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Why community college may be a student’s first and best path to her/his career

As my own family goes through our second and final iteration of the college search, majors, careers, and the rest, I continue to come across some very interesting information advocating the merits of community college.

My family lives in a hyper-competitive high school district, one of the best in the state of California. And yet, according to the high schools own placement records, almost 50% of these students will start post high school education in community college.

Most high school seniors don’t want to entertain this path. But numbers don’t lie.

I thought you might enjoy two resources I have come across that make the point that community college could be . The first is a link to a video titled Success in the New Economy. This is an interesting 9 minute video on the merits of community college. And why community college may be the best option for students seeking meaningful, higher-earning careers.

The second is the article below by Associated Press. I hope this perspective opens a few ideas for someone you know.

Big changes coming to key community colleges

By Dan Walters, Associated Press

California’s 114 community colleges are the Rodney Dangerfields of higher education, overshadowed by the state’s four-year universities and not getting much respect.

That’s true even though the community colleges’ 2.1 million full- and part-time students are more than three times the combined enrollments of the University of California and the California State University systems.

More importantly, low-cost, conveniently located community colleges are the primary gateway into post-high school job training and four-year degrees for those who would otherwise be stuck on the lower rungs of the socioeconomic ladder. Some big changes are coming to the system; some of them from Gov. Jerry Brown, who began his political career a half-century ago as a community college trustee in Los Angeles and will end it this year.

Under his prodding, the Legislature has approved a new state-operated online community college that he says will give workers displaced by technology or other circumstances new opportunities to acquire marketable skills.

“I want people to be able to open their own imaginations whether they are 15 or 50. Now (students) have a real opportunity to not only learn but to get a certificate and get skills to earn more money, advance and pursue their dreams,” Brown told the state community college board after signing legislation for the online college.

Brown and the Legislature are also overhauling how the colleges are financed, giving them more state aid but conditioning some money on how well colleges are preparing students for jobs or transfer to four-year institutions.

It’s meant to be a carrot to encourage better performances by local colleges, who previously had been given allocations based on enrollment, but it’s also something of an anomaly.

The governor has stoutly resisted performance measures for K-12 schools, even for his program of directing more state aid to help poor and “English-learner” students raise their academic skills.

He calls that reluctance “subsidiarity,” meaning trusting local education officials to do the right thing, and has rejected pleas of education reformers for more accountability.

It’s a little odd that he would reject such accountability for K-12 schools but insist on it for community colleges.

Still another Brown-backed change is called “California College Promise.” Participating community colleges may provide financial incentives and guaranteed transfers to four-year colleges for community college students meeting certain criteria. The program also envisions community colleges partnering with K-12 schools to improve college preparation.

Brown, however, is not the only source of change for the community colleges.

This month, the state community college board approved an agreement that allows students who have completed required lower-division work in some majors to transfer as juniors to private, nonprofit colleges and universities. While students have sought such transfers in the past, the new agreement provides a more direct pathway for admission.

But perhaps the biggest change coming, albeit slowly, to the state’s community colleges is allowing some of them to offer four-year “baccalaureate” degrees in some fields.

Nine community colleges awarded 135 such degrees this year under a pilot program, involving such fields as dental hygiene, mortuary science and ranch management.

The state Senate has passed a bill to extend the pilot program, but it faces stiff opposition from faculty unions and the Assembly has killed extension legislation in the past.

California has a looming shortage of college-educated workers and if the gap is to be closed, community colleges must be full partners and not merely academic stepchildren.

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Coping with College Loans

Paying them down and managing their financial impact.

Is student loan debt weighing on the economy? Probably. Total student loan debt in America is now around $1.5 trillion, having tripled since 2008. The average indebted college graduate leaves campus owing nearly $40,000, and the mean monthly student loan payment for borrowers aged 30 and younger is about $350.1,2

The latest Federal Reserve snapshot shows 44.2 million Americans dealing with lingering education loans. The housing sector feels the strain: in a recent National Association of Realtors survey, 85% of non-homeowners aged 22-35 cited education loans as their main obstacle to buying a house. Eight percent of student loan holders fail to get home loans because of their credit scores, the NAR notes; that percentage could rise because the Brookings Institution forecasts that 40% of student loan borrowers will default on their education debts by 2023.1,3

If you carry sizable education debt, how can you plan to pay it off? If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

*The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).

*You could use your tax refund to attack the debt.

*You can hold off on a major purchase or two. (Yes, this is a sad effect of college debt, but it could also help you reduce it by freeing up more cash to apply to the loan.)

*You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and turn the cash on the debt.

