If the borrower is looking to repay the entire loan within two to three years, the private loan rates are lower than PLUS loans right now and it makes sense, Kantrowitz says. “But if they are intending to hold on for the life of the loan term, which is usually 20 to 25 years, then the rates are going to be on average much more expensive than a PLUS loan and therefore they shouldn’t prefer private loans over federal.” Some instances may necessitate looking into alternative private loans—a student who is progressing at an unsatisfactory academic level may be ineligible for the PLUS loan, or community college students may not have the option for a PLUS loan because the school has a high student loan default rate and opted out to ensure other types of federal aid remain available.
When aid is offered and it comes time to choose a lender, Kantrowitz says to talk to the financial aid department at the college the student intends on attending because it’s the first place students turn to when they encounter a problem with a loan or lender. He also recommends going with a large lender so the student can be sure they’ll be in business when it comes time to repay. And in spite of the recent bias investigation of preferred college lender lists by the New York State Attorney General, Kantrowitz says with the exclusion of just a few, many schools have always had the student’s best interest in mind when compiling these lists. “The preferred lenders are a good starting point,” he says. “They shouldn’t be the only lenders you look at, but they can be a good source of lenders that have at least been vetted by the school.”
Kantrowitz says the hardest part of the aid process is the complexity. “There are lots of choices and lots of details,” he says. “It’s very hard to get a handle on this, especially in a short period of time. The only way to handle it is to face it head on and learn the intricacies of financial aid.”
If parents are still having trouble wrapping their heads around the options, they can turn to local businesses for help. The life planners and financial advisors at Third Eye Associates in Red Hook incorporate preparing for college costs during their holistic approach to managing and planning finances.
“The first thing is to find out what the current financial needs of the parents are and how are they dealing with that,” says Susan Simon, the vice president of Third Eye Associates and a registered financial consultant and life planner. “What are the future financial needs for them? Because although it’s very important to plan for a child’s education, I feel it shouldn’t be at the cost of planning of your own future.”
Simon says the advisors at Third Eye Associates are available early on in the process to help parents plan and save, or, later, to help them decipher the FAFSA. They can recommend a combination of savings vehicles for parents to help them attain their goals for their children’s education, helping families steer through the options, like the various 529 college savings programs. New York’s 529 plan offers low initial investment amounts (as low as $25), low fees, and advantages like tax-deferred savings and exemption from federal income tax on withdrawal earnings when they’re used for higher education expenses. Simon also recommends looking into a Coverdell Education Savings Account, which allows parents to save for education while enjoying tax advantages and also has the ability to put the money toward K-12 private schooling instead, if necessary. Ulster County Savings Bank provides detailed information on these options at the college planning section of their website.
Other local banks also dedicate advisors to helping parents prepare for education expenses. M&T Bank has an education division within its investment department and parents can schedule to meet with a financial consultant to help set up financing goals. The bank’s website offers an education calculator that can give parents an idea of how their current investment strategy will measure up when it’s time to pay tuition.
