much help a family is being offered.

The first step for families trying to assess financial aid packages from different schools is to separate “family money” from “other people’s money.” This process helps focus the mind — and the budget — on forms of financial aid that truly reduce the overall cost of a college education.

Each college provides a total Cost of Attendance — the educational equivalent of the manufacturer’s suggested retail price. The COA includes tuition, fees, room, board, a travel allowance, and a bit of spending money that is somewhat randomly determined by the director of financial aid.

Generally, I find these estimates a bit low, so I encourage families to think about these variable expenditures — things like travel, pizza, cell phones, and dorm furnishings — and come up with a more realistic figure. Then I put these figures into a spreadsheet so that we can see how the starting price tags of similar colleges can vary widely.

Then we tally up the “other people’s money” in the financial aid letter — grants and scholarships with no strings attached. OPM reduces the bottom-line cost of a college education.

Throughout the college selection and application process, I like to help my families zero in on those schools that will be most generous. Assuming all has gone well, a good student may receive 50% or more off the price of tuition. That can be a good chunk of change.

Once we’ve subtracted the OPM from the COA, then we look at the part of the financial aid award that’s dressed up as “aid” …but is really just the family’s money in disguise.

This gussied-up aid comes in two forms. First is work-study aid, which is merely an expectation of a kid’s sweat equity in the coming years. Work-study aid is family money that doesn’t yet exist.

Then there are the loans. Generally, I won’t let my clients borrow more than the maximum that the government will lend to the student directly. These are the federal loans that max out at $27,000 for a 4-year undergraduate education.

Armed with all this information, we then create a spreadsheet to line up the different COA prices and subtract the OPM. That helps us arrive at a total cost of the education to the family — including both the immediate costs and the subsequent costs in the form of either future employment or loans that will have to be repaid.

And if we really want to get down and dirty, we can add the cost of interest over the life of those loans to illustrate exactly how much that college education will cost.

Unless the family has front-loaded the process by picking schools that are likely to maximize the grants and scholarships, I’ve found that most families are taken aback by the cost of college.

But with strong planning and a realistic look at the numbers, families can make wiser long-term financial decisions.

For example, a family I worked with a few years back made the painful but smart decision not to send their daughter to Notre Dame, which offered her nothing in scholarship aid, but to choose Loyola University of Maryland, which with a lower COA and hefty scholarship saved the family over $100,000 for her bachelor’s degree.

The family had money left over to buy their daughter a nice used car, cover expenses for a great summer internship in New York, and subsidize a spring-break service trip to New Orleans. And the young woman graduated from college debt-free.

As parents of college-bound seniors suddenly realize this time of year, a college education is not priceless. A cold, hard look at the numbers makes the price very clear, and enables a family to make the most reasonable financial decision possible.

———-

Mark A. Montgomery, Ph.D., is an independent college admissions consultant. He advises families around the country on setting winning strategies for both admissions and financial aid. He also speaks to schools and civic groups nationwide about how to choose, and get into, the right college. His firm, Montgomery Educational Consulting, has offices in Colorado and New Jersey.

MONEY Taxes

How To Make the Most of the Single Best College Tax Break

College campus
Andersen Ross—Getty Images This scene can save you money on your taxes.

Nearly 2 million Americans pay too much in taxes because of confusion over education benefits. Here's how to avoid that mistake.

Back in January President Obama proposed consolidating many overlapping education tax benefits, a plan that appears long dead. Too bad, since millions of taxpayers make mistakes writing off education expenses on their 1040s and pay hundreds in unnecessary taxes as a result.

A 2012 Government Accountability Office report found that education tax breaks were so complicated and poorly understood that 1.5 million families who were eligible for one failed to claim it and overpaid their taxes by more than $450 a year. Another 275,000 families were so confused that they opted for the wrong benefit and overpaid by an average of $284.

Here’s how to get college tax breaks right on this year’s return and beyond.

Stick With The Winner

In any given year, you’re allowed to claim only one of these three tuition tax benefits: The tuition and fees deduction, the lifetime learning credit or the American Opportunity Tax Credit (AOTC).

Don’t be distracted by all the options. The AOTC is the most lucrative and broadest education tax benefit available, and it should be your first choice, says Gary Carpenter, a CPA who is executive director of the National College Advocacy Group.

The AOTC, available to a student for up to four years, cuts your federal taxes dollar-for-dollar. You can take the credit for up to $2,000 in tuition or fees, and 25% of another $2,000 of qualified expenses, for a total max of $2,500. Married couples with adjusted gross incomes of up to $180,000, or $90,000 for single filers, are eligible to claim the AOTC.

Even if you owe no federal income taxes, you can get a refund check for up to $1,000 by claiming the AOTC.

Maximize Your Benefit

Now that you know that the AOTC is tops, you need to know how to get the full benefit on the maximum $4,000 in eligible expenses, which can be complicated in these four situations.

