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College Students and Recent Grads, Eliminating Fees, Life Events

When to Avoid a Company 401k

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Gone are the days of workers depending upon pensions when they retire. Today, instead of offering defined benefit pensions guaranteeing an employee a monthly payment for the rest of his or her life, employers are moving to more employee-managed retirement savings plans.

Today, more employers offer a 401k plan – if they have an employer-based plan at all. With a 401k, employees make a defined contribution from their income each year. With a pension plan, employees knew exactly how much income they could depend on each month during retirement. Now, it is up to the employees to determine how much they need to save in order to reach their retirement savings goals.

A 401k allows employees to make defined contributions, pre-tax (or post-tax), towards retirement. If you contribute to a traditional 401k, contributions are automatically deducted from your paychecks each pay period, pre-tax. As a result, you don’t pay taxes until money is withdrawn from the account and you cannot withdraw money before 59 ½ without penalties. Some employees offer the option to contribute post-tax in a Roth 401k, so money withdrawn in retirement will not be taxed.

With this change toward employee-directed retirement, rather than retirement guaranteed by the employer, it is up to you to make the best decisions regarding your retirement savings. This could mean it’s best to avoid a company 401k.

Take a look at these situations in which you should not pay into your employer’s 401K, and see if any of them apply to you.

No Employer Match

Many employers provide a match to their employees’ 401k contributions. Employer matches vary greatly by employer, but a common example of this is $0.50 per $1.00, up to 6% of employees’ pay.

Let’s say you earn 40,000 per year at your current job, and your employer provides a $0.50 per $1.00 match, up to 6% of your pay. If you were to contribute the full 6% of your pay annually, you would contribute a total of $2,400 to your 401K over the course of a year. Your employer would then contribute $0.50 for every dollar you contributed, for a total of $1,200 for the year.

In total, over the course of the year your 401K would contain $3,600, and you only would have contributed $2,400 of the balance.

But if your employer does not provide a match, it may be time to reconsider contributing to its 401K plan. Never walk away from an employer match, but if your employer does not provide a contribution match, it may be time to consider other options like saving for retirement in a traditional or Roth IRA.

You Have Reached The Contribution Limit

Effective January 1, 2020, the 401k contribution limits are $19,500 if you are age 49 and under. If you are 50 or older, you can contribute an additional $6,500 above and beyond the $19,500 regular contribution, for a total of $26,000. Of course, you are free to contribute less to a 401K, but saving as much as possible for retirement is always best.

Once you have reached the contribution limit on your 401k, you cannot make any more contributions pre-tax, and it is time to consider alternative investments.

One good alternative is a Traditional IRA. Contributions are made to a traditional IRA after tax, meaning that you pay taxes, and then make contributions out of your paycheck. For 2020, individuals can contribute up to $6,000 per year to a traditional IRA if they are 49 and under. You can contribute up to $7,000 per year if you are 50 or older.

Another solution for aggressive savers is a taxable account such as stock index funds. When using taxable accounts such as these, you can expect to pay 15% on long-term gains and qualified dividends. Additionally, contributions to these plans are made after-tax. However, the benefits of using accounts such as these include being able to withdraw from them for things such as children’s college expenses before age 59 ½ without additional penalties and fees.

You Qualify For a Roth IRA

If you employer does not offer a 401k match – or a 401k plan at all – and you meet income thresholds, then a Roth IRA may be an excellent option for your retirement savings.

A Roth IRA allows individuals whose modified adjusted gross income, which you can calculate at the IRS website, is less than $139,000, or married couples whose income does not exceed $206,000 to contribute to their retirement.

A Roth IRA is different from other accounts, though, because of the way taxes are handled. Contributions are made after tax. However, once the initial contribution is made, you enjoy tax-free growth as long as you follow the rules:

  • 49 and under can contribute a maximum of $6,000
  • 50 and over can contribute up to $7,000
  • You can withdraw your contributions (not growth) at any time without penalty

How much can a Roth IRA save in taxes? If you contribute $5,500 per year to a Roth IRA for 40 years, and your marginal rate is 15%, this is what your account’s growth could look like over the course of 40 years:

401k_1

In this scenario, you would have only paid in $230,000 during the entire 40 years you worked. You would have paid $34,500 in taxes from your paychecks.

