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American Morning

How to Pay for College

Aired August 10, 2001 - 10:48   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: Now, we're going to talk about a financial issue that hits many American families, and that is about going off to college. Whether you're a college student or a parent trying to get your kid financially set, this applies to you.

Let's bring in Beth Kobliner, financial analyst and adviser, to help us make some plans.

Beth, good morning to you.

BETH KOBLINER, AUTHOR, "GET A FINANCIAL LIFE": Good morning.

KAGAN: You say the most important thing that a college student should do going off to school is make that financial aide officer your best friend.

KOBLINER: It's true. You know, you don't want to be too obsequious and really try to kiss up to them, because they'll -- they'll tell.

KAGAN: They'll figure you out.

KOBLINER: And also, don't go in there demanding for lots more money. If your parents make $100,000, just remember that financial aide officer is probably only making $40,000. You want to have some reasonable -- be reasonable about it. But the truth is there's a huge amount of money, and most of that money comes from the federal government via the colleges. And people don't realize it. There's out looking for scholarships for, you know, one-armed violinists or a variety of different, unique scholarships, and they don't realize often when you get the scholarship, that scholarship will offset some of the money you're supposed to get from the college.

So the best thing you can do is get to know the financial aid officer and explain your situation. If there's been a change over the summer, for example, in your family situation -- somebody lost a job -- let them know because they will take that into account. They do have some flexibility.

KAGAN: A lot of viewers want your advice today, so we're going to go to the e-mail that's been coming in for you, Beth. The first one is from Jacob in Kentucky. He has a situation I think a lot families can relate to. The college says his parents make too much money to receive need-based aid, but they still struggle to make the monthly payments of over $3,000. "Where can I find other sources of aid that do not go through the college?"

I think a lot of people face this, Beth. They are shocked to find out that guess what, the college thinks they're rich but they're struggling just to make it, let alone making those college payments.

KOBLINER: Right, it happens. I remember it happened to me in my freshman year of college. I thought I was getting more money than I actually did, and it was pretty traumatic.

One thing that Jacob has in his favor right now is the Hope Tuition Tax Credit or the Lifeline Learning Tax -- Lifetime Learning Tax Credit, which is new. It was introduced a couple of years ago into the last administration. That will give him either, whether he's in the first two years of school, he'd get about a $1,500 tax credit. So, that will go a long way toward helping him. Also, I would ask him to make sure he's getting the most -- there are subsidized student loans that the school gives, but then there are unsubsidized Stafford student loans. And the rates on -- interest rates on student loans right now are very attractive.

Remember how the Federal Reserve has been re lowering rates? Well, that affects student loans directly. Stafford student loans, the unsubsidized kind that he will be eligible for, are about 7 -- 6 1/2 percent actually.

So even though he may not get as much in grants as he wants, the loans are quite good deals, and I would urge him to go back to the school and say, "Well, what kinds of loans can I get?"

KAGAN: Looking ahead, trying to look ahead to try to avoid some of these problem, we have an e-mail that deals with something called a 529 plan. I know you know what this is about. Let's put the e-mail up. It's from Supina Hsu in Portage, Michigan. She writes: "I'd like to know if it's a good idea to put my money in a 529 college savings plan for my daughter's college tuition."

What's a 529 college savings plan?

KOBLINER: Well, there are ones of the best deals around, and the reason they are best -- great deals, because under the new tax law beginning next year, you can save in one of these state plans -- most states have them now, and you may even be able to save in other state plans. You can save up to as much as $200,000, not per year, but over the lifetime of your child.

Basically, they're great because they allow your money to grow tax-free, free from federal tax, and also often they're deductible in your state. So these are terrific benefits for people to save for college long term.

There's a great Web site, savingforcollege.com...

KAGAN: Easy to remember.

KOBLINER: ... that has all the information you need to know. Exactly. Very easy to remember. And I urge people who have small children to look at that and really check these out, because these are terrific benefits for people saving for the long term.

KAGAN: Very good. Now, red flag, once the students go off to college, credit cards -- they're inundated with credit card offers. That can be a huge problem about getting into debt.

KOBLINER: This is, you know, a huge issue, and it's gaining more and more attention. A lot of the colleges are nervous, because their parents say, hey, I sent my kid to your school, I racked up thousands of dollars in student loans, and then they're coming back with credit card debt on top of that.

This is a major area. Parents have to talk about with their students. The reality is students are going to get a credit card in their own name, whether they have a job or not. That's just the way it works. You want to keep that credit limit low, keep it to $500. When you talk to your child about this, and talk about, if you mess up, if you make late payments, this is going to affect your future credit for many, many years to come. That means you might have trouble when you're getting an auto loan, you want to get a car, want to buy a home one day, or even applying for a job. More and more employers are looking at credit reports.

So really stressing to your student you want to use this as a convenience tool, use it for emergencies, possibly use it for books, but try to pay it off each month, and if they get into trouble, to talk to the parent about it, because I think dialogue here is really important. You don't want your child to get into a situation where you'll ultimately have to bail them out anyway.

KAGAN: One of the lessons you had no idea you were going to learn when you go off to college. Beth Kobliner, thanks for your expertise today, and thanks to all of our viewers who sent in e-mail.

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