Best strategies for funding college

- [Interviewer] Hey guys, we're here with Kerry Traylor, founder and owner of College Strategy Experts, and we're gonna talk about the best strategies for funding college. So Kerry, college costs are obviously really high these days. What's the best way to fund a college education? - [Kerry] Yeah, it's really, really tough for all but the wealthiest families in America to pay for four years of college these days. Here in California for instance, the full cost of attendance for even in-state public four-year universities is really never lower than about $25,000 a year. In-state costs can be much lower in other states, but costs for out-of-state colleges and universities can easily run you over $40,000 per year, and elite private colleges and universities these days often cost between 50 and $70,000 per year. So the first thing I'll say is that you really should know a school's full sticker price before you decide to accept an offer of admission, which would include not only tuition, but other expenses like room and board, student fees, books, and travel. - [Interviewer] And where should I get this money from? - [Kerry] Well obviously you don't want to go into debt, unless you really have to. So you and your family should estimate how much money they can set aside each month out of their paychecks first of all, to pay for college, and then multiply this number by the 48 months that you'll be in college, and that will give you an idea of what you can actually afford out of your family income. Then you should look at any savings or investments you can safely use to pay for college. I say safely, because any wise financial planner will tell you that you should have the equivalent of at least six months of income set away safely in an emergency fund to help you or your family through a rainy day. If for instance, you or your parents lose your job, or you have an unusual expense such as high medical bills or car repairs. So this emergency money is money you should not touch for college, no matter what. - [Interviewer] Okay, so first parents should estimate how much money they can set aside, multiply that by 48 months. They can also look at their savings or any investments they can use to pay for college. Now what about retirement money? Should parents use that to pay for college? - [Kerry] Yeah, that's a real big issue. Your parents should really consider how much they will need to fund many years of retirement when they will not be working, but still obviously need to pay their bills. In my practice, I really see far too many families these days who are trying initially to liquidate what little retirement money they have to pay for their student's education. I really have to advise them against doing that. You have to remember the old adage that you can get loans for education, but you can't get them for retirement. So in my practice, I really advise parents against using any retirement savings to pay for college. - [Interviewer] Got it, and what if I don't have any savings set aside, or any ability to fund my education through my or my parents' current income? - [Kerry] Right, and that happens a lot because college costs are so high. So first of all, you need to make sure that you explore all avenues for need-based grants and scholarships, merit aid scholarships, private scholarships, because sometimes you'll be able to get enough assistance that the amount you actually have to pay or borrow is pretty low for any one institution. Next obviously you want to look at the federal student loan program, and potentially your parents may need to look at the federal parent loan program, which is called the Parent PLUS Loan program. Basically undergraduate students can get between 27 and $31,000 in total loans over a four-year period under the federal student loan program. They can get these loans at an interest rate that's pretty reasonable. So usually the rate on the student loans is gonna be pretty much your cheapest form of borrowing. That's definitely not true for the Parent PLUS Loan program. Those interest rates are pretty high. So you have to be really careful in terms of how much debt your parents commit themselves to. With the student loans, $27,000 is really not enough to fund four years of education at most American colleges and universities. Today unfortunately, that amount of loan money is merely a drop in the bucket for a lot of schools, and that's why parents end up taking out a lot of loans as well. - [Interviewer] Can parents borrow the same amount as students can? - [Kerry] No actually, parents can borrow a lot more money than students can. They can borrow up to a school's full cost of attendance, minus any aid package their student is receiving from that school. But again, the interest rate's a lot higher for the parent loans. So I'm sure you've all heard or read about how many parents get themselves in trouble by borrowing more than they can possibly afford to pay back. Remember that both student and parent loan debts cannot be discharged in a bankruptcy court. So that loan debt will really follow parents and students to their graves if they're not able to pay it back. Interestingly enough, the federal government doesn't really assess your ability to pay loans back when they disburse these loans to students and parents. They will run a credit check, but that credit check doesn't really tell them anything about you or your parents' future ability to repay the loan. - [Interviewer] Got it, no that makes sense. So what factors should students consider in thinking about how much debt is too much? - [Kerry] Yeah, so you just have to be really careful about determining what you can actually afford over the long run. As a student, one thing you've really got to think about is what your salary might look like in the 10 years after you graduate from college, because that's the period during which you're gonna be repaying your loans back, unless you renegotiate the terms with the federal government to come up with what's called an income-based repayment schedule. So sometimes you can extend the repayment period from 10 years to a much longer time period. These days, given that college costs so much, and is such a huge investment, you really have to look at what field or profession you're going to be involved in, and ask yourself whether the investment you're making in your education will pay off over the long term in terms of your income. Remember that some professions command a lot higher salaries than others. For instance, if you're going to be a starving artist, you might need to be more careful about how many loans you take out versus if you're going to be a really well-paid business person or doctor or lawyer.