September 6, 2022
September is College Savings Month, which serves as a good reminder that it is never too early to start saving for future education expenses or too late to better manage student loan debt. Below are some tips on saving, borrowing and paying for education.
Tips for Saving
- Use a Cape Cod 5 Financial Calculator – As a place to start, Cape Cod 5 has a range of personal financial calculators on our website, including college and other savings calculators as well as debt and budget calculators that can help you as you are preparing for and paying off student loan debt.
- Consider a 529 Plan – A 529 plan is a tax-advantaged savings vehicle designed to encourage saving for future education costs, and they’re not just for college anymore. Most vocational and trade schools are eligible, as is community college. Even K-12 expenses are eligible up to $10,000 annually. Read more about 529 plans here.
- Consider Community College or a Vocational School – Community colleges and vocational schools are valued alternatives to traditional four-year schools. Many students choose to begin their higher education at community college as they explore their career and education options. Vocational schools often present students with lucrative career opportunities in various trades at far less of a tuition cost.
- Remember to Continue Saving for Retirement – Parents: Aim to place a suitable percentage of your income into your retirement fund, then begin working on your child’s student loan savings and payments. The best thing you can do for your children financially is to be secure in your own retirement.
Tips for Borrowing
- Plan Ahead: Try to allocate no more than 10% of post-graduate income to student loan repayments. Start by first considering the career and salary expectations for yourself or your child. A good rule of thumb is to project the starting salary and try to borrow no more than that amount. Given that loan repayments are over a 10-year period (thus 10% of one year salary), this will give you a good rough estimate of where you want to be.
- Apply for financial aid early - Submit the Free Application for Federal Student Aid (FAFSA) as soon as the form is available (typically on October 1 each year). While this application is used to determine federal student aid, many colleges and universities use it to allocate need-based awards. These resources can diminish the longer you wait, so it is important to act early and meet the FAFSA deadlines.
- Consider the differences between federal and private loans:
- Federal loans come with consumer protections like flexible repayment, deferment and loan-forgiveness and provide a six-month buffer after graduation before payments are due. Interest may even be paid on your loan while you are in school or pursuing higher education.
- Private loans often start with lower interest rates, but those rates are variable and can rise. The terms are often stricter with less debt-relief options. Most private loans also require a co-signer. Read more about these two options here.
- Consider the New England Regional Student Program (RSP) – This program enables New England residents to enroll at out-of-state New England public colleges and universities at a discount. Students are eligible for the RSP Tuition Break when they enroll in an approved major or program. Read more about this program here.
Tips for Paying Tuition
- Set up an installment plan – Rather than paying tuition in a lump sum, consider spreading it out through an installment plan. Most schools offer payment plans with no interest; however, there may be a small fee to set it up and there are often charges if you fall behind in your payment schedule.