October 2006 Archives

Staci

Send a comment to Staci

Last month following a post I wrote, we received this comment from Todd:

"I just got my SAR back and it says thay my EFC is 09988 and that I don't qualify for any federal aid, which I figured might be the case. I am 40 year old single adult who makes decent money but unfortunately don't have the money to be writing big checks for my education.

"The last time I thought about school I remember seeing the Stafford Loan as the one type of aid I did qualify for, however, this does not even appear to be the case this time.

"Before I make a committment I am trying to get an idea of what type of loans may be available(if any) and the schools I am looking at are too busy trying to "sell me" as if I was buying a car.

"My credit isn't all that great and while I have recovered from a severe finacial crisis I am not certain that I would be able to qualify for any type of private, unsubsidized loan.

"How can I get these questions answered? It would be helpful to know before making any final decisions just how I am going to pay for school. That will save a lot of heartache and disapointment."

I let Todd know that I wanted to give his post a bit more time and attention. But what I really wanted to do was offer some advice from the pros—the financial aid directors themselves. Here at Wells Fargo, we work with financial aid folks every day. So we asked a few for their thoughts on Todd’s situation.

Today’s insight comes from Sarah Sell, Assistant Director of Financial Aid at Creighton University  in Omaha, Neb.:

"Congratulations on making the decision to return to school! As a student once myself, I understand how overwhelming and sometimes confusing applying for Federal Student Aid can be.

"Although it may depend on the college you choose to attend, you should be eligible for a Stafford Loan . The amount you are eligible to borrow will depend on several factors: your current grade level, the cost of attendance at the school you plan to attend, how many credit hours you take, etc. I recommend that you make an appointment to sit down and speak with a financial aid representative at one of the schools you are interested in and go over your options. That representative should be able to tell you exactly what you will qualify for (if you’ve sent your FAFSA  information to that particular school) and without trying to sell you. If you did not send your FAFSA information to that school, you may want to do that before you schedule your meeting.

"What the SAR  was informing you of is that, based on your EFC , you are not eligible for a federal Pell Grant , but you may be eligible for other types of (federal) aid. That’s where the schools come in. Once you have applied and been admitted to an institution, once they receive your FAFSA information, they should mail you your Financial Aid Award Letter, which details exactly what you are eligible for in federal aid (which may only be the Stafford Loan—subsidized and/or unsubsidized).

"Hope you find this information useful! Good luck with all you do!"

On Wednesday, we’ll continue the conversation with other financial aid pros—stay tuned!

Barbara

My sister and I used to adore the movie "Big ." I think it was the sole reason I learned how to play "Heart and Soul"  on the piano. Granted, it was with my fingers, not my feet, and I wasn't accompanied by my boss but by my sister, who tended to boss me anyway(I never got to play the fun bottom part—I was always stuck with the melody).

Giant pianos and shimmy, shimmy, cocoa pop aside, I think what my sister and I liked the most was the independence of being "big."

Josh Baskin, miffed by being too short to board a carnival ride, tells the all-powerful Zoltar machine that he wants to be big. And poof—wish granted. Being big apparently translates to having a fabulous NYC loft filled with all the extravagances you want—in this case, a plethora of toys and games. And a ginormous trampoline! Oh, and it also means having the job of your dreams ...

Who wouldn't want to be big?

Ah, to be young and optimistic again. Back in the day, I really did want to be big. But now, being big? Not so much (although being kind of a big deal is still pretty awesome). Turns out, everything is not as it seems in the movies. A harsh reality for the little girl who thought if Josh Baskin could have his own trampoline she could have a dance studio in her apartment.

 Well, I don't have that dance studio, and that independence I was so drawn to ... I usually pretend that it's fake and end up calling my mom for advice. Nonetheless, and surreal as it may be, here are some lessons related to the movie "Big":

• When Josh first meets his boss (by plowing him over in the hallway), Mr. MacMillan says, “Nothing wrong with a little hustle.” A great thing to remember in the workplace, and something that's applicable to student loans, too. There's nothing wrong with speeding up the repayment process on your loan. The faster you pay the less interest you pay. So if you can manage the hustle, do it.
  
  
• Josh's first paycheck before he lands the killer toy-tester job? Three dimes, a hundred dollar bill, and 87 ones … $187.30. Rough. And your first job's paychecks usually are. It's tough, but you learn to deal.
  