Now in the big picture of your budget, you could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That will permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan will help. Making payments every two weeks rather than every month can also have a big impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help, too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter-point.4

What if you have multiple outstanding college loans? If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Also, how about combining multiple federal student loan balances into one? That is another option. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates.5

Maybe your boss could help you pay down the loan. Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 4% of employers offer this perk. Six percent of firms with 500-10,000 workers now provide some form of student loan repayment assistance.6

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – studentloanhero.com/student-loan-debt-statistics/ [5/29/18]
2 – cnbc.com/2018/05/24/students-would-drop-out-of-college-to-avoid-more-debt.html [5/24/18]
3 – cnbc.com/2018/04/19/student-loan-debt-can-make-buying-a-home-almost-impossible.html [4/19/18]
4 – nerdwallet.com/blog/loans/student-loans/auto-pay-student-loans/ [2/21/17]
5 – investorplace.com/2017/06/how-to-navigate-your-student-loan-debt/ [6/6/17]
6 – shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx [6/14/17]

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College Funding Options

You can plan to meet the costs through a variety of methods.

How can you cover your child’s future college costs? Saving early (and often) may be the key for most families. Here are some college savings vehicles to consider.

529 college savings plans. Offered by states and some educational institutions, these plans let you save up to $15,000 per year for your child’s college costs without having to file an I.R.S. gift tax return. A married couple can contribute up to $30,000 per year. (An individual or couple’s annual contribution to a 529 plan cannot exceed the yearly gift tax exclusion set by the Internal Revenue Service.) You can even frontload a 529 plan with up to $75,000 in initial contributions per plan beneficiary – up to five years of gifts in one year – without triggering gift taxes.1,2

529 plans commonly feature equity investment options that you may use to try and grow your college savings. You can even participate in 529 plans offered by other states, which may be advantageous if your student wants to go to college in another part of the country. (More than 30 states offer some form of tax deduction for 529 plan contributions.)1,2

Earnings of 529 plans are exempt from federal tax and generally exempt from state tax when withdrawn, so long as they are used to pay for qualified education expenses of the plan beneficiary. If your child doesn’t want to go to college, you can change the beneficiary to another child in your family. You can even roll over distributions from a 529 plan into another 529 plan established for the same beneficiary (or another family member) without tax consequences.1

Grandparents can start a 529 plan (or other college savings vehicle) just like parents can. In fact, anyone can set up a 529 plan on behalf of anyone. You can even establish one for yourself.1

These plans now have greater flexibility. Thanks to the federal tax reforms passed in 2017, up to $10,000 of 529 plan funds per year may now be used to pay qualified K-12 tuition costs.2,3

Coverdell ESAs. Single filers with modified adjusted gross income (MAGI) of $95,000 or less and joint filers with MAGI of $190,000 or less can pour up to $2,000 annually into these accounts, which typically offer more investment options than 529 plans. (Phase-outs apply above those MAGI levels.) Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses.3

Contributions to Coverdell ESAs aren’t tax deductible, but the accounts enjoy tax-deferred growth, and withdrawals are tax free, so long as they are used for qualified education expenses. Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30, or taxes and penalties will occur. Money from a Coverdell ESA may even be rolled over into a 529 plan.3,4

UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college. They take the form of a trust. When you put money in the trust, you are making an irrevocable gift to your child. You manage the trust assets until your child reaches the age when the trust terminates (i.e., adulthood). At that point, your child can use the UGMA or UTMA funds to pay for college; however, once that age is reached, your child can also use the money to pay for anything else.5

Whole life insurance. If you have a permanent life insurance policy with cash value, you can take a loan from (or even cash out) the policy to meet college costs. Should you fail to repay the loan balance, obviously, the policy’s death benefit will be lower.6,7

Did you know that the value of a life insurance policy is not factored into a student’s financial aid calculation? If only that were true for college savings funds.6

Imagine your child graduating from college, debt free. With the right kind of college planning, that may happen. Talk to a financial professional today about these savings methods and others.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/newsroom/529-plans-questions-and-answers [2/20/18]
2 – cnbc.com/2017/12/29/tax-bill-529-plan-provision-helps-families-save-on-school-costs-taxes.html [12/29/17]
3 – forbes.com/sites/katiepf/2018/04/13/yes-the-coverdell-esa-still-exists-and-heres-why-you-should-care [4/13/18]
4 – irs.gov/taxtopics/tc310 [3/1/18]
5 – finaid.org/savings/ugma.phtml [5/8/18]
6 – collegemadesimple.com/whole-life-insurance-vs-529-college-savings-plans/ [5/9/18]
7 – marketwatch.com/story/a-529-roth-ira-insurance-whats-best-for-college-savings-2017-03-22 [5/13/17]