However, your relatively small investment could grow to $1,189,636 – and you will not have to pay taxes on any of that balance when you withdraw it. If your marginal tax rate stayed at 15% when withdrawing money from your Roth IRA, you could save more than $143,000 in taxes alone.

See how much money you can save with a Roth IRA, and how much money it can save you in taxes here, with Bankrate’s Roth IRA calculator.

High Fees

If your employer offers a 401k without a match, a good way to gauge whether it is a good investment vehicle for your retirement savings is to take a look at the fees. Many times both employees and employers are unaware of just how much fees are costing them. After all, 3% seems like such a small number, doesn’t it?

3% may feel like a very small amount to pay in fees, but this example will show you just how much a small percentage can affect your retirement savings.

401k_2

In this example, the investor is a 29 year old, contributing $18,000 per year to her company’s 401k, and her retirement age will be 65. The current balance of their 401K is $100,000, and fees are 3%.

Just by switching to a plan that cuts fees in half, 1.5%, she could save $801,819.03. Instead of having $1.8 million upon retirement, she could have more than $2.6 million – making for a much better retirement.

You can check out a fee calculator here and find out just how much your fees are costing you!

Even if your 401k has high fees, be sure to consider the employer match. Many times the match will more than cover the fees, making the 401k a good investment vehicle in spite of the high fees.

If You Need Flexibility

401k’s, while they offer tax advantages do not offer any sort of flexibility. Contributions are automatically deducted pre-tax from an employee’s paycheck in pre-set amounts, and cannot be withdrawn without serious penalties until age 59 ½.

For many families, saving and investing money is not just about retirement. It is about college, medical expenses, large purchase, and even vacations. Always contribute to your 401k up to the maximum amount that your employer will match, but if no match is available and you need flexibility for other savings priorities, check out some of these options:

A 529 Plan: An education savings plan operated through your state or an educational institution to help families set aside income for education costs. Although contributions are not deductible on your federal income tax return, the investment grows tax-deferred, and distributions used to pay the beneficiary’s college costs come out tax-free. Some states offer tax breaks for 529 contributions, you can find yours here. In addition, there are very few income and contribution limitations, making the 529 plan a great, flexible way to save for college.

A Health Savings Account: An HSA offers individuals and families the opportunity to save money exclusively for medical expenses, and contributions are 100% tax deductible from gross income. For 2020, individuals can contribute up to $3,550, and families are allowed to contribute up to $7,100. HSA accounts holders age 55 and older can contribute an extra $1,000. If using savings for medical expenses if a priority, talk to your employer about an HSA. Not all insurance plans are eligible.

Taxable Investment Accounts: When saving for large purchases or vacations, more flexible accounts are better. As explained above, index funds, mutual funds, or even traditional savings accounts leave the account holder with more of a tax burden, but far greater flexibility for withdrawals. These accounts do not need to be opened through your employer, but can be opened and managed on your own, or with the help of a financial planner.

If your employer offers a contribution match go ahead and take advantage of the 401k, regardless of high fees or a low income. However, if your employer offers no match, high fees, or you have reached the yearly contribution limit, then it is a good idea to avoid that 401k plan and look into other retirement savings options.

At the end of the day, saving for retirement or other goals is all about you. How much flexibility you need, how much you need to save, and your tax situation. Be sure to weigh all of your options to guarantee that you are making the best decision for you and your family.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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College Students and Recent Grads

CommonBond Student Loan Review: Pros and Cons

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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CommonBond Student Loan
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If you’re seeking a private student loan for your first or second degree, it’s hard to go wrong with CommonBond. The online lender’s interest rates, customer service and repayment flexibility beat many competitors — if you meet its sometimes restrictive eligibility criteria.

Of course, the operative question is whether CommonBond is the best provider for your loan. Let’s review the company to find out.

CommonBond student loans in a nutshell

CommonBond offers in-school financing for just about every type of borrower except for parents (although it does offer Parent PLUS refinancing if you want to lower your federal loan rates down the road).