  
• Glow-in-the-dark compass rings may help you avoid getting lost in an apartment but not in the world. You have to sketch out a road map to where you want to be and how you're going to get there. And if need be, you need to be willing to take the back roads when necessary.
  
  
• Josh: "I went to bed one night and I was a kid, and when I woke up the next morning I was a grown up." Time goes too fast. Going from freshman year to going to bed on your graduation night seems like it happens in the blink of an eye. Start preparing for your big status as soon as you step foot on campus. Make sure you're involved in the right things and are financially responsible.
  
  
• Being big gets old—even for Josh Baskin. With the responsibilities and complications everyone wants to be young and carefree. The only thing is, unlike in the movies, we can't go back.

Do you have any big advice? What would you have asked of the all-powerful Zoltar?

Barbara

I'm $121.80 down. Did I get some new additions to my wardrobe? A new iPod? A whole bunch of TV on DVD? No, no, and no. I got a new cell phone . And it's full of whozits and wandangles and fun little thingamajigs—none of which I had on my previous phone, so I'm kind of like a little kid in a candy store with it.

But, I didn't initiate this phone switch. I guess when it all comes down to it, I blame it on the cat. Bill was playing on the floor of our room—looking cutey-cuterson like she always does. As her mouse toy found its way into the cords under my desk, so did Bill. And apparently my phone charger cord will always rank higher than any toy I buy her. Commence cord playing, phone dropping, and flip-phone splitting in two.

$121.80 later, I have a new phone and less money. Unforeseen expenses—the reason to have a cushion of savings. Ah, that cushion of savings ... I try, I really do try, to save, but I'm having a difficult time. You see, as soon as I start thinking I have enough money to start building that cushion AND manage my debt, one of those unforeseen expenses pops up.

So how do you save? This article  is targeted at adults, but those of us new to "the adulthood" can benefit from it, too. The basic idea is that you should only spend 60% of your monthly income—the rest should go to your savings. BTW, 60% is a very idealistic number for a recent college grad. It can be higher than that.

In theory, if you were bringing in $2,000 a month in your first post-collegiate job, you'd only use $1,200 each month. The other $800 would go into savings. So essentially over a year you'd be able to build up an almost $10,000 cushion.

Do you think you could manage that? It seems easy enough in writing ... but I'm going to test it. Keep reading, and I'll let youknow if it works in reality.

What ways have you found to build your cushion of savings, or haven't you?

Caroline

$1,700.

It was the biggest check I'd ever held in my life. And it was made out to me.

It was what was left of my student loan money after my university tuition and expenses had been paid. And it looked like a lot of money.

I was a college junior, living in my first apartment, with three roommates. That money was supposed to last me an entire semester. It seemed like enough. Well, it was probably enough. Heck, I was 20—I had absolutely no idea.

My roommates and I all had student loans. So, first things first. We each took out five month's worth of rent ($750 each) and enough money to cover utilities and shared household expenses for the semester (another $150 each, we were guessing) and put it aside in a separate bank account. Untouchable. Only to be used for rent, heat and toilet paper.

Okaaayy. Now I had just $800.

Off to the campus bookstore . $680 left. To last five months. Gulp. How much was I going to need for groceries ? Was I ever going to get new clothes again?

Well, I got a part-time job, and things were tight, but I did OK. I consider myself lucky that I didn't have the additional expenses of a cell phone or the Internet.

When you have student loans, it's easy to get giddy when you see that big check. You forget how quickly it gets gobbled up by everyday expenses.

If creating a real budget seems too overwhelming, it definitely helps to do what my roomies and I did—put aside enough cash to cover the biggies: rent and utilities. If you have to open a separate bank account for it, go ahead. It will give you a much more realistic idea of how much money you have to stretch over the whole semester.

Those of you with student loans, tell us: How do you budget your student loan money?

Staci

Who knew? October has many more "official days" than just Columbus Day, Bosses Day, and Halloween. For instance:

• October 2 is Name Your Car Day
• October 9 is Moldy Cheese Day
• October 12 is Moment of Frustration Day
• October 28 is Make a Difference Day 
• October 30 is National Candy Corn Day (oooh!)

According to theAmerican Bankers Association Education Foundation , today—October 19—is Get Smart about Credit Day . It's an opportunity for bankers like me to raise awareness among teens and young adults about using credit wisely.

