College Students, College Loans, and You

Adding Value to Client Relationships by Understanding Student Loans

While we as Financial Advisors rarely are in the business of making student loans, the subject is worthy of a brief overview because we often work with clients on strategies to pay higher-education expenses of their grandchildren or children. 

Average Cost of Undergraduate  and Graduate Degrees

According to the U.S. Government, one year of undergraduate education, including tuition, fees, room, and board at a private nonprofit institution, costs approximately $46,000. [1]

More Americans than ever before have earned graduate and post-graduate degrees. 13.1 % of U.S. adults now have an advanced degree, up from 8.6 % in 2000 according to the Census Bureau, with 21 million adults age 25 or older holding a master’s degree. The number of doctoral degree holders has more than doubled to 4.5 million. [2] The average yearly tuition costs alone for a two-year graduate degree can be as much as $40,000 for a private college. [3]

These costs can be a stretch even for your High-Net-Worth clients in the $10 million net worth category if they have many children or grandchildren and two or three are in school at the same time. Hence, even these clients may have an interest in types of financing available, either in the form of grants, scholarships, loans, or a combination of all three.

Grants and Scholarships

Both grants and scholarships are widely sought after because they don’t have to be paid back, nor are they taxed.  A grant is precisely that, an institution grants you the money. Grants are typically given to students based on financial need. These include Federal Pell grants which are awarded specifically to “undergraduate students who display exceptional financial need…” The maximum amount as of 2021 is $6,500. A Pell Grant isn’t a Federal student loan. [4]

Scholarships are more competitive and are usually merit-based, such as National Merit Scholarships, which are highly competitive and an honor to receive. 7,500 are given each year. [5] Scholarships are often provided for specific fields of study, such as engineering because there is a shortage of engineers in the US. [6]

Many local service clubs offer scholarships to students living in the same locale as the individual club. An example is your local Rotary Club which raises money for local students. These are awarded according to the rules of the Rotary Foundation. [7] Others are specific to genders, such as women, including specific programs for women of color. [8]

Two Basic Types of Student Loans

Student loans fall into one of two basic categories: Federal student loans or private student loans. Everyone applying for a Federal student loan begins by completing a standard form known as a FAFSA (Free Application for Federal Student Aid). You can go here to start.

Private student loans are exactly that: loans made to you by a financial institution. There has been much controversy over private loans, so review these in the spirit of caveat emptor (buyer beware). Various websites provide a comprehensive list of all scholarships and grants available to students. While Cannon does not recommend or endorse any service, product, or website, one of the most popular seems to be: https://www.fastweb.com.

Resources:

[1] https://tinyurl.com/USGovtFastFacts

[2] https://www.census.gov/library/stories/2019/02/number-of-people-with-masters-and-phd-degrees-double-since-2000.html

[3] https://www.petersons.com/blog/is-the-cost-of-a-graduate-degree-worth-it/

[4] https://studentaid.gov/understand-aid/types/grants/pell

[5] usnews.com/education/scholarship

[6] https://www.thebestcolleges.org/scholarships/engineering/

[7] https://www.rotary.org/en/our-programs/scholarships

[8] https://www.scholarshipsforwomen.net/

Contributing Writer: Subject Matter Expert Charles McCain