Whether you’re an undergraduate, graduate, MBA student, dental student or medical student, you can check your potential interest rate without affecting your credit. In fact, you’ll just need to input your school name and degree type as well as your income (and your cosigner’s) and credit score before possible rates display.

Image credit: CommonBond – Individual results may vary

If you decide to proceed with a formal loan application — you can apply on any device — here’s what you can expect from CommonBond student loans:

  • No application, origination or prepayment fees (MBA, dental and medical loans carry a 2% origination fee)
  • Fixed and variable interest rates
  • Option to borrow from $2,000 to up to 100% of your school’s cost of attendance
  • Repayment terms of 5, 10 and 15 years available for undergraduates and terms of up to 20 years for dental and medical students
  • 4 in-school repayment options, including full deferment
  • 6-month grace period
  • A 0.25% discount for enrolling in autopay
  • Option to apply to pause your payments for up to 12 months of forbearance
  • Ability to release your cosigner after 2 years of timely payments

The highlights of CommonBond student loans

A competitive interest rate is a key feature when comparing lenders. CommonBond not only features relatively low fixed and variable rates, but it also provides discounted rates to borrowers who make automatic payments (0.25% reduction) and begin repayment while enrolled in school (discount varies). If you qualify for an 8.03% rate, for example, you might reduce it to 7.30%, saving you at least hundreds of dollars of interest in repayment.

Aside from attractive rates, here are other highlights of CommonBond loans:

Receive a free ‘Money Mentor’

If you and your cosigner want some assistance with the college financial aid process, you might welcome the free support provided by CommonBond. The online company pairs you with a Money Mentor — a trained college student who’s been there, done that and is ready to answer your questions over text.

“We make sure to empathize with students — going to and paying for college is a really stressful and emotional time,” Money Mentor CEO Kelly Peeler told Student Loan Hero. “Not only is it confusing figuring out how loans are, it’s also overwhelming doing that while trying to find housing, pick out classes and live with new people.”

If you have questions that are specific to CommonBond, the lender’s customer service team is also available over the phone and live chat on weekdays until 8 p.m. EST.

As for other unique perks of borrowing from CommonBond, MBA students could participate in CommonBond’s New York-based internship program and take part in the company’s summer workshop series.

Rest easy with repayment protections

Although it falls well short of federal student loan’s safeguards, CommonBond’s private loans come with a safety net. If your finances are in trouble after leaving school, you could request to postpone your monthly payments via forbearance. CommonBond awards up to 12 months of forbearance during your repayment.

In addition, dental students can defer repayment until after completing their residency, while medical students could limit their monthly payments to $100 during residency programs, including internships, fellowships and research.

Give back to other students

You might not feel great about borrowing student loans, but CommonBond delivers a silver lining. When a new customer takes out a loan, the lender funds the education of a child in a developing country, such as Ghana.

CommonBond claimed on its website to have raised over $1 million and built more than 470 schools through its work with the nonprofit Pencils of Promise.

The fine print of CommonBond student loans

CommonBond, which also refinances graduates’ student loans, is able to award decreased rates and increased perks, in part, because it’s more choosy than your average lender. It doesn’t lend to every student.

The strict eligibility criteria could leave you looking elsewhere, either because you’re ineligible or want to avoid a hassle.

Here’s what to keep in mind if you’re considering CommonBond:

A cosigner could be required

Many lenders request undergraduate student loans to bring a cosigner aboard because teens and 20-somethings usually have thin credit histories. A parent or someone else could help them qualify or receive a lower interest rate.

If you’re a creditworthy undergraduate or graduate student, however, you might bristle at the fact that CommonBond requires you to recruit a cosigner. For its part, CommonBond doesn’t require a cosigner if you’re an MBA, dental or medical school student, though.

If you don’t fall into one of these categories and want to try to qualify on your own, compare rates at lenders like Earnest that don’t require a cosigner.

There are other narrow eligibility requirements

Attaching a cosigner to your application (in the case of undergraduate and graduate students) isn’t the only hard-and-fast rule among CommonBond’s eligibility criteria.

