Origin Bank supports National College Savings Month in September, when families are encouraged to learn more about the expense of college education and their options for paying. The key is to understand all the different costs associated with higher education and having a plan to cover the fees.
Experts commonly agree that time is the biggest factor, so an early start to college savings allows even small monthly amounts to grow. Even if your kids are young and college seems far off, it’s best to start now to maximize your savings and take advantage of earnings from interest.
Origin offers a number of savings options, including simple savings accounts, IRAs and the Coverdell Education Savings Account, which features attractive tax advantages. A Coverdell ESA is exempt from taxes on investment income and capital gains. That means your investment compounds faster over time. Withdrawals are also tax-free when used for education expenses.
Even with savings, families might still need student loans to help bridge the gap of college expenses. Parents and their children should keep in mind that repaying student loans can be expensive and may take several years to pay-off. Understanding the terms of a loan is essential, particularly how interest rates affect the total amount you pay and the time needed to finish paying.
There are many options when it comes to student loans. Many businesses offer private loans but experts often recommend applying for federal student loans as a first option. Federal student loans have more flexible repayment options and protections for borrowers. Plus, undergraduate students can qualify without a cosigner.
Applying for a federal student loan starts with the Free Application for Federal Student Aid. FAFSA, as it’s known, determines eligibility for aid, including loans, work-study programs and grants. Applications open each year on Oct. 1, but deadlines can vary according to individual states and schools.
Three options are available with federal loans:
1. Direct subsidized. Students must prove financial need and be enrolled at least half-time to qualify. They can borrow up to $23,000 as a dependent undergraduate student, depending on a few things. The Department of Education covers interest charges while students are enrolled, along with the first six months after you leave school and during a deferment.
2. Direct unsubsidized. Proof of financial need isn’t required. Students must be enrolled at least half-time. Undergraduates can borrow up to $31,000 in subsidized and unsubsidized loans combined. Graduate and professional students can borrow up to $138,500. In either case, interest accrues.
3. Direct PLUS loan. This is available to parents of dependent students, along with graduate and professional students. You can borrow up to the cost of attendance, minus financial aid received. Borrowers must pass a credit check. Payments can be postponed while students are enrolled, but interest accrues.
Interest. Repayment. Subsidized loans. Applications. It’s a lot to consider, but don’t get overwhelmed. Our bankers help families understand the options and terms, and serve as a resource to help you make a plan to pay for education costs.
Origin also encourages making college a part of the family conversation. Parents can help guide their kids by asking them about the kinds of things they enjoy doing, then helping them understand how those interests can be applied to educational pursuits. The conversation will change as children grow, but it helps both sides form realistic plans based on imaginations and dreams.
Contact Origin to discover how our bankers can help you plan.