It is back-to-school time across the country. Richland and Lexington counties are bustling with new energy as students of all ages emerge from the lethargy that comes with summertime in South Carolina. With the beginning of the fall semester come concerns about finances, especially for parents sending students off to college.
The State newspaper recently reported that student debt is up 58% at the University of South Carolina, and the average student leaves with around $28,000 in debt. This is a daunting statistic, and yet the university actually falls below the national average of nearly $29,000.
Carolina Money sought out advice from President of The College Funding Center of South Carolina, Rob Mendenall, to see what advice he could give to those who are thinking about college or are currently struggling to pay for college.
Q: In a perfect world, what is the ideal way to save up and pay for college?
A: The key is starting as early as possible with as much as possible. However, I would not actually recommend a 529 plan as my first choice of savings vehicle. I would have the parents save money in a tactically managed investment account in their name to accumulate the funds, because the returns would typically be much better than the 529 Plan. If the child decides to go to college, then you can utilize the 10 day holding requirement in the SC 529 Plan to take advantage of the state taxable income deduction by funneling the money through the 529 Plan before paying the college. If the money is in a 529 Plan, and the child decides not to go to college, or gets a full ride, the parents would have to pay a 10% penalty and taxes on the gains if they are under 59 1/2 years of age when they remove the funds for non-college expenses.
Q: Obviously we don't live in an ideal world, so what is the number one piece of advice you give to people who have not prepared well to pay for college?
A: Be honest with your child as early in high school as you can about the reality of your financial situation. If you clearly define what you can and cannot do to help with college financially, then there really can’t be any hard feelings come decision time. Also, don’t be afraid to utilize tech school for basics and then transfer to the 4-year school to finish the degree.
Q: What tips can you give to help students minimize the amount of debt they take out for college?
A: Apply to multiple colleges, so that you have multiple opportunities for a favorable financial aid package. This should be a mix of public and private schools that have your desired major. If the financial aid package does not materialize, please take advantage of the tech school route for basics. If you graduate from a S.C. high school with at least a 3.0, the LIFE scholarship will apply at tech school, and cover nearly all the cost.
Q: Would you ever encourage students taking a year off to work and save up money or look at alternatives to the traditional 4-year university?
A: Unfortunately, most students would never consider this because all of their friends are going off to college, so they think it is something they must do. It is absolutely a valid strategy, if the student is not mature enough to handle being on their own, or has no idea what they might want to do. A student can delay the start of using the LIFE scholarship as long as they want but must utilize the Palmetto Fellows immediately and cannot delay.
Q: Ok, I got my loan, but I'm going to graduate with $30,000 in debt. How am I ever going to pay that off? Can I actually afford to go to college?
A: $30,000 is about average for student debt these days. Federal loans can be consolidated after graduation into one payment that is extended out over time, sometimes as long as 25 years. The repayment options also allow you to pay less as you make less early in your career, and more later in your career when your income rises.
Q: What is the number one misconception you encounter about paying for college with your clients?
A: Probably the number one is the belief that private colleges are not an option because of the apparent higher price tags. In most cases, a private, liberal arts education will be no more expensive, and some times less expensive that the public university alternative. This would not apply to Ivy League schools, or other highly competitive private schools, but would apply to most other private schools. In South Carolina, the examples would be Anderson University, Erskine College, Presbyterian College, North Greenville University, Columbia College, Converse College, Charleston Southern University, Coker College, Newberry College, and Limestone College.
Rob published an article for Fortune.com, tackling other misconceptions about paying for college and financial aid. Check out the article, if you are interested in getting more advice from Rob.
Have some unanswered questions? Visit The College Funding Center of South Carolina for more information.