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How to Contain Costs for Your College-Ready Child

by James Winslow, Vice President, United Investment Services, LPL Financial Advisor

College graduates in 2011 walked away with a diploma and an average of nearly $27,000 in student loans, according to a recent report.1 The report also estimated that two-thirds of the class of 2011 held student loans upon graduation, up 5% from the 2010 findings.

Student debt is widely understood to be a serious and growing problem in the United States. The federal student loan default rate is now the highest it has been in 14 years, at 9.1%.2 According to economists with the Federal Reserve Bank of New York, more than five million student loan borrowers have at least one loan past due.3

And the news gets worse: While unemployment for college graduates was at 8.8% in 2011 -- mostly in line with the national rate -- an estimated 38% of recent graduates are working in jobs that do not require a college diploma.
What can you do to help contain costs for your college-ready child? Here are some tips.

  • Start locally -- Attending a community college for one or two years could substantially reduce costs when compared with a four-year public or private school.
  • Tap into federal loans first -- Find out more at the Federal Student Aid website, created by the Department of Education. Federal Student Aid provides more than $150 billion in federal grants, loans, and work-study funds each year.
  • Investigate Income-Based Replacement (IBR) -- Available for federal student loans since 2009, IBR caps monthly payments at a manageable share of income and forgives any debt remaining after up to 25 years of payments, or as few as 10 years of payments, for those working for public or nonprofit employers.
  • Consider private loans as a last resort -- These loans are tricky, as graduates find themselves locked into loan terms that can make repayment difficult as they navigate the job market and struggle to find steady work.

1Source: The Institute of College Access & Success, "Student Debt and the Class of 2011," October 2012.
2Source: The U.S. Department of Education, Federal Student Aid Chart, October 2012.
3Source: The Federal Reserve Bank of New York, "Grading Student Loans," 2012.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be appropriate for you, consult your financial advisor prior to investing. Tracking #1-115215