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By SHEL SEGAL
As the expense of a post-secondary education – and the level of student debt – continue to increase, many consumers in the San Gabriel Valley may wonder if a college education is worth it.
The short answer is yes. Despite the significant financial investment, there is a true return in the job market.
A recent analysis of Labor Department statistics by the Economic Policy Institute in Washington revealed the earnings gap among young people with a college degree versus those without reached a record high in 2013.
Americans with a four-year college degree made an average of 98 percent more per hour last year than those without a college degree. This number is up from 85 percent in 2003 and 64 percent in the early 1980s.
The Labor Department noted approximately two-thirds of full-time undergraduate college students receive some form of financial aid, ranging from student loans, scholarships and grants, to college savings accounts and work-study programs.
So what should consumers in the San Gabriel Valley look for when shopping for a student loan or alternative college financing?
“With tuition costs on the rise, it is important for consumers to begin planning their financing as soon as possible,” said Tena Lozano, consumer advocacy manager with the California Credit Union League. “Even if you have been proactively saving for college, it does not guarantee you won’t need financial assistance and student loans are a great help.”
Lozano added there are a number of factors to consider when obtaining a student loan, including:
How much can you afford?
Is the school worth the cost of the education?
How long will it take to pay back the loan?
You should also consider the intended career path. What kind of income will you make after you graduate and what is the job market like in that field?
“When it comes to the actual loan, know what type of loan you are getting,” Lozano said. “If you have to borrow, look to federal student loans first, since they are funded by the government and can carry less risk. If you need additional money, make sure you go through a lender you can trust for private funding, such as a credit union.”
Lozano gave other tips to financing a college education:
Start saving now: Whether you are months, years or decades away from paying for college, start saving today. The earlier you begin putting money into a college savings plan, the more time it has to grow. Take advantage of college savings calculators, such as at www.WeOwnOurBank.com, to determine how much you will need to save.
Seek assistance: It’s always a good idea to speak with an experienced financial advisor about college savings goals and financing options. Many credit unions have financial advisors available.
Do your research: Below are a few options you have for financing a college education. Research each option and speak with a financial advisor to ensure you understand the full benefits of each.
Scholarships and grants: Before you borrow, make sure you have exhausted all sources for free money from scholarships and grants. Opportunities can be found through academic performance, athletic performance, workplace benefits, church and community organizations, in-state lottery funded programs, and much more.
Prepaid tuition plans: Many institutions of higher learning offer in-state residents the opportunity to lock in a tuition rate to public colleges and universities years in advance. If you have enough money now, you could prepay for a complete four-year degree, or just prepay a portion of the expenses now.
529 college savings plans: Each state offers its own plan, some with special tax incentives. All account earnings are tax-free on the federal and state level as long as the money is used for higher-education expenses including tuition, fees, books, room, and board.
Coverdell education savings accounts: The non-tax deductible contributions are limited to $2,000 per year and the account grows tax-free until the funds are distributed.
Work-study programs: Offered by the federal government, state governments or by specific colleges and universities, these programs help fill the gaps in financial aid. Student hours are limited and the pay is not high, however participation can be beneficial.
Individual Retirement Accounts (IRAs): You can use money saved in an IRA to fund educational expenses. With a Roth IRA (most common for this use) you generally have more control over how the money is invested, but there are lower annual contribution limits than for 529 plans. You can also avoid the 10-percent early withdrawal penalty if the funds are used for qualified college expenses. If you end up not needing the funds for college expenses, the money can remain in the Roth for retirement.
For further tips and resources, San Gabriel Valley consumers can click on www.WeOwnOurBank.com.
(Shel Segal can be reached at firstname.lastname@example.org. He can be followed via Twitter @segallanded.)