So in the spirit of this day, I offer the following recommendation to help you get smart about credit: Request a FREE copy of your credit report, which is a detailed list of your credit history, at www.annualcreditreport.com . This central site allows you to request a free credit report once every 12 months from each of the nationwide consumer credit reporting agencies (Equifax , Experian , and TransUnion ). Actually, you could, in effect, get a free credit report every four months by requesting them from each of the three credit agencies one at a time (say, Equifax in January, Experian in May, and TransUnion in September).

It's a good idea to review your credit report at least once a year to check for errors or fraud, and also before making a big purchase—like a car or a private, credit-based student loan. And when you use the Annual Credit Report Request Service, it won't cost you anything.

Not included in your credit report is your credit score, calculated by Fair Isaac Corporation (FICO)  to obtain a fast, objective measure of your credit risk. The higher the score, the lower the risk. Unfortch, your credit score is not free, but you can obtain it for a small fee from the three main credit reporting agencies, Fair Isaac, or the Annual Credit Report Request Service.

Intrigued? Want more details about credit reports and credit scores? Check out Wells Fargo's financial literacy program, Handson Banking®. There's tons of information in the "Young Adults" section to help you get even smarter about credit. Or, feel free to ask your questions here.

P.S.: As you might've guessed, my National Candy Corn Day celebration plans are in full swing!

Barbara

Student loans seem to be the thing that people treat like Ron Popeil's Showtime™ Rotisserie —you know, "Set it and forget it." Once your loan is disbursed, it's likely that you don't give it a second thought—until it comes time to pay it back.

With Ron's masterpiece, you throw the chicken in the rotisserie, move on to other things and then—ding!—your dinner is ready. Well, when it comes to student loans, if you set them and forget them, that ding! when you enter repayment might have a little sting. While you've moved on to other things, your interest has been gaining on you like my father on the interstate.

You see, all that interest on your loan is going to be capitalized as soon as you enter repayment. Capitalization is when your accrued interest is added to the outstanding balance on your loan—increasing your principal balance.

To save yourself from paying even more on your student loan, you can make interest-only payments while your loan is in the in-school deferment period. (Translation: On most loans you don't have to make payments while you are in school, but interest still accrues. If you pay off your interest even though you don't have to, you can save in the long run.)

You can see what you would be able to save with this calculator. (It works well if you're in repayment to show you what increasing your monthly payment can save you, too.)

I'll give you an example to show you how to figure your savings with the calculator. Writer's warning: Beware, numbers follow...

Take two undergraduate students who each borrowed $10,000 for each of the four years they were in college. That's $40,000 in debt a piece that we'll say is fixed at 8% interest—for the sake of simplicity.

So here's what we're dealing with:

• Freshman loan of $10,000 with interest each year of $800 times four years = $3,200
• Sophomore loan of $10,000 with interest each year of $800 times three years = $2,400
• Junior loan of $10,000 with interest each year of $800 times two years = $1,600
• Senior loan of $10,000 with interest each year of $800 times one year = $800

Altogether, that's $8,000 in interest.

The first undergraduate decides to follow the Ron Popeil method of paying for college. So when she enters repayment and her interest is capitalized, she's dealing with $48,000. The second undergraduate decides to scrounge up a little cash each month to pay the interest accrued on each of her student loans—if you divide the debt evenly it averages out to about $160 each month over four years (some would be lower, some would be higher, depending on whether you had one or four loans).

To compare, let's go to the calculator. If we enter both the amounts ($48,000 in the first column and $40,000 in the second column) and use a standard repayment term of 120 months(10 years) with our interest set at 8%, here's the difference:

The first student who set it and forgot about it will end up paying $69,884.69 over the life of her loan. The second student who paid off her interest ended up paying $58,237.25. After you subtract the $8,000 in interest you'd have to pay in either situation, that's an interest savings of $3,647.44! Just by paying off the interest in school! (Now I sound like an infomercial ... watch out Ron, I'm on my way to the top!)

OK, now to curb your "I don't have money to pay off my interest" whines I can already hear all the way from my cubicle in Sioux Falls . You tell me: Is it easier to scrounge up a little cash every month while you're in college, or is it easier to pay more in repayment when you're balancing payments on your car, home, credit card, insurance, etc.? Even if you can't pay of all the interest, every little bit will help. Because that interest that doesn't get paid is capitalized and starts growing interest of its own when you enter the repayment period.