The online-only lender cherry-picks its borrowers in other ways, too. Fortunately, if you don’t meet one or more of these criteria, you could probably find another, more accessible lender.

 CommonBond criteriaCompetitor to compare
Residency statusMust be a citizen or permanent residentProdigy Finance works with international students
Enrollment statusMust be currently enrolled at least half timeCollege Ave lends to part-time students
Credit scoreMust have a score of 660 and upCitizens Bank’s credit score requirement starts lower, at 620

Are CommonBond student loans right for you?

With competitive interest rates, responsive customer support and more repayment protections than your average private lender, CommonBond is worth considering for students of all levels. That doesn’t mean it serves all students equally.

Without cosigner requirements, MBA, dental and medical students seem to benefit most from CommonBond loans. Included are benefits like internship and career resources for MBA students and a residency deferment for dental and medical residents.

Of course, even if you have the cosigner or credit score to qualify, you might find a better student loan elsewhere. To set yourself up for a successful borrowing and repayment experience, compare CommonBond with other highly-rated private student loan companies listed on our site.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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College Students and Recent Grads

Guide to Paying for College in 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Tuition rates have been steadily rising over the years, and the cost of college has never been so high. According to College Board, the cost of tuition and fees at public four-year colleges is more than three times what it was 30 years ago. At private four-year colleges, the cost has more than doubled since 1988.

But even though higher education is expensive, a college degree remains valuable. In fact, those who hold a bachelor’s degree make an average of $1 million more over the course of their lives than those who don’t, according to the Department of Education. So a degree can still worth investing in — but first you need to know how to pay for it.

To that end, we’ll explore the costs of college and how you can piece together scholarships, grants, savings and student loans to fund your education.

Part I: How Much Does College Cost?

When you first look at the cost of tuition and fees, room and board and meal plans, most colleges appear oppressively expensive. But appearances can be deceiving. The first number you see is the “sticker price,” and it’s usually much more than you end up shelling out for your education.

The number you actually pay — the net price — is lower for most students. Net price is how much the school charges minus the amount of financial aid you’re awarded.

Net price vs. sticker price

If you already know how much financial aid you’ll be receiving, you can subtract that number from your school’s nominal cost of attendance. The difference will be your net price.

Colleges are required to have a net price calculator on their websites to help you estimate costs. Before using one of these calculators, however, keep these points in mind:

  • The numbers they produce will be estimates only and aren’t guaranteed.
  • Some calculators base their calculations on in-state tuition. If you’re an out-of-state student, your costs could be higher.
  • Some calculators also factor in financial aid opportunities available to first-year students. There’s usually more funding for freshmen, so you can expect your subsequent three years to be more expensive than your first one.

Nonprofit vs. for-profit schools

For-profit schools tend to cost a good deal more than non-profit schools, even private non-profit schools. This is partly because for-profit schools offer less institutional aid (financial aid given through the college itself). Instead, they rely heavily on federal financial aid for the funding of their students’ education.

As a result, students who attend for-profit schools generally wind up with more student loan debt after graduation. At for-profit schools, 88% of graduates had loans, and the average debt burden was $39,950. At private nonprofit schools, those numbers were lower, with 75% of graduates having loans, and at an average total debt of $32,300.

Before going into debt for a for-profit school, be careful to weigh net prices at nonprofit institutions. Remember, the sticker price won’t necessarily be what you end up paying. Also note that nonprofit institutions will usually offer more scholarships and grants, reducing the number of loans — and therefore debt — you have to take on.

Public vs. private school tuition

Undoubtedly, the sticker prices for public colleges tend to be lower than that of private institutions. However, some private schools also have large endowments providing substantial student aid at the institutional level.

For example, Cornell University offers significant grants to students from low-income families. In an example generated by the university, a traditional student from a household with under $40,000 in annual income could receive a Cornell grant of $41,911.

In this example, the student’s net price is only $2,700 for one year at this Ivy League university.

Also note that private college institutional aid can also be extended to students from middle-income families as well, even if they don’t qualify for a large amount of aid through federal programs.

Part II: How to Pay for College

There are several different ways to find money for college expenses. If you stay on top of financial aid application deadlines and have a high GPA and strong test scores, you may be able to shave many thousands of dollars off your cost of attendance.

