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Themoreyousave,thelessyouhavetoborrow.Herearetipsforparentsand
students.
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Everyparentdreamsthathisorherchildwillstrive
forthebrassring:acollegeeducationthatkick
startsacareerandapromisingfuture.Butthesedays,
thatdreamisatriskofbeingtarnishedbyAmericas
studentdebtcrisis.
Theaverageannualcostofafouryearpubliccollege,
includingtuition,fees,androomandboardwas
$18,943forthe20142015schoolyearand$42,419
forafouryearprivateinstitution,accordingtothe
CollegeBoard.1Nowonder71%oftheclassof2015is
graduatingwithcollegedebt,accordingto
Edvisors.com.2Furthermore,nearlyfouroutoften
studentswouldhavemadeadifferentcollegechoiceandpursueddifferentsavingsstrategieshadthey
understoodtheconsequencesofthatburden.3
Taxpayerspayaprice,too.By2014,some26%ofborrowerswholeftcollegeorgraduateschoolin
2009hadbeenindefaultatsomepointontheirstudentloanssincetheloanhadbeeninrepayment,
accordingtotheFederalReserveBankofNewYork.4
The2015graduatewithstudentloandebtwillhavetopaybackalittlemorethan$35,000,andthiscan
putaddedstrainonstudentsfamilies.5With45%ofnewfouryearcollegegraduatesunderemployed,6
itsnotsurprisingthat15%ofAmericansages25to34livedwiththeirparentsin2014,accordingto
7
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theUSCensusBureau.7

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Forthoseborrowingthisacademicyear,ratesonfederalStaffordloans(describedbelow)for
undergraduateshavefallento4.29%annually.Otherrecentchanges,eitheraspartofnewlegislation
orbecausecertainfeatureswereallowedtoexpire,includethefollowing:
RatesonfuturesubsidizedandunsubsidizedStaffordloanswillbesetat2.05percentagepoints
abovetheyieldonthe10yearTreasurynote,andcappedat8.25%forundergraduatestudents.
GraduatestudentsarenolongereligibleforsubsidizedStaffordloans,andtheirratesfor
unsubsidizedStaffordloansfallto5.84%in2015.
GraduatestudentsandparentsofdependentchildrentakingoutfederalPLUSloanswillfacestricter
standardstoqualify.
InterestratesforparentsandgradstudentstakingoutPLUSloanswillfallto6.84%thisyear,from
7.21%lastyear.Goingforward,rateswillbecappedat10.5%.
InJuneof2014,theWhiteHouseexpandedtheeligibilitycriteriaforthePayasYouEarn(PAYE)
studentloanrepaymentplan.Forsuccessfulapplicants,monthlystudentloanpaymentsarecapped
at10%ofdiscretionaryincome.

:KDWWRGR
Thekeyistothinkaheadandfigureouthowmuchincollegeexpensesyoucanafford,saysKeith
Bernhardt,vicepresidentofcollegeplanningatFidelity.(ReadViewpoints:Howmuchcollegecanyou
reallyafford?)
Onceyouhavedeterminedhowmuchyoucanafford,focusyourapplicationprocessoncollegesthatfit
yourbudget.FillouttheFreeApplicationforFederalStudentAid(FAFSA)formtofindoutwhatgrants,
scholarships,andfinancialaidpackageseachcollegeoffersbasedonyourfamilysexpected
contribution.Finally,comparetotalcosts.
Ifyouneedtoborrow,lookfirstatstudentfederalloanoptions,becausetheygenerallyhavebetter
ratesandrepaymentterms,saysBernhardt.Also,considerlookingatstatesponsoredloans,orvisit
yourstateshighereducationoffice.Foralistofsuchinstitutions,visitEd.gov .

