If you've been in a drugstore or discount store in the past week you can't help but notice the signs: fresh spiral notebooks, packages of pens and pencils, report folders, lunchboxes and highlighters in Day-Glo colors have replaced the beachballs and sunscreen.
Even if it's the last thing on kids' minds right now, there's no denying that the fall semester is only weeks away. (Moms and dads: It's OK to jump for joy at this point.)
For those of you who will be sending a child off to college, financially-speaking, there's both good news and bad news.
For starters, attending a state college or university is no longer the bargain it used to be. Starting with the fall term, a number of schools have announced double-digit increases in tuition. Administrators attribute the increases to decreased revenue from their states and higher costs. Things must be especially tough in the Midwest, where both the University of Kansas and Kansas State have announced a 25% jump in tuition. The University of Illinois-Urbana and Ohio State are not far behind with increases of 20% and 19%, respectively.
The rising cost of college is the reason so many more graduates end up saddled with student loans. According to a poll by Collegeclub.com, two-thirds of all college grads leave school with a diploma in one hand and an I.O.U. in the other. About a fifth of them owe $10,000-20,000. Roughly 25% say their student loans are in the amount of $20,000 or more.
I've written extensively in this column about the benefits of 529 college savings plans and Coverdell Education Savings Accounts (formerly called Education IRAs). Just use our search engine at the top of the left-hand column on this page and input "529" or "Coverdell."
These are terrific vehicles that allow you to sock away money for a child's education and potentially pay no federal -- and sometimes no state -- tax on any gains your investments earn. (The key to the tax exemption to use withdrawals only for "qualified" expenses such as tuition, books, room & board, fees and supplies.)
But while these accounts are great for parents with young children and years to save, there hasn't been much help for students who were either already in college or who had already graduated. Until now.
As of July 1, the interest rates on federal student loans dropped to rock-bottom levels -- the lowest in more than three decades. The rate on so-called "Stafford" loans fell to just over 4%. That's about a third less than last year's rate and less than half what it was just two years ago. "PLUS" loans that parents take out for similar purposes also saw a significant rate decline.
Thanks to the Student Loan Consolidation Program enacted by Congress and signed by President Bush, anyone with outstanding federal student loans can consolidate those loans and take advantage of these dramatically lower rates. If you know about it, that is. A survey by Collegiate Funding Services, a private firm which specializes in student loan consolidations, found that less than half of recent graduates were aware this program exists.
The U.S. Department of Education estimates some 16 million people have outstanding student loans totaling $250 billion. Consolidation doesn't cost a thing and it can save you a bundle -- about $1,133 on a $10,000 loan paid off in ten years, according to Education Department figures.
Here are some things to consider:
- Anyone who has federal student loans -- for undergraduate or graduate school -- is eligible to consolidate. Unfortunately, state and private loans don't qualify. And once you consolidate your student loans, you're stuck with that interest rate for the life of the loans -- no "re-consolidating" if rates go lower next July 1st. (I wouldn't hold my breath.)
- If you're still in school, are a recent graduate in the middle of your 6-month grace period, or are receiving a loan deferment, the Financial Planning Association says the new consolidation rate is even lower: 3.46%. The only drawback is that once you consolidate, loan repayments begin immediately.
- There's no uniform rate for everyone because your new one is a weighted average of the interest rates on all your existing loans, plus the new rate. If you go to the government Web site (www.loanconsolidation.ed.gov), you can plug your information into an on-line calculator that will tell you what your new rate will be. One thing is guaranteed: your overall rate will definitely go down.
- Shop around. Check out the incentives your current lender(s) will give you, but don't stop there. Some student loan consolidators will shave an additional amount off your interest rate if you agree to have payments automatically deducted from your checking account each month. Sallie Mae, the government's student loan issuer, will reduce your interest rate by an additional six-tenths of a percent. Some third-party lenders are matching that.
- Think twice before you jump on the "opportunity" to extend the life of your loan. Having smaller monthly payments sounds appealing, but you'll rack up additional interest charges.
- If you've only got a short period of time before your loan is paid off or only have a small balance left, it might not be worth the trouble to consolidate.
There's a wealth of information available on this subject on the Internet -- just type "student loan consolidation" into any Internet search engine and be prepared to get overwhelmed. Your first stop ought to be the Department of Education. You can log onto the Web site given above or take the old-fashioned route and call: 800-557-7392.
Please pass this along to any college graduates or students you know. This is truly one of those "limited time offers" that is too good to pass up.
There is a reason they call it "higher" education, you know!
If you have a question for Gail Buckner and the Your $ Matters column, send them to firstname.lastname@example.org along with your name and phone number.
To access Gail's past columns, simply use our new "Search" function: type in "Buckner" and you'll be able to get all Your $ Matters columns since April 2001.
The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.