In this section, we’ll cover the most common sources of college funding.

Understanding the FAFSA: The key to financial aid

Paying for College
Source: iStock

The Free Application for Federal Student Aid (FAFSA) is likely the single most important document you’ll fill out as a college student.

Why? Because you need to submit the FAFSA to access the majority of financial aid options we’re going to cover in this guide. These include:

  • Grants
  • Work-study opportunities
  • Federal student loans
  • Direct PLUS Loans for parents

Not only will the FAFSA tell you how much aid you’re eligible for through the federal government, but it’s also usually a required step to getting institutional financial aid from your college or university.

How to fill out the FAFSA

It’s important to remember that you don’t have to pay to file the FAFSA — it’s entirely free. Go to https://fafsa.gov/ to create a Federal Student Aid account and start your application.

Important: You must fill out a FAFSA every year you attend college in order to receive aid.

Learn more with our in-depth FAFSA Guide >

Expected Family Contribution

The Expected Family Contribution (EFC) is how much the federal government determines you or your parents should be able to contribute to your education costs. This number is then used to figure out how much aid the government is willing to extend to you.

For example, to qualify for a full Pell Grant in the 2019-20 school year, your family’s Expected Family Contribution can’t be higher than $5,576.

FAFSA deadlines

Filing for aid for the 2019-2020 school year began in Oct. 1, 2018 but remains open until June 30, 2020. For the 2020-2021 year, you can file anytime after Oct. 1, 2019.

Ideally, you should apply as soon as possible, as the aid is doled out on a first-come, first-served basis, and some awards can in fact run out of funds.

You should also note that some states have stricter deadlines than the federal government; be sure to check your state’s deadline to be sure you get your application in on time.

Student Loans: Explained

Paying for College
Source: iStock

Another form of aid distributed by the federal government is student loans. You will know which federal student loans you qualify for after you fill out your FAFSA.

Because student loans have to be repaid with interest, they should only be pursued after you’ve exhausted all grant, scholarship and work-study options.

Types of federal student loans

As an undergraduate student, there are a variety of federal student loans you may be offered.

Direct Loans, both subsidized and unsubsidized, come with the advantage of income-driven repayment options, as well as deferment, forgiveness and cancellation programs.

Try to max out your federal student loan eligibility before turning to private loans. Federal student debt typically has better rates than private loans, as well as those flexible repayment options.

Private student loans

If federal student loans aren’t enough, you can turn to private student loans for college financing. These loans from banks, credit unions and online marketplace lenders might not have the same generous repayment programs, though some do have deferment options in certain situations, such as unemployment.

Private loans come with variable or fixed interest rates. If you take out a variable interest rate loan, the rate could go up over the course of your loan. Fixed interest rates, meanwhile, remain stable throughout the course of repayment.

Should I get a cosigner?

If you haven’t established credit yet, you’ll likely need a cosigner to qualify for private student loans. If you’re a non-traditional student and have a less-than-stellar credit history, you’ll also probably benefit from having a cosigner.

Borrowers with very good credit scores can skip the cosigner, but if you do decide you need some help, look for loan options with a cosigner release. This lets the cosigner off the hook after a certain period of time — generally once your payment history has allowed you to establish a better credit history yourself.

How much should I borrow?

You don’t want to borrow more than you can reasonably afford to pay back. Certain professions that require extensive education, like law and medicine, will have considerably more student loan debt than other professions. But while these kinds of professions are likely to garner higher incomes, there is no guarantee — recent reports show stagnation in doctors’ salaries and a difficulty in finding employment amongst lawyers.

Others, such as teaching, might require a master’s degree but won’t necessarily lead to an entry-level salary that makes up for all your educational expenses.

Before taking on a lot of debt, talk to professionals in your target field to get a sense of the entry-level pay and rate of salary growth over the course of a career. While using online sources to find this information is great, it’s not going to replace the knowledge of a professional working in the field.