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Whenshoppingforfederalstudentloans,keepin
mindthattherearetwotypes:needbasedandnon
needbased.FederalPerkinsloansandsubsidized
Staffordloansareneedbased.FederalparentPLUS
loansandunsubsidizedStaffordloansarenot,
althoughparentPLUSloanshaveeligibility
restrictions .Considereachoftheseloanprograms,
aswellastakingoutahomeequityloanorlineof
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Thefollowinghypotheticalexampleassumes
$30,000indebtanda15yeartermwitha
fixedinterestrateonallloans,exceptonthe
homeequitylineofcredit.*





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credit,ifavailable(seechart,right).
Infinancingyourstudentscollegeeducation,its
importanttoshopbasedonavarietyoffactors,
includingloanavailability,interestrates,loanterms,
andflexibilityofpayments.Forexample,letssayyou
needtoborrow$30,000.Asyoucanseeinthechartto
theright,yourinterestratesandmonthlypayments
canvaryconsiderablybutsocanthestructureof
yourpayments,includingwhenyoustartandwhen
thefinalpaymentisdue,aswellasyourabilityto
qualify.

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*Denotesmonthlypaymentsonannualinterestrates.
Source:Edvisors.com,Bankrate.com,FinAid,and
FidelityInvestments.AllratesasofJune2015.

Let'stakeacloserlookattheoptionsforfederal
studentloans.
PerkinsloansTheseloansareawardedtostudentswiththehighestneed,basedonacombination
ofparentalincomeandotherfactors.PerkinsLoansareofferedtoundergraduatesforupto$5,500a
year,withalifetimemaximumof$27,500.Graduatestudentscanborrowupto$8,000ayear,witha
maximumof$60,000,includingtheloanstheytookoutasundergrads.Theinterestrateisfixedat
5%,andtherearenooriginationfees.Borrowershaveupto10yearstorepaytheirloans,depending
ontheamountowed.
SubsidizedStaffordloansEligibilityfortheseloansisdeterminedbyFAFSA.Typically,theyare
offeredatsetamountsforeachschoolyearfrom$3,500forthefirstyearupto$5,500inthethird
yearandbeyondwithalifetimelimitof$23,000.AsofJuly1,2015,theinterestrateis4.29%.
Interestbeginsaccruingupongraduationorleavingschool.Standardrepaymentisa10yearterm,
butborrowerscanapplyforextendedrepaymentoptionsof10to30years,dependingontheamount
owed.
UnsubsidizedStaffordloansToreceivetheseloans,studentsmustbeenrolledinaqualifying
degreeorcertificateprogram.Interestratesare4.29%forundergraduatestudentsforthe2015
2016schoolyearand5.84%forgraduatestudents,withextendedrepaymentoptionsofupto30
years,thoughborrowersmustapplyandbequalifiedforextendedrepaymentoptionssuchas
incomebasedrepayment.Loanlimitsvaryfrom$5,000to$12,500ayearforundergrads,witha
lifetimelimitof$31,000fordependentundergradsand$57,500forindependentundergrads.Unlike
subsidizedStaffordLoans,interestontheunsubsidizedvarietyaccruesfromthetimetheyare
disbursed,ratherthanwhenthestudentleavesschool.
ParentPLUSandgraduatestudentPLUSloansTheseloanscarrya6.84%fixedrateinthe2015
2016academicyearandareavailabletograduatestudentsandtoparentsofundergrads.Unlike
Staffordloans,PLUSloansrequireunderwriting,andstandardshavetightened.Toqualify,recipients
cannothaveanadversecredithistory,whichincludesbankruptcyandunpaidcollectionaccountsand
chargeoffs.Youcanappealadenialbyprovidingaddeddocumentationoranendorser.
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UndergraduateswhoseparentsaredeniedaPLUSloanareeligibleforanadditional$4,000to$5,000
inunsubsidizedStaffordloansayear.ThebadnewsisthatthosewhoaredeniedaPLUSloanare
unlikelytoqualifyforprivateloans.Loantermscanrangefrom10to30years.