1. You have a super generous financial aid package: Did your little genius get such a big scholarship that you’ll pay less than $4,000 for tuition, fees, and books? Once you’re done celebrating, call the scholarship provider and ask if you can use some of that money to pay for room and board instead, advises Alison Flores, principal tax research analyst with The Tax Institute at H&R Block.

This may seem odd, since scholarships are tax-free only if you use the money for tuition and fees. But by shifting some of the aid so that you pay $4,000 worth of tuition, fees, or book costs out of your own pocket, you can get the maximum benefit from the AOTC. That $2,500 credit typically outweighs whatever additional taxes you’d have to pay on a re-allocated scholarship, says Flores.

2. Your tuition payments are low: One way students attending low-tuition colleges can make sure they get the full advantage of the AOTC is by paying a full academic year’s tuition by Dec. 31, instead of waiting until the start of the second semester in January to pay that semester’s bills.

3. You’ve saved in a 529 plan: You can claim the AOTC only for tuition that you paid for with taxable savings, notes the NCAG’s Carpenter. When you take money from a 529 college savings plan to pay your tuition, that withdrawal is tax-free. So there’s no double dipping. You can’t also claim the AOTC for those funds.

Assuming you don’t have enough in the 529 plan to pay the entire annual tuition, room and board bill (and who does?), earmark the 529 withdrawal for room and board, and pay at least $4,000 in tuition with taxable savings.

4. You’re taking out large loans. If you’re using loans to cover tuition, you can use the money you borrowed to claim the AOTC. If you and your spouse report a joint income of less than $160,000, you can also deduct the interest on your payments.

Parents can deduct the interest on loans they take out for their children’s education, but not on payments they voluntarily make on the student’s loans, Flores notes.

Take Care With the Paperwork

Once you’ve done everything else right, don’t lose a tax break at filing time. For that, you need to keep good records.

Colleges typically don’t report all the information you need to claim all of your education tax breaks on the 1098-T forms they send out each year. They usually provide only the amount they’ve billed you, explains Anne Gross, vice president of regulatory affairs for the National Association of College and University Business Officers (NACUBO).

To get all of the tax goodies, you’ll have to show the IRS how much you paid, and where the money came from. Some colleges will allow you to gather that information from their online accounts portal, Gross says. But as a backup, it’s smart to keep your own records.

Shift Gears as a Super Senior or Grad Student

Once you’ve used up a student’s four years of eligibility for the AOTC, try for some of the smaller, more limited education tax breaks. If you earn less than $128,000 as a married couple, switch to claiming the lifetime learning credit starting in year five of your dependent student’s higher education. There is no limit to the number of years you can receive this credit of up to $2,000.

If you make between $128,000 and $160,000, you can write off up to $4,000 from your income using the tuition and fees deduction.

Keep Cutting Your Taxes Post-Graduation

When school is finally over, the tax breaks don’t end. Singles earning less than $80,000 and couples earning less than $160,000 can deduct up to $2,500 a year in student loan interest. Parents with federal PLUS loans can claim their interest payments on this deduction. But parents who are voluntarily making payments on their children’s student loans cannot claim that interest.

Catch a Break When You Save Too

Finally, President Obama’s plan to eliminate tax-free withdrawals from 529 college savings plan has been squashed as well, preserving the tax benefits on the money you’ve set aside for your, your children’s, or your grandchildren’s college costs. Although contributions to a 529 are not deductible on your federal income tax return, the earnings grow tax-free. And as long as you spend the money on qualified college expenses, withdrawals are tax-free as well.

What’s more, 32 states give you a break on your state taxes for your 529 contributions (or, in New Jersey’s case, a scholarship). These benefits are worth exploiting: A Morningstar report found that, on average, they equate to a first-year boost on your investment returns of 6%. Check this map to see if you live in a state that rewards college savers.

MONEY Student Loans

A New Proposal Could Get Your Employer to Pay Your Student Loans

Colorado State University
Danita Delimont—Alamy Colorado State University

Pending legislation in Colorado could secure student loan relief for workers with certain degrees.

A Colorado state representative proposed legislation that would give some employers tax credits for making student loan payments on behalf of some of their employees. The bill introduced by Rep. KC Becker (D-Boulder) could give qualified workers each up to $10,000 a year in student loan payments from their employers. The employer gets a tax credit equal to 50% of the loan payments (so $5,000 on a $10,000 payment), up to $200,000 total per tax year.

Those qualified workers come from a limited pool of graduates. If you want your employer to make some of your loan payments under this proposed bill, you’d need to have an associate’s or bachelor’s degree in a science, technology, engineering or mathematics field (STEM) from a Colorado college or university, graduated no earlier than Dec. 31, 2010, make less than $60,000 a year and have a STEM-related job. Of course, you’d need to work for an employer in Colorado, as well. The credit applies only to new hires who are retained for at least 12 months.

The bill is one of several workforce-development bills progressing through the state’s legislature, focusing on attracting and retaining educated, talented Colorado workers. One way to look at the employer tax credit is as a good deal for everyone involved.