You can then plug that number into CollegeBoard’s Student Loan Calculator, along with how much money you intend to borrow. It will analyze the figures and tell you if your monthly payments will exceed 10% to 15% of your income — which is generally considered to be the maximum you should allot to student loan payments.

If you take out federal student loans, you may be able to borrow more, as most loan options allow you to pay based on your income level. Just be careful not to bury yourself in debt — you don’t want to be paying student loans into your 70s.

Scholarships

Scholarships are among the most valuable forms of financial aid, since they give you money for school that you may not have to pay back. They’re a little different from grants (see below) and come in various forms. Here are features to look for:

Merit-based vs. need-based scholarships

While the majority of grants are need-based, most scholarships are merit-based. There may be maximum income levels or priority given to those in dire financial straits, but for most scholarships, you’ll be judged based on your achievements.

Many of these awards require you to maintain a certain GPA, and almost all will involve some type of essay, portfolio or video submission.

If your family’s income doesn’t help you establish a strong financial need, don’t lose hope. There are plenty of scholarships out there that have no financial requirements and are completely based on your essay — on rare occasion, they won’t even ask about grades.

Recurring vs. one-time scholarships

Most scholarships only last one semester or one school year. However, there are some you can apply for that will cover your entire tenure as an undergrad. Keep in mind, though, that these options are likely to require you to maintain a certain GPA throughout your studies.

How do I find scholarships?

The first place you can look is your financial aid office. Many schools have endowments, not just for grants, but for scholarships as well.

After you’ve exhausted scholarship options at your school, look in other places, such as:

  • Professional organizations in the field you want to enter
  • Professional organizations or unions your parents may belong to
  • National student organizations related to your major
  • Potential future employers — especially if they’re a larger company
  • Groups within the community you grew up in
  • Organizations based on your ethnicity or heritage
  • Religious organizations
  • Organizations related to any extracurricular activities or hobbies

You can look for scholarships on specialty search engines, like Fastweb, CollegeBoard and Scholarships.com, but you’ll find a ton of competition. On the other hand, if you search for scholarships focused on what makes you unique, you might find a dramatically smaller applicant pool, boosting your chances of winning an award.

How soon should I start applying?

Start applying for scholarships as soon as possible. It is even possible to fund your entire education this way, though you would have to fill out a lot of applications and write a lot of essays. The sooner you get started, the better.

Each scholarship has a window, which is typically opened annually or once a semester, during which you can file an application. While high school sophomores will be able to apply for some scholarships, opportunities really start opening up in your junior year.

Beware of scholarship displacement

Although scholarships can be a great tool for paying for college, you also need to be careful about scholarship displacement. Some colleges will take away some need-based aid if you have a lot of outside scholarship help. Before applying far and wide to scholarships, it could be worth checking with your financial aid office to see if it engages in this practice.

Grants

A grant, like a scholarship, is money you never have to pay back, unless you drop out of school or violate the terms of the agreement some other way. For undergraduates, grants are typically need-based.

In order to qualify for federal grant programs, you must fill out the FAFSA and meet eligibility requirements. Here are some types of federal grants, along with other opportunities from your state or school:

Pell Grants

Federal Pell Grants are distributed based on income-eligibility only. They can be awarded regardless of whether you’re in school full-time, half-time or less than half-time.

For the 2019-20 school year, the maximum Pell Grant award is $6,195 for full-time students. Pell Grant awards are distributed in two parts over two semesters.

Students taking summer courses might also receive a summer Pell Grant, which is an additional 50% of your full award to spend on summer studies. This extra grant money can be particularly helpful for community college students whose course of study typically runs through the summer.

Federal Supplemental Educational Opportunity Grants

Federal Supplemental Educational Opportunity Grants (FSEOGs) are available to students with financial needs in excess of what the Pell Grant can address. These funds are distributed to schools upfront and then awarded on a first-come, first-served basis. Notably, not all schools participate, so you would need to consult your school’s financial aid office.

The maximum award is between $100 and $4,000, depending on your personal financial situation.

Iraq and Afghanistan Service Grants

If you lost a parent or guardian while they were serving in the military in Iraq or Afghanistan after 9/11, you may qualify for the Iraq and Afghanistan Service Grant — which offers funds almost equal to that of a full Pell Grant — regardless of your family income.