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Keepinmindthatthereareothercollegefinancingoptionsbeyondfederalloans.
Privatestudentloansareavailable,buttheytypicallycarryvariableinterestratesashighas12%,
andtheyoftenreseteachquarter.Unlikefederalloans,mostcomewitharepaymentperiodofupto
20years,versus10to15yearsforfederalstudentloans.Privateloanstypicallyarestricterintheir
selectionofborrowersaswellyourcreditratemaycauseyoutopayahigherorlowerinterestrate,
orbedeniedforaloanaltogether.Morethan90%ofprivatestudentloansrequireacosigner.Still,
privatestudentloansmaybeanoptionforsomestudents,especiallyiftheycanqualifyfora
relativelylowrate.
Statesponsoredstudentloansareloansthathaveyourstatesstampofapproval.Theseloansvary
fromstatetostatebutingeneralaredesignedwiththeconsumerinmind.Interestratesvary,but
generallytheyrangefrom5.0%to8.5%.Somestatesofferattractivefeatureslikeinterestratesthat
arefixedortheabsenceoftieredratesthatarebasedontheborrowerscreditscore.
Homeequitylinesofcreditorhomeequityloansareanotherpopularoption.Homeequitylines
ofcreditcarryavariableinterestraterecentlyaveragingabout4.74%;therateonhomeequityloans
isfixed,averaging6%asofJune2015,accordingtoBankrate.com. Withtheequityline,youhave
theflexibilitytoborrowmoneywhenyouneedit,andavoidpayinginterestonmoneyyoudontneed
yet.Homeequityloansaregenerallygivenwithalumpsumamountinthebeginningandyouwill
havetoestimateallyourfutureexpensesatthattime.However,withbothahomeequityloananda
homeequitylineofcredit,youuseyourhomeascollateralandrisklosingitifyouviolatethe
repaymentterms.Eitherway,theadvantageovereducationloansisthatyoucandeducttheinterest
onhomeequitydebtupto$100,000.

Consideryouroptions:Highlightsofdifferenttypesofstudentloans
Typeofloan

Who'seligible

Interestrate
(2015)

Loanlimits
yearly/lifetime

Whenaccrual
begins

PerkinsLoans

Onlythemost
needycollege
students

5%

Undergrads:
$5,500/$27,500
Gradstudents:
$8,000/$60,000

Whenstudent
graduatesorleaves
school

Upto10

Subsidized
StaffordLoans

Determinedby
FAFSA

4.29%*

$3,500
$5,500/$23,000

Whenstudent
graduatesorleaves
school

1030

Unsubsidized
StaffordLoans

Everyonewhofiles
aFAFSA

Beginswhen
studentacceptsthe
loan,butpayments
canbedeferred
untilafterthe
studentgraduates
orleavesschool

1030

Undergrads:4.29%* Undergrads:
Gradstudents:
$5,000
5.84%*
$12,500/$31,000
$57,500
Gradstudents
$20,500/$138,500

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ParentPLUS
andGraduate
StudentPLUSLoans

Thosewhomeet
theeligibility
requirementsand
donothavean
adversecredit
history

6.84%

Undergradsand
graduatestudents:
thecostofthe
collegesannual
tuitionandroom
andboard,minus
financialaid

Beginswhenthe
loanisdisbursed,
butpaymentscanbe
deferreduntilafter
thestudent
graduatesorleaves
school

1530

StateSponsored
Loans

Eachstatehasits
owneligibility
requirements.
Somestates
requirethata
studentattend
collegeinthat
state.

Variesbystate,but
generallyfrom5.0%
to8.5%

Variesbystate,
creditworthiness,
andchoiceof
borrower

Eitherimmediately
uponacceptanceof
loantermsorafter
thestudent
graduatesorleaves
school

1020

PrivateStudent
Loans

Dependson
creditworthiness

Varies,butgenerally
from2.5%to12.0%

Dependsoneach
institution,
creditworthiness,
andchoiceof
borrower

Eitherimmediately
uponacceptanceof
loantermsorafter
thestudent
graduatesorleaves
school

1030

HomeEquity
Loans

Dependson
creditworthiness
andequityinhome

Average6.o%fixed
rate

Dependsoneach
institution,
creditworthiness,
andchoiceof
borrower

Immediately

1030

HomeEquity
LineofCredit

Dependson
creditworthiness
andequityinhome

Average4.74%
variablerate

Dependsoneach
institution,
creditworthiness,
andchoiceof
borrower

Immediately

1030

Source:Edvisors.com,Bankrate.com,FinAid,andFidelityInvestments.*Asof7/1/2015.Asof6/24/2015.

