Financing an education: Financial experts share ways to save for college, pay down student loan debts

The numbers are staggering. Student debt levels for those earning bachelor's degrees are on the rise, and data show the average debt of 2013 graduates topped $30,000 in six states.

The Institute of College Access and Success reports that 69 percent of graduating seniors at public and private nonprofit colleges had student loans, with an average debt of $28,400. The institute's study, released in November, showed that graduates of Missouri's public and private universities averaged $24,957 in student loan debt.

The institute's figures show the average debt of a 2013 graduate of Southeast Missouri State University was $25,200, with 64 percent of graduates with debt. That compares, for example, to University of Missouri-Columbia at $26,872, and 73 percent; and private institutions Maryville University at $29,702, and 74 percent, and St. Louis University at $36,808, and 63 percent.

Sarah Niswonger, student loan coordinator at Southeast Missouri State University, says the university works with its students and those of regional high schools on financial literacy to help students understand the borrowing options when financing an education.

Among the variables, Niswonger says, are "the number of credit hours attempted and completed annually, other financial aid and assistance received, the sacrifices a student is willing to make in his or her lifestyle while attending, whether the student works, changes to the family's financial situation, etc."

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Niswonger provided an approximate breakdown of types financial aid -- loans, grants, scholarships, federal work program, fee waivers and the like -- among Southeast students in the 2013-2014 academic year:

* 12 percent of undergraduates received no type of assistance

* 76 percent of undergraduate students were awarded grants or scholarship aid

* 3 percent of scholarships covered the majority of direct educational expenses

* 3 percent received athletic aid

Student loan paperwork

* 30 percent received merit aid

* 13 percent received fee waivers.

When it comes to repaying loans upon graduation, accountants advise treating the loan payment as any other bill.

Margaret Poinsett, president of Professional Tax Service in Chaffee, Missouri, says she has several clients juggling student loans among their other financial obligations.

"Their priority is to pay back the loans, keep working and provide a good lifestyle for their families. They have to budget it into their expenses," Poinsett says. "They realize if it weren't for these loans, they wouldn't have the good jobs they have."

Poinsett points out that, at tax time, for certain filers, student loan interest may be deducted from gross income, "saving a tiny bit on taxes."

She also shares that two of her clients this tax season will be paying off their student loans.

"Talk about a sparkle in their eyes," she says.

Scott Van de Ven at Van de Ven CPA and Associates says student loan debt "needs to be treated as a financial obligation. If you don't pay it, it will follow you around."

He points out that borrowers have options, such as consolidating various loans.

"It's a personal decision -- paying the loans off directly or consolidation, which may reduce the payment, but the loan would extend further into the future," he says.

Another option for financing a college education is a so-called 529 plan -- the name derives from Section 539 of the Internal Revenue Code -- an investment account operated by a state or educational institution with tax advantages.

Contributions to a 529 plan are not tax deductible, and earnings are not subject to federal tax and, in Missouri, have other tax benefits as well, when used for the qualified education expenses of a designated beneficiary.

"The benefit of a 529 plan is, once you contribute, it grows tax-free. You never pay tax on it," Van de Ven says, adding the website savingforcollege.com is a good place to learn more about the plans. "Parents, grandparents, friends -- anyone can open a fund for someone intending to go to college," he adds. "It sits outside the estate; you're essentially gifting to the beneficiary."

Niswonger says, "It would be in the borrower's best interest to build a realistic budget based on their own financial situation. If a borrower is experiencing financial hardship, it is up to them to contact their federal lender/servicer to find out their options for loan repayment," which may include deferment or a repayment plan change.

According to Niswonger, defaulting on loans has major consequences, including, "federal/state income taxes withheld, wage garnishment, loss of eligibility for any federal benefit program, litigation costs and the red flag on their credit report."

Recently initiated income-based repayment plans -- sometimes called IBR -- may be the solution for those having payment difficulties. Taking into account the loan amount, adjusted gross income and family size, a monthly payment may be adjusted to 15 percent of discretionary income and a payment schedule of 25 years, after which the balance may be forgiven.

When researching colleges, prospective students should research cost of attendance. As established by Congress, the COA is the average cost to attend for an academic year -- fall through spring -- and includes tuition and fees, books and supplies, room and board, transportation and personal expenses. Schools use COA to estimate financial aid eligibility.

Transportation, miscellaneous and personal expenses -- such as cellphones, entertainment and grooming, Niswonger says, "are considered indirect costs that the student has the most control in containing -- need vs. want."

Niswonger says students easily can keep track of their borrowing with the National Student Loan Data System -- nslds.ed.gov -- which "provides borrowers with a listing of all Federal Loans borrowed, how much was borrowed (with estimated interest accrual), and their lender/servicer contact information."