To qualify, you must:

  • Meet all Pell Grant requirements, except for the EFC requirements.
  • Have been 24 years old or younger and enrolled in college at least part-time at the time of your parent or guardian’s death.

TEACH Grants

If you’re planning on becoming a teacher, you may be interested in a Teacher Education Assistance for College and Higher Education (TEACH) Grant.

In order to qualify, you must be enrolled in a TEACH-eligible program. Not all schools participate, and the ones that do determine which of their programs qualify for TEACH Grants, so be sure to sit down with your financial aid counselor to determine your eligibility.

When you accept a TEACH Grant, you’re agreeing to serve four out of your first eight years in the workforce in a high-need specialization in a low-income area. You can also meet this obligation by teaching at a Bureau of Indian Education school.

High-need specializations include:

If you do not keep your promise to serve in this capacity, your grant will turn into a Direct Unsubsidized Loan, which will have to be repaid.

The maximum grant amount is $3,752 if disbursed after Oct. 1, 2018 and before Oct. 1, 2019. For grants paid out after Oct. 1, 2019 and before Oct. 1, 2020, the maximum award is $3,764.

State grants

Your state government may also issue need-based grants. Generally, you will be redirected to your state’s application page at the end of your FAFSA application, but if you want to check out your options beforehand, you can find information from your state’s department of higher education here.

Institutional grants

Your college or university may also issue need-based grants. While your EFC is not likely to be measured in the same way, a FAFSA application is still required.

Some colleges, though typically not Ivy League schools, will also offer merit-based grants. Your grades will likely be a factor here.

Work-Study Programs

Work-study programs are another form of aid that will not be accessible unless you complete your FAFSA.

Many schools participate in federally backed work-study programs for students with financial need. With work-study, you’re assigned a set amount of hours working for the school, in a community service role, or in a field relevant to your course of study.

You should get a paycheck at least once per month, and you can often choose whether to receive the funds directly or to have it applied against any money you owe the school.

529 college savings plans

529 accounts are tax-advantaged accounts to help you save for future college expenses. Contributions go in after you’ve paid taxes on your income. That money is invested and grows tax-free — as long as you spend the money on qualified educational expenses.

Types of 529 accounts

Not all 529 accounts are created equal. They are issued under state law, and each state has its own specific rules on how 529 accounts can be used. However, some states will let you purchase their 529 accounts even if you aren’t a state resident.

There are two basic kinds of 529 accounts:

College Savings Plans

The College Savings Plan structure allows your money to grow in traditional investments, as made available by your state. You can use this money to pay for school at almost any U.S. institution — and even at some schools abroad.

With a College Savings Plan, whatever you have saved can be applied toward any allowable educational expenses, though you’ll have to cover the remaining costs after exhausting the money from your 529.

A good example of a College Savings Plan is Utah’s 529 plan, which even offers a few investment options insured by the Federal Deposit Insurance Corporation.

Prepaid Tuition Plans

Prepaid Tuition Plans allow you to save for tomorrow’s college at today’s rates. There may be different tiers of saving for different types of schools.

For example, Pennsylvania’s Guaranteed Savings Plan 529 option currently allows you to buy credits at today’s rates. These credits will be valid when your child goes to school in the future — even if tuition rates have skyrocketed.

One thing to be careful of with Prepaid Tuition Plans is that if you save at the state school level, and your child ends up not wanting to attend a state school when they graduate from high school, you could run into some funding problems. Pennsylvania allows you to change your investment tier at any time, but this is a potential point of friction you should consider if you decide to go with this type of 529.

You’ll also notice that price per credit is quite high at Ivy League schools. As discussed earlier with the example of Cornell, Ivy League schools tend to have extensive grants. If you’re making a median income, saving in this manner may reduce your child’s future institutional aid, costing you more money than you would have had to pay without the dramatic savings.

What can I use my 529 account for?

You can only use the money in your 529 account for qualified educational expenses. If you use the money for anything else, you will have to pay taxes on the withdrawal.