7LSVIRUVWXGHQWV
Forstudentsalreadyenrolledincollegeorgraduatingwithoutstandingdebt,herearesometipsto
understanding,managing,andpayingoffloans:
1. Understandthetermsandconditionsofyourloansandbesuretomeetyourmonthlypayments.
2. Takeadvantageofprivateandgovernmentwebsitesandresources;explorealternativesdesignedto
lowerpayments,andtuitionmanagementassistanceprograms.
3. Checkifyouqualifyforadeductionofyourstudentloaninterestwhendoingyourtaxes.
4. VisittheNationalStudentLoanDataSystem
provider.

tokeeptrackofyourloansandfinancialservices

5. Opttorepayyourstudentloansviaautomaticdeductionsfromyourbankaccount,whichcanhelp
avoidpenalties.Repayingstudentloansautomaticallynotonlyavoidslatefeesbutmayalsoyielda
slightinterestratereduction.
6. Payoffthehighestinterestrateloansfirsttosavemoneyinthelongterm.

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Forparents,itscriticaltomakesurehelpingtheirchildpaythecollegetabwontshortchangetheir
ownhomeequity,retirementsavings,orothershortandlongtermfinancialgoals.Parentsmustdoa
tradeoffanalysisandremembertheycanborrowforcollegebutnotforretirement,Bernhardt
suggests.
Consideringthemountingburdenofstudentloandebt,mostfinancialexpertsconcurthatthebestway
toreducetheburdenistolaunchacollegesavingsstrategyforyourchildasearlyaspossible.
Thegoodnewsisthattherearetaxsavvyaccountsthatcanhelpyousave.Amongthem:
529collegesavingsplans,offeredbystatesinconjunctionwithfinancialinstitutions,allowyouto
saveaftertaxdollars,butthatmoneycangrowtaxdeferredandbewithdrawnfederalincometax
freetomeetqualifiedhighereducationexpensessuchastuition,books,roomandboard,andfeesat
eligibleinstitutionsnationwide.Thereisnoannualcontributionlimitfor529collegesavingsplans
exceptfortheoveralltotalcontributionmaximum,whichvariesbyplanbutistypicallyaround
$300,000.However,toavoidpayingfederalgiftandtransfertaxes,asanindividual,youcan
contributeupto$70,000perbeneficiarybyutilizingfiveyeargifttaxaveraging;or$140,000fora
marriedcouple.8(Foramoredetailedanalysis,readViewpoints:TheABCsof529collegesavings
plans.)
Custodialaccounts,eitherUniformGiftstoMinorsAct(UGMA)accountsorUniformTransfersto
MinorsAct(UTMA)accounts,offermoreinvestmentchoicesbutweighmoreheavilyonfinancialaid.
Theyofferlimitedtaxadvantages,andthemoneysavedbecomesthechildsatacertainage,
regardlessofwhetherheorshegoestocollege.
Coverdelleducationsavingsaccounts(ESAs)offertaxfreegrowth,canbeusedforcollegebutalso
forprimaryeducation,andaredesignatedforachildseducationalexpenses,butannual
contributionsarelimitedto$2,000perbeneficiary.Still,ifyourecontributingonly$2,000orlessper
year,thesesavingsvehiclescanbeattractive,particularlybecausetheyofferabroadrangeof
investmentoptions.(Note:FidelitydoesnotofferCoverdellESAs.)
Intheend,themoreyousave,thelessyouhavetoborrow.Youdontwantyournewlymintedcollege
gradtrappedinadebtbubblethatcouldlimithisorherfinancialfuture.

/HDUQPRUH
ReadViewpoints:TheABCsofcollegesavingsplansandHowtopayoffdebtandsavetoo.
UseourCollegePlannertounderstandcostsandmonthlysavingsneeds.
Comparecollegesavingsoptionstoseewhichmayberightforyou.
Learnmoreaboutfinancialaidoptions.
LearnmoreaboutFidelitymanaged529collegesavingplans.
SpeakwithaFidelitycollegeplanningrepresentative.Call18005441914.

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Wasthishelpful?

