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“How to” use SurvivalWare to look at the impact of college costs on the family finances
What does it take nowadays to put a kid through College? A lot of debt and after tax income, that's what. It's amazing how quickly the college years come up. Do not expect a lot of understanding about your "special" financial situation from the financial aid folks. They're just not equipped to understand that business goes up and down. Just because you had a lot of income reported on last year's tax return doesn't mean you're swimming in cash this year, or even solvent, for that matter. But they don't seem to understand.
Also, we'll assume that you haven't socked away a lot of cash ahead of time. After all, if you had cash to spare, you'd put it to work in the business!
Here's what the landscape looks like nowadays:
Being a good entrepreneur, you've taught your kids how important it is to like what they are doing in life, and not to put up with any B.S. This means that they haven't spent lots of time filling out applications for merit scholarships, and that ROTC may be out of the question. The GPA may not be bad, but is probably less than a 4.0. You realize what you've done during convocation ceremonies, and your child is not among the recipients of scholarship money and awards.
If you are lucky enough for your child to be accepted at a state college or university, just make sure it is the same state you live in. We've experienced both, and find that we like in-state tuition much better.
We've prepared 3 cases to illustrate how you can use SurvivalWare to do the analysis. The data files for these cases are available in a zip file if you want to try them out. Just click here to download the zip file. Cases 1 and 2 just help figure the total cost without using loans. Case 3 uses the two types of standard loans available and is presented below.
Of course, a back-of-the-envelope calculation will give you some good information. Use the SurvivalWare analysis only if you want to know month by month what your cash outlays are going to be.
Case 3: Loans to the Max
Step1: Outline your assumptions in the payments tab
Step 2: Set up the loans in the Credit Lines tab.
The Stafford Loans will accumulate in one big pot, and then get paid back over 10 years starting 6 months after graduation. The current interest rate is 2.82% during the school years and grace period, and 3.42% after you child starts paying it back.
If you are approved, the Parents Plus loans are actually 8 separate loans (one for each semester) and repayment starts 60 days after the funds are disbursed to the University. The current interest rate is 4.22%. If your child is independent, or if you get turned down due to poor credit; then these loans are made to your child instead of you, and repayment starts 6 months after graduation just like the Stafford Loan.
Use the "Credit Lines" to charge the maximum amount allowed each semester to the appropriate loan account, then figure out how much is left to be paid in cash.
Step 4: Replicate for the additional 3 years.
Step 5: Adjust the amounts for the other 3 years.
Do the same for the Spring semester as well.
Step 6: If your college offers an easy payment plan, split the cash payments.
Most colleges let you split the payments for each semester into 4 pieces. Every little bit of cash flow relief helps!
Step 7: Settings tab.
Use months as time periods, and go out 6 months after graduation. Use just 1 simulation trial.
Step 8: Click the results tab.
The Shortfall Graph shows what you'll have to come up with in the way of cash.
Step 9: Look at the Cash Out month by month.
Click the Numbers sub-tab and then look at the backup schedules.
Step 10: Look at the Stafford loan balance 6 months after graduation.
Step 11: Do quick calculation to figure out what your child will have to pay back.
Assuming the balance is $18,277 six months after graduation, your child will have to pay $180.05 per month for 10 years to pay it off.
Yes it would make sense to put this type of calculation directly into SurvivalWare. Maybe next version..
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