(Pre) Retirement Planning

Demystifying The Complex Process of Paying for College

The impact on families, budegts and long-term assets

NEWARK, N.J., August 12, 2015 – If you think getting into college is difficult, try figuring out how to pay for it.

Working out how to cover the cost of college is a daunting process, but families willing to invest the time and energy can develop a strategy that will not break the bank or jeopardize either the parents’ or student’s long-term financial well- being, according to a white paper released today by Prudential Financial Inc. (NYSE: PRU).

The white paper, “Paying for College – A Practical Guide for Families,” encourages parents and students that however complicated the process, they should educate themselves on all the potential sources of aid available to avoid an overreliance on student loans, warning such borrowing often can strangle a family’s finances.

"It can be a daunting process, but well worth the effort, especially if it means avoiding large amounts of debt or not dipping into retirement savings,” said Caroline Feeney, President, Prudential Advisors. “If it seems too intimidating, don’t be afraid to seek guidance because there is a good chance you’ll be able to put the right payment strategy in place that works for your family.”

According to estimates by the U.S. Census Bureau, people with a four-year college degree earn on average twice as much over their lifetimes as those with a high school diploma – $2.1 million versus $1.2 million. That’s a significant statistic, but may be somewhat misleading.

The burden of debt

Many people leave college bogged down with burdensome levels of student loan debt, hurting their ability to start and sustain a household and save for retirement. Some 70 percent of college graduates enter the workforce with student loan debt that averages $33,000 each, according to the white paper.

In addition to college graduates, parents can take a big financial hit, too, if their ability to save for retirement is diminished by the need to pay down a child’s student loans.

“The good news is there are many ways to make college costs more manageable,” said Feeney. “We urge families to tap in to school resources, guidance and financial aid counselors, as well as their family’s financial professional who can help them make critical decisions around leveraging existing financial resources in a way that helps protect longer term financial security.”

Many people leave college bogged down with burdensome levels of student loan debt, hurting their ability to start and sustain a household and save for retirement

The white paper provides tips on how to complete the Free Application for Federal Student Aid (FAFSA) and sheds light on the various factors that come into play when deciding how to pay for college, including:

  • The variety of aid available – grants, scholarships, work-study programs, tax credits and tax deductions.
  • The variables that affect a student’s access to financial aid, including the student’s choice of school, how much and in what form the family has saved for college, and how adept the family is at working through the process of applying for help.

According to Feeney, “the FAFSA requires financial information from the student and at least one custodial parent, and since it is typically filed early in the calendar year, it can only take into account income from the prior year.

Understanding the federal methodology can be challenging but it’s important parents educate themselves to increase their likelihood of qualifying for aid and avoid common misconceptions that can adversely affect their financial decisions. High on the list of myths to debunk is that equity in a family home or in retirement accounts count against aid.”

Besides demystifying FAFSA, the white paper provides detailed explanations of the different forms of financial aid available, the various types of subsidized and unsubsidized federal loans eligible families can consider, and the new repayment options on federal loans that have been introduced in recent years. It also provides a comprehensive review of what divorced and single parents should be considering.

“Every family has unique circumstances to consider. Investing time with a financial professional who can help guide them through resource planning can help alleviate some of the stress associated with understanding the process and making sure that the family’s finances are well handled,” said Feeney.

 

 

 

"Prudential Advisors" is a brand name of The Prudential Insurance Company of America and its subsidiaries. All are Prudential Financial companies located in Newark, NJ. It is comprised of approximately 3,000 highly skilled and credentialed professionals offering insurance and financial services and products. Along with over 300 managers, the financial professionals are deeply rooted in the communities they serve across all 50 states and Guam.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit www.news.prudential.com.