How much would you save if you paid off your interest before repayment? Is it worth it?

Caroline

Desperate for money, most college students are willing to do just about anything for extra cash. Of course, there are the standard waitressing, fast food, and retail jobs that keep most students going during the lean years.

And then there are those other jobs. Those bad jobs, weird jobs, or just random jobs  that you do because, well ... you're in college and you need the money.

For example, I have a friend who donated plasma  pretty much as a part-time job. She went in twice a week. I swear she earned enough to file taxes! Yikes!

One summer I was an unpaid intern  at an advertising agency. A fellow intern and I were so strapped for cash, we actually volunteered to mow the lawn at the agency. I think our bosses were a little stunned that two 21-year-old women needed $20 that badly, but hey—back then $20 would fill a car with gas ... twice!

My "night job" that same summer was announcing games for a women's softball league. I introduced the batters, ran the scoreboard, kept the book, and consumed vast amounts of hot dogs, chips, and Laffy Taffy  from the concession stand.

My collegework-study job  was in the microbiology lab, cleaning test tubes and Petri dishes that smelled like bad breath. Not the ideal position for a journalism major who much prefers the aroma of printer's ink.

Then there was my summer as a meat cutter. I spent three months working in a meat processing plant, chopping big hunks of beef into the tidy little steaks you get in the grocery store. It was one of the better-paying jobs for a college kid in my hometown, if you could wield a knife and didn't mind the sight of blood. I was actually much more troubled by the fact that I had to wear a hairnet for eight hours a day.

Now, there must be plenty of you students and former students out there who've done weirder jobs than I have, so share. What are you doing (or what did you do) to earn money during college?

Staci

In my line of work, one of the things I stress to would-be student loan borrowers is to determine what their degree will be worth  after they graduate. That is, what kind of earning power will you have—and will it be enough to repay your loans?

Until about midway through my sophomore year of college, I was bound and determined to become a lawyer. I’d done well on my high school debate team and was fascinated by true crime novels. Plus, I’d seen more than my share of L.A. Law  episodes, so I was pretty sure a law degree would equal financial security.

All that changed during my first semester of Criminal Law, a requirement for my government major. After the first exam—on which I didn’t do too well—my professor asked me to come see him during office hours. He asked me what my career plans were, and I told him. Then he was quiet.

“Maybe,” he said, “the law isn’t your calling.” He asked if I’d given any thought to other possibilities. “For instance, you’d make a decent city planner.”

A city planner ? I was devastated.

Little did I know that as I aged, I would become more interested in the very things city planners, well, plan. For instance, transportation: When are all my routes to work not going to be under construction? And commercial development: When is there going to be a Pottery Barn  less than 150 miles away?

I didn’t go to law school. Instead I chose to pursue a less traditional path , one that led me to cities and jobs and people and experiences I never would’ve imagined. Eventually, the salaries caught up, too. In a sense, my degree ended up being worth much more than I expected.

Will yours?

Caroline

That is the question. And a lot of parents are asking it. In fact, one parent—Nate—recently asked it on this blog:

"So could you maybe tell me which way is the better way to go to finance my daughter's college. She is a freshman and I'm not sure if I should do a Home Equity loan or try to get her a loan through her school's student loan program. She's going to Ol' Miss!"

The short answer is: It depends. There are several key differences to consider between these types of financing.

Generally, before considering any other type of financing, students should fill out the Free Application for Federal Student Aid (FAFSA) first, to see what they qualify for in financial aid. With the information from the FAFSA, the school can put together a financial aid package that may include grants and scholarships that your student doesn’t want to pass up.

Your student’s financial aid package will also show what he or she qualifies for in Federal Stafford Loans. The Federal Stafford Loan is one of the most affordable options for financing college today, with a fixed interest rate of 6.80%, so if you’re planning to borrow money for college, students should look to that loan first.

Assuming the Federal Stafford Loan does not cover all college expenses, there are three common choices to consider for financing to bridge the gap: the Federal PLUS Loan for parents, home equity financing, and private student loans.

Take a closer look at these options by reading this comparison chart(PDF).