“It’s good for employers because it gives them a competitive advantage for attracting new workers,” said Patrick Pratt, program manager of the Colorado Manufacturing Initiative at the Colorado Association of Commerce & Industry (CACI). “It’s good for employees because it helps alleviate their student loan burden, as well.”

And then there’s the state of Colorado, which gets to hold on to graduates whose skills are in high demand. One of CACI’s missions is to increase the number of skilled, educated workers in the state, and this proposal aligns with some of those goals.

The average monthly student loan payment in this program is estimated to be $224, totaling $2,688 a year, according to Pratt, which is well under the $10,000-per-employee limit. That means workers who qualify for this program may not have to make student loan payments out of their own pockets for as long as the program continues, if the bill becomes law. It still has a long way to go in the legislative process, but if it is approved as is, the program would run from Jan. 1, 2016 through Dec. 31, 2019.

In a small survey sent from CACI to its manufacturing members, most respondents said they had a favorable opinion of the legislation. (Pratt sent the survey to 400 members, and about 30 responded.)

Only one person who had a negative opinion of the bill explained why: “This is a solution that exacerbates the problem,” Pratt quoted from the survey response. He said the comment went on to say that the problem was the high cost of education.

The average student loan debt of a 2013 graduate from a Colorado college is $24,520, the 16th lowest of the 50 states and the District of Columbia, according to the Project on Student Debt. That’s below the national average ($28,400), but the Colorado default rate is 15.3%, higher than the 13.7% national average. Default can seriously damage borrowers’ credit for years, not to mention the hardship that comes with wage garnishment and debt collection, as a result of default. If you want to get an overview of how your student loans are affecting your credit, you can see your free credit report summary on Credit.com.

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This article originally appeared on Credit.com.

MONEY Student Loans

5 Little-Known Ways to Get Your Student Loans Forgiven

mortarboard on top of money
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Here are some student loans forgiveness programs that you might not have even known about. Do you qualify?

If you’re like most people, your student loans probably feel a bit like a ball and chain that you’ve been dragging through your life for years. Every month, you dutifully make a payment knowing that you’ll be making that same payment next month, the month after that, and so on. But what if you didn’t have to? What if there was a way to get your student loans forgiven?

It turns out that there are many ways to get federal student loans forgiven. In fact, the Consumer Financial Protection Bureau released a report in 2013 estimating that more than one-quarter of working Americans are eligible for the Public Service Loan Forgiveness Program, but only a small percentage are actually using it.

Programs like the Public Service Loan Forgiveness Program are relatively well known. However, there are some lesser-known programs that may also help you pay down your loans.

Here are five ways to say goodbye to your student loans that you might not have even known about. If you’re not eligible for any of them, there are still other ways to lessen your student loan burden – such as through student loan consolidation, refinancing your loans, or by picking the right federal or private student loan repayment plans.

1. Loan Forgiveness Programs for Health Care Professionals

If you’re a doctor or a nurse, there is probably somewhere in the country where you could get a significant amount of your student loans forgiven in exchange for your service. From federal programs like the Health Professionals Loan Repayment Program that helps health care professionals serving in the military repay up to $50,000 in loans per year of service, to the Maine Dental Loan Repayment Program which pays up to $20,000 a year for serving an underserved area, there are many ways to get your loans repaid.

2. Perkins Loan Cancellation & Discharge

Did you get Perkins loans to pay for college? Well, then that’s good news for you. Borrowers of Perkins loans can have their entire debt forgiven after five years if they fit certain criteria. The professions that qualify for forgiveness are fairly broad and include anything from an attorney to a librarian, to even a speech pathologist. Check it out to see if your job fits the bill.

3. Teacher Loan Forgiveness Programs

Great news if you’re a teacher who is willing to work in underserved areas – there are several student loan forgiveness programs tailored to you. Many states offer awards specifically to draw teachers to underserved areas. Not only can you make a difference, but you can pay off your student loans while doing it.

4. Volunteering

SponsorChange.org is a nonprofit organization that helps graduates pay off student loans in return for volunteer work. Donors give money to projects or nonprofits to help them recruit volunteers and those volunteers get great work experience while also lessening their student loan burden.

5. Total and Permanent Disability Discharge

While no one plans to be disabled, it’s good to know that if you have a terrible accident that your student loans could be forgiven. If you have a condition that prevents you from working that has lasted for more than 60 months or can be expected to last for more than 60 months, then you may be able to get your student loans discharged.

The Bottom Line

If you’re having trouble paying your student loans, it’s important to find a workable solution so you don’t default on them. For the most part, student loans aren’t dischargeable in bankruptcy, and falling behind on your payments can hurt your credit and may even lead to wage garnishment. (If you want to see how your student loans are affecting your credit, you can get a free credit report summary on Credit.com.)

There are many more people eligible for student loan forgiveness programs who don’t take advantage of them. One important thing to remember — if you do get your student loans forgiven, you will then owe taxes on the amount forgiven. The IRS counts forgiven student loans as income; so while you might be able to escape your student loans, you definitely can’t escape taxes.

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This article originally appeared on Credit.com.

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