Federal Student Loan Interest Rates Set to Increase for 2021-2022

After two years of decreases, interest rates on federal student loans are set to increase almost a full percentage point for the 2021-2022 school year.1

The interest rates on federal student loans are reset each year after the May auction of the 10-year Treasury note. The rates apply to new federal student loans issued on or after July 1, 2021, through June 30, 2022. The interest rate is fixed for the life of the loan.

Subsidized vs. unsubsidized: what’s the difference? With subsidized loans, the federal government pays the interest that accrues while the borrower is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

In case you missed it, check out our A Definitive Guide to Education Planning webinar where we outline your options with student loans.

1) The New York Times, May 28, 2021

2) U.S. Department of Education, 2021

Prepared by Broadridge Advisor Solutions. Copyright 2021. Edited by BFSG, LLC.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

529 Educational Accounts Impact on Financial Aid

For many families, saving for kids’ education has become a priority and for a good reason. The average tuition for the 2021 school year ranged from approximately $11,000 (for in-state colleges) to over $41,000 (for private colleges)1. That is approximately 2.5 times what the cost was in the early 2000s, so it would be fair to expect this cost to be substantially higher in the future.

For those parents who are eager to start saving for college, BFSG’s Certified Financial Planners™ often recommend 529 accounts. A 529 account is a tax-advantaged savings plan designed to encourage savings for future education expenses.2 However, some parents are reluctant to open a 529 account because they are afraid their children may not be able to take advantage of financial aid. This is not entirely true and with the right planning, 529 accounts generally have a marginal impact on the amount of aid you receive.

529 accounts owned by a parent are considered a parent asset for Free Application for Federal Student Aid (FAFSA). The first $10,000 of a 529 account is excluded from FAFSA and only 5.64% of the account’s value beyond that amount will impact a student’s financial aid package. Therefore, this is a small negative impact considering the potential tax-free investment gains that are expected from a 529 account. In addition, the earnings and withdrawals of a parent-owned 529 account will not be reported on FASFA.

On the other hand, 529 accounts owned by relatives such as grandparents are subject to different rules. The account value is not counted as an asset on the FAFSA form as it would for a custodial parent but the withdrawals from the 529 account will be considered non-taxable income for the student and up to 50% of the value of the withdrawal could impact financial aid. For example, if a grandparent pays the private school tuition of $41,000 from a 529 account, that amount may reduce financial aid by as much as $20,500! However, there are effective strategies that can be incorporated to minimize this impact on financial aid eligibility. Please reach out to your financial advisor at BFSG to find the best strategy for your circumstances.

In short, for a typical family, kids’ college education expenses can be the second most expensive investment after a purchase of a home. A 529 account is an effective and useful tool to help you invest and pay for your kids’ education with minimal impact to financial aid eligibility. It is important to invest early to take advantage of tax-free compounding gains and incorporate a strategy to maximize your financial aid package.

Check out our webinar “A Definitive Guide for Education Planning” to learn about the best ways to save for college.

1. Source: 20 Years of college expense (https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities)

2. U.S. Securities and Exchange Commission, “An Introduction to 529 Plans” (https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html#:~:text=A%20529%20plan%20is%20a,of%20the%20Internal%20Revenue%20Code)

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

3 Interesting Facts to Consider When Choosing a College

This time of year, it is important for high school Seniors (and Juniors) to consider their plans after high school. The FAFSA process begins on October 1st and check out our recent blog post for more information. Below are some things to consider whether to go to college or not as well as what majors to consider.

  • Below are jobs considered the best to have for the future:
JobGrowth Rate
(2017-2027)
Median Annual Salary
Physician Assistant35.3%$104,986
Nurse Practitioner35.2%$103,947
App Developer30.4%$100,857
Information Security Analyst27.2%$95,506
Physical Therapist27.1%$85,694
Marketing Research Analyst24.4%$62,828
Health Services Manager21.0%$96,517
Financial Manager19.1%$122,733
Computer Systems Manager14.4%$138,142
Physician13.7%$200,774

Source: Kiplinger. https://www.kiplinger.com/slideshow/business/T012-S001-best-jobs-for-the-future-2018/index.html
*Source: Bureau of Labor Statistics 2016-26. https://www.bls.gov/careeroutlook/2017/article/occupational-projections-charts.htm#Chart%201   

  • There are high paying careers that do not require a college degree. We have several clients that are small business owners in common industries (i.e. construction, chemicals, etc.) that do very well for themselves. If college is not your thing, the best option is to learn a specific skillset whether it be a lineman (median income about $65,000) or a healthcare specialty. Here is an article that shows the top 10 jobs that make over $79,000 a year without a college degree.
  • If you are going to college an important aspect to consider is the Return on Investment (ROI) for the college you attend. This measure shows you how much you can expect to earn after college in relation to the cost for your education. Below is an interesting chart from payscale.com showing the Top 10 schools for ROI. Interesting to note some schools are specific technical schools like SUNY Maritime College and Colorado School of Mines.

There are many things to consider when deciding on what college to attend. If you would like to learn more please listen to our upcoming webinar on education planning.

The Time for Financial Aid is Now

If you or a child plans on attending college for the 2021-2022 school year (i.e. next fall) the most important step is to start the process early for financial aid. The first step is to complete the FAFSA, which is the government form used to determine how much financial aid the student may qualify for.

Who Should Complete The FAFSA?

High school seniors planning on attending college next fall or students who will return to school next year. The FAFSA must be completed annually so if you completed it before do not forget to complete the FAFSA this year.

When Should I Complete The FAFSA?

The FAFSA is available on October 1st, so complete the application as close to this date as possible.

Just A Few Reasons To Complete The FAFSA ASAP:

  • More Money – Studies have shown those who file early qualify for more federal and school aid than those who file late
  • Simplify the Process – The financial aid process is tedious and takes effort. Get this out of the way to focus on college applications or scholarship searches and applications
  • Better to Understand Your Options – Once the FAFSA is completed it is much easier to review and compare school acceptance offers
  • Give yourself more time – The earlier you complete the process the more aid you potentially will qualify for. For example, many scholarships have early deadlines and will look at your FAFSA, so don’t miss out on opportunities for more college aid

How Do I Complete The FAFSA?

Go to FAFSA.GOV and click on the link to start if you are new or returning. See below for reference:

What Information Is Needed To Complete The FAFSA?

You will want to have tax returns handy to make the process simpler. Below is a summary of some basic info you will need:

Included Assets

  • Checking and Savings
  • Investments
    • Brokerage Accounts
    • Stocks, Bonds, & Mutual Funds
    • CDs
  • Real Estate (Other Than Primary Residence)
  • UTMA/UGMA Accounts
  • College Savings Accounts (Reported As The Asset Owner)

Excluded Assets

  • Home Equity
  • Small Businesses (Owned and controlled by family)
  • Qualified Retirement Plans
  • Life Insurance
  • Personal Possessions

Do Not Procrastinate! Completing the FAFSA can be overwhelming and causes many people to procrastinate. Complete the application on October 1st (or as close to it as possible) so that you do not have to worry about it and can focus on other areas to help you qualify for more financial aid! As always, do not hesitate to reach out to us with any questions and watch our upcoming webinar for more helpful tips for the FAFSA and qualifying for more financial aid!