Yes

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93% whovotedfoundthishelpful

TheUNIQUECollegeInvestingPlan,U.FundCollegeInvestingPlan,DelawareCollegeInvestmentPlan,andFidelity
ArizonaCollegeSavingsPlanareofferedbythestateofNewHampshire,MEFA,thestateofDelaware,andtheArizona
CommissionforPostsecondaryEducation,respectively,andmanagedbyFidelityInvestments.Ifyouorthedesignated
beneficiaryisnotaNewHampshire,Massachusetts,Delaware,orArizonaresident,youmaywanttoconsider,before
investing,whetheryourstateorthedesignatedbeneficiaryshomestateoffersitsresidentsaplanwithalternatestate
taxadvantagesorotherbenefits.
Unitsoftheportfoliosaremunicipalsecuritiesandmaybesubjecttomarketvolatilityandfluctuation.
Thetaxandestateplanninginformationcontainedhereinisgeneralinnature,isprovidedforinformationalpurposesonly,and
shouldnotbeconstruedaslegalortaxadvice.Fidelitydoesnotprovidelegalortaxadvice.Fidelitycannotguaranteethatsuch
informationisaccurate,complete,ortimely.Lawsofaparticularstateorlawsthatmaybeapplicabletoaparticularsituation
mayhaveanimpactontheapplicability,accuracy,orcompletenessofsuchinformation.Federalandstatelawsandregulations
arecomplexandaresubjecttochange.Changesinsuchlawsandregulationsmayhaveamaterialimpactonpreand/oraftertax
investmentresults.Fidelitymakesnowarrantieswithregardtosuchinformationorresultsobtainedbyitsuse.Fidelity
disclaimsanyliabilityarisingoutofyouruseof,oranytaxpositiontakeninrelianceon,suchinformation.Alwaysconsultan
attorneyortaxprofessionalregardingyourspecificlegalortaxsituation.
1.TheCollegeBoard

2.WallStreetJournal,"Congratulations,Classof2015.YouretheMostIndebtedEver(ForNow)."
3.FidelityCollegeSavingsIndicator,Summer2014.
4.LibertyStreetEconomics,"LookingatStudentLoanDefaultsthroughaLargerWindow."
5.WallStreetJournal,"Congratulations,Classof2015.YouretheMostIndebtedEver(ForNow)."
6.FederalReserveBankofNewYork,"AreRecentCollegeGraduatesFindingGoodJobs?"
7.UnitedStatesCensusBureau,"FigureAD1Youngadultslivingintheparentalhome:1960topresent."
8.Inorderforanacceleratedtransfertoa529plan(foragivenbeneficiary)of$70,000(or$140,000combinedforspouseswho
giftsplit)toresultinnofederaltransfertaxandnouseofanyportionoftheapplicablefederaltransfertaxexemptionand/or
creditamounts,nofurtherannualexclusiongiftsand/orgenerationskippingtransferstothesamebeneficiarymaybemade
overthefiveyearperiod,andthetransfermustbereportedasaseriesoffiveequalannualtransfersonForm709,UnitedStates
Gift(andGenerationSkippingTransfer)TaxReturn.Ifthedonordieswithinthefiveyearperiod,aportionofthetransferred
amountwillbeincludedinthedonor'sestateforestatetaxpurposes.
TheviewsandopinionsexpressedhereinarenotnecessarilytheopinionsorrecommendationsofFidelityInvestments.This
materialisprovidedforinformationalpurposesonlyandshouldnotbeusedorconstruedasarecommendationforanysecurity.
Pleasecarefullyconsidertheplansinvestmentobjectives,risks,charges,andexpensesbeforeinvesting.Forthisand
otherinformationonany529collegesavingsplanmanagedbyFidelity,contactFidelityforafreeFactKit,orviewone
online.Readitcarefullybeforeyouinvestorsendmoney.
Votesaresubmittedvoluntarilybyindividualsandreflecttheirownopinionofthearticle'shelpfulness.Apercentagevaluefor
helpfulnesswilldisplayonceasufficientnumberofvoteshavebeensubmitted.
FidelityBrokerageServicesLLC,MemberNYSE,SIPC,900SalemStreet,Smithfield,RI02917
657452.4.0
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