Qualified educational expenses include:

  • Tuition and fees*
  • Room and board — though you must be enrolled at least half-time to claim this expense
  • Books
  • Technology required for school — including internet access
  • Other required equipment and materials, as assigned by your instructor

*Some Prepaid Tuition Plans cover tuition and fees only.

How to make a 529 withdrawal

Most programs allow you to make a withdrawal online or via postal mail. Your 529 account issuer will not keep records of how that money was spent. Producing documentation to show that the money was spent on educational expenses falls squarely on your shoulders.

Pros of 529 accounts:

  • Studies show that regardless of how much you save, the fact that you are saving for college makes your child more likely to attend college.
  • If you have a high enough income level, your child might not qualify for need-based financial aid. Saving in a 529 plan is a generous investment in their future, given that they won’t have as many funding opportunities available to them.
  • Because you are investing, your money is likely to grow — and it will grow federally tax-free. This means you won’t have to save as much in a College Savings Plan in order to meet your goals.

Cons of 529 accounts:

  • The amount you have saved could reduce institutional aid — especially if you open the account in your child’s name. Open the account in your name and list your child as a beneficiary instead.
  • When saving in a Prepaid Tuition Plan, do your best to ensure you’re saving at a level your child will actually be able to use. If they don’t end up going to school in state, you could hit a bump in the road if you’ve been saving at state school tuition levels.
  • Because you are investing, there’s no guarantee of growth. You could conceivably lose money in a 529 account.

FAQ

To see if your college degree is worth the cost, you need to figure out the net price of your education and your expected salary. A good tool to crunch these numbers is the College Scorecard, provided by the Department of Education, which shows data on net cost of attendance, alumni salaries and debt upon graduation.

Be wary of relying too heavily on the data here, though. Your future salary, for instance, likely depends more on your major and profession than on the undergraduate institution you attended. Often, an even better way to figure out potential future earnings is by talking with someone who is already working in your field.

Technically, you’re only allowed to spend federal student loans on educational expenses. These can include:

  • Tuition and fees
  • Room and board
  • Books, supplies and equipment
  • Transportation while at school
  • Dependent child care expenses

Unlike with 529 funds, no one will be monitoring how you spend your federal loan money. However, if you end up having the money to go on shopping sprees after you’ve paid for all of the above expenses, you’re probably borrowing too much. Consider returning the money rather than paying interest on it after you graduate.

If you’re borrowing from a private lender, check your loan agreement for any restrictions on how you can spend your private student loans.

Most of the time, you don’t have to live in on-campus housing. Some colleges and universities require their traditional freshmen to live on campus, but even these stipulations can sometimes be worked around if you’re commuting from your parents’ home.

If at all possible, yes, try to make student loan payments while you’re still in school. Make an effort to pay the interest at least, so it won’t accrue while you’re in school (or during your grace period or deferment) and cost you more money in the long run.

The only time when in-school payments don’t matter is when you have Direct Subsidized Loans — those loans won’t accrue interest while you’re in school. Even then, making principal payments early isn’t a bad thing if you can swing it.

If you take out a Direct Loan, you’ll be assigned one of nine loan servicers and will make payments through that assigned servicer.

Those who have taken out Perkins Loans may repay them directly through their school or via a loan servicer designated by their school.

Likewise, you can repay private loans directly to your lender or assigned servicer.

If you miss one payment on your federal student loans, you will have to make it up within 90 days — otherwise you’ll get reported to the credit bureaus.

If you miss several payments on your Direct Loans and don’t make payments for 270 days, you will be in default, which puts you at risk of not only being reported to the credit bureaus, but also losing all benefits of federal student loans, such as income-driven repayment options. You could also end up in court.

The consequences for missing payments on Perkins Loans and private student loans depend on the agreement you signed prior to disbursement. Private lenders can report you to the credit bureaus as soon as you’re 30 days late with a payment.

If you can’t afford your Direct Loans, apply for an income-driven repayment plan. These plans cap your maximum payment at a percentage of your disposable income to ensure that they are affordable.

If you have a private loan, you may want to look into refinancing for lower monthly payments.
And if you have a Perkins Loan, set up an appointment with your financial aid office or loan servicer to discuss your options.

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