Ultimately, you’ll want to choose the option that makes the most sense for your individual financial situation. It’s not a "one size fits all" approach. The financing that works for Nate and his daughter at the University of Mississippi  may not work for you at all schools.

For example, maybe you don’t want to mess with the FAFSA and would like to bypass federal loans altogether, so you choose a home equity line of credit. Or maybe you don’t want to use the equity in your home for education because you know you’ll need a new roof soon, so you apply for a Federal PLUS Loan or cosign a private loan for your student.

Parents, tell us: When it comes to borrowing for education, what has worked best for you?

Barbara

When I was deep in my college search a mere six years ago, I found something that I didn’t think existed anymore—unless your skills were in athletics, not academics. And much to my surprise, after applying and interviewing, I received the holy grail of college financing.

My four years of undergrad were on a full-ride scholarship . Before you start throwing tomatoes at the computer, let me explain. In exchange for tuition, room and board, and a book allowance, I spent my college years working extensively for the campus newspaper . In fact, I ended up becoming the editor.

So it wasn’t completely free money. And most scholarships aren’t—the trick is finding scholarships with requirements tailored to your own interests. The instant I stepped foot in the newsroom on my campus tour—even before I had the scholarship—I knew I wanted to be there. Just like I was able to find a journalism scholarship rewarding me for something I wanted to do anyway, college departments can reward you for involvement in activities or even for just being a part of the department. Studying political science? See if your involvement in College Democrats  or College Republicans  can get you some extra cash. Majoring in biology? Maybe you can get a scholarship for helping with research.

While I was able to snag one of the big ones, even small scholarship amounts from a department can add up. And they are out there; you just have to look for them. Talk to your adviser or department secretary about scholarship options. Or, share with us here: What tips do you have about finding scholarships?

Staci

I've been traveling a lot recently and seem to be spending more and more time in Terminal B at the Denver airport .

What I like most about this airport is the moving walkways that talk to you as you're about to step off them. "Caution," they say, with just the right balance of friendliness and concern. "Moving walk is nearing its end. Please watch your step. Thank you."

Last week, as I trekked from one end of the concourse to the other, I got to thinking: Wouldn't it be nice if other things in life, such as college graduation, came with a similar message?

For example, here's what I wish my hypothetical end-of-college moving walkway would've said:

Caution, college life is nearing its end. Please watch your Ben & Jerry's  consumption(you're not going to have a 21-year-old metabolism forever), your attitude toward your parents (because you'll need to move back in with them at age 24), and your finances (since that 1996 campaign job you think you can't live without will actually result in an annual income below the poverty line ). Thank you."

Recent college grads—or anyone with life experience, really—what would your walkway say?

Caution, college life is nearing its end.
Please watch your __________.
Thank you.

Caroline

I'm considering preschool. Not for myself—although I would definitely like the whole afternoon nap thing. No, I'm looking at preschools for my 2-year-old to attend next year.

As I'm contemplating theidea, it's got me thinking about college savings. For parents anyway, the journey from preschool to college seems so long—there are years and years of science projects , soccer games, and school plays  ahead before you have to worry about your kid's ACTs  and housing applications.

But really, that 14 years is just the blink of an eye in financial terms.

So, are we saving enough for college? Between working in the student loan industry and having a daughter in college right now, the thought is never far from my mind.

While I do have a few years to keep contemplating the question, there are probably a lot of you who don't. What can you do if college is coming up fast and you're worried about paying for it? First, don't panic. There are plenty of ways to pay for college. Here are few quick things to remember:

1. Get the picture. Go to your college website and find out the cost breakdown of tuition, fees, housing, etc.
2. Look into scholarships. The earlier the better.
3. Talk to the financial aid adviser at your school. They know a lot, they've seen it all, and they're there to help.
4. Apply for financial aid  early, no matter what your financial situation. (Seriously, there are many, many people who think they don't qualify for aid and just don't apply . Financial aid is not always based on your income, so go ahead and apply.)
5. Start saving now, as much as possible. The costs of college can seem so overwhelming—if you're getting a late start on saving, it's hard to feel like you could even make a dent. It might help to set small goals, like saving enough to cover the cost of books for the first semester.

Hopefully, this is a helpful short list to get you started. But what about those of you who do have college savings? You may have some good info to share.

Did you save enough for college? How did you go about it? If you have financial aid, is it enough to make ends meet?