May Newsletter: Interest Rate Hike | Tuition Budgeting | $10K Scholarship
Student Loan Rates: What to Expect in July
In 2013, Congress passed the Bipartisan Student Loan Security Act, which ties federal student loan interest rates to the 10-year Treasury note. The 2014 auction rate yield increased from 1.812% to 2.612%. As a result, interest rates on Federal Stafford and Federal PLUS loans taken out from July 1, 2014 to June 30, 2015 will go up.
This table summarizes the rate changes for each type of loan:
This table shows the impact of the rate increase for a $10,000 loan with a 10-year repayment term:
This table summarizes the numbers in the table above:
Ask the Edvisor: Your Questions, Answered
Q: We have received our first bill from the college I will attend in the fall. My parents and I are trying to budget our college payments for the coming academic year. How should we prioritize spending our college savings? Is it better to spend my assets or theirs first?
A: Families should spend down student assets before parent assets, because student assets are assessed more heavily than parent assets in the financial aid formulas. Use money from custodial bank and brokerage accounts first, spending it down to zero before touching the parent’s money.
There is one exception to this rule, which is the custodial versions of 529 college savings plans. If the student is a dependent student, these are treated as though they were parent assets on the Free Application for Federal Student Aid (FAFSA).
Parents may be tempted to spread out the college savings over all four years of the student’s college career, spending a quarter of the money each year. However, this strategy is less than optimal, because the college savings will not only reduce eligibility for need-based aid during the freshman year, but also each subsequent year. Spending more of the money sooner will increase the student’s financial aid eligibility. This strategy will also reduce the amount of debt during the first year or two, thereby reducing the amount of interest that will accrue on unsubsidized loans while the student is enrolled in school.
Note, however, that one cannot use a tax-free distribution from a college savings plan to pay for tuition and textbook expenses that enable the student to qualify for the American Opportunity Tax Credit. IRS rules prevent double-dipping, so families cannot qualify for two tax benefits from the same qualified education expenses. Accordingly, the family should carve out up to $4,000 in tuition and textbook expenses to be paid for in cash or through loans, not 529 plan distributions, so that they can qualify for the maximum $2,500 tax credit.
Our goal here at Edvisors is to help you make the best decisions about your college or university education. Part of that is answering your questions about student financial aid. We’ve added a section to our web site that will feature your financial aid questions and Mark’s helpful advice. Submit your question to be included in Ask the Edvisor.
The Launch Party continues…and we’re still celebrating the cool new look of ScholarshipPoints.com by offering a $10,000 Launch Party Scholarship drawing. Spend as many points as you want on this scholarship before midnight Pacific on May 25, 2014. The more points you spend, the more chances you’ll have to win — thanks to your ScholarshipPoints.com membership. The winner will be announced on May 26, 2014.
5/29: A Good Day to Save Hard
May 29th is National College Savings Day. A 529 plan is a state-sponsored savings and investment program that lets you save on your federal income taxes when funds are used for qualified higher education expenses. Some states offer special incentives for opening accounts at this time of year.
The Seven Scholarships
This monthly section of the Financial Aid Newsletter features an intriguing list of seven scholarships that share a common characteristic. We hope this section will make you smile and inspire you to apply for more scholarships.
Seven Summer Sports Scholarships
- American Legion Baseball Scholarship
- Buddy Pelletier Surfing Foundation Scholarship
- Wendy’s High School Heisman Award
- North American Rolex Scholarship
- The USTA Serves College Education Scholarship
- Thomas B. Crowley Sr. Memorial Scholarship Program
- Caitlin Brondolo Charitable Foundation Golf Scholarship
This month we are highlighting scholarships from the ScholarshipPoints program. To enter, simply log in to your account and spend your points on these drawings before midnight Pacific on the date indicated:
- $10,000 Launch Party Scholarship (5/25/14)
- $1,000 Cinco de Mayo Scholarship (5/31/14)
- $1,000 Mother’s Day Scholarship (5/31/14)
- $1,000 Start Your Engines Scholarship (5/31/14)
- $1,000 VIP Voice Scholarship (6/15/14)
- ScholarshipPoints $10,000 Scholarship (3/15/14)
- ScholarshipPoints $20,000 Ultimate Full Ride Scholarship (12/31/14)
Watch for our notification emails to see if you are a winner!
Assets in 529 Plans Nationally
Your Opinion Matters
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