COVID-19 has massively disrupted the college planning and paying for college process, which has created new opportunities for families to potentially reduce their cost. Here are three new college financial planning strategies to consider (as always, please consult with a financial professional to determine if any are a fit):
Take advantage of low student loan interest rates
Student loan interest rates will be at record lows for the 2020-2021 school year, and may be an attractive option for families paying for college whose 529 Plans or other investments earmarked for college have taken a hit.
Consider taking out inexpensive student loans to give those investments time to recover, and start first with the federal direct student loan, the only loan that can be taken out entirely in the student’s name without a co-signer.
Importantly, students only have access to $5,500 in the federal direct student loan program in their first year of college, $6,500 in their second year, and $7,500 in their third and fourth years, with a maximum undergraduate borrowing limit of $31,000.
Additional loans are available, but they require a co-signer and have less favorable terms.
For those with existing student loans, refinancing may also be an option, especially for those with private loans. Federal loans have important safety nets, so borrowers need to be careful and should consult with a financial professional if considering consolidation or refinancing.
Use grandparent 529 plans to pay for student loans
The SECURE Act signed into law at the end of 2019 opened up a new way of paying for college. The legislation allows for 529 plans to now be used for a lifetime limit of up to $10,000 of student loans for the plan beneficiary, as well as a $10,000 lifetime limit for each of the siblings of the beneficiary.
If a family might qualify for need-based financial aid, a savvy move is to delay distribution of grandparent 529 plan funds until the junior year of college so it does not show up on the FAFSA and get treated as income for the student, thereby reducing the amount of need-based aid.
Well-funded grandparent 529 plans previously would then have to be used in the sophomore or freshman year, but now have another outlet in paying for student loans that does not affect eligibility for need-based aid.
Negotiate more with the college
COVID-19 has colleges scrambling to fill fall enrollment numbers as families contemplate whether or not to send their child, or if they want to look at schools closer to home. Schools are facing massive budget deficits from lost tuition and room and board revenue, and are taking unprecedented actions to secure as many fall enrollments as possible.
There has likely never been a better buyer’s market for families shopping for college.
Each college has a unique financial aid policy and awards dollars for different reasons, so it helps to have an expert help you navigate the process of paying for college to ensure you get the best price.
Even if you have already chosen a college, it may make sense in this current environment to go back to the school to see if you can get a better offer, particularly if your family financial situation has changed due to the coronavirus pandemic, or if you’ve received a better offer from a competitor or peer institution.