Academic plan, estimated edu cost, estimated financial resources, identify and analyze unmet need
13
Creating
A
Financial
Path
To
Graduation
Why is Creating a Financial Path Important?
Creating a Financial Path to Graduation is intended to help you map an academic and financial course through the completion of your program.
After completing these seven steps, you will have:
· A practical timeframe in which you can expect to graduate
· A realistic picture of your educational costs
· The cost of borrowing and how it will affect your financial future
Bottom line: You will be in a position to make better financial choices regarding you education.
The calculations you make will be unique to your situation. The financial path is meant to estimate your educational costs, not to provide definitive calculation.
The financial path consists of seven steps. Each step is important; if you skip a step, you will not have a full picture of your real educational cost.
Step 1 Chart Your Academic Plan
What will my major be? How many credits will I need to graduate? Will go straight through school, or will I take time off for study abroad, volunteer and humanitarian service, etc.?
Step 2 Estimate Educational Costs
How much will tuition be for a year? Book costs? Insurance? How much will it cost me to commute—or will I be living on campus? Are there costs I can eliminate?
Step 3 Estimate Financial Resources
Will I be working? Do I have scholarships? How much can my family help me?
Step 4 Identify and Analyze Unmet Need
What is the difference between my educational costs and my financial resources?
Step 5 Establish Your Maximum Debt Limit
How much can I borrow and not jeopardize my future with excessive debt?
Step 6 Identify the Costs of Borrowing
How much interest will I pay? How much must I earn to pay back my student loans without jeopardizing my future?
Step 7 Make a Financial and Academic Commitment and Monitor Your Progress
Am I meeting my academic goals? If not, how will this affect me financially?
Step 1: Chart Your Academic Plan
There are several things to consider before making your academic plan.
1. Do you know what your major will be?
Think about what you want to do after you graduate. Do you have a talent or skill that provides a great deal of satisfaction? Is it something you would like to do for the rest of your life? One of the first steps in choosing a major is self-inspection. The following are free assessment tools to aid in the exploration of your personal interests and talents, with the end goal of finding and fulfilling career path to match.
Self-Perception Profiling System
http://personal.ansir.com/test.htm
Personal Style Indicator
http://www.improvenow.com/Assessments/CRG/PSI/indec.cfm?action=self
Temperament Sorter
http://www.advisorteam.com/temperament_sorter/register.asp?partid=1
Many websites also offer advice on how to select a major:
http://quintcareers.com/choosing_major.html
http://www.careerkey.org/english/
http://www.career.arizona.edu/students/choosing/majors/majors.asp
http://career.missouri.edu/holland/
2. Do you have to decide on a major right now?
No, but eventually you will. Colleges and universities require students to explore and learn from a well-rounded core curriculum called general education (GE). Initially you will be able to fill your schedule with GE classes while you examine your options for a major. You must complete GE classes in addition to classes from your major before you can graduate.
3. How many credits will you need in order to graduate?
The number of credits required will vary. When you have this information you will be ready to begin your academic plan.
· Beginning with Year 1, make your academic plan for the degree you are currently seeking.
· If you don’t know your major, you can still make your academic plan. You may not be able to write in the exact classes, but you will be able to estimate the number of hours you need to take each year, including general education, major, and elective credits that you identified earlier.
· See the example before you begin.
EXAMPLE
|
Fall Enrollment |
Credits |
Spring Enrollment |
Credits |
Summer Enrollment |
Credits |
|
ENGL 150 |
3 |
HD FS 239 |
3 |
|
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|
MATH 140 |
.5 |
COM S 103 |
3 |
|
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HD FS 102 |
3 |
SOC 134 |
3 |
|
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HD FS 283 |
|
ELECTIVE |
3 |
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LIB 160 |
3 |
HUMANITIES |
3 |
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HD FS 110 |
3 |
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TOTALS |
14.5 |
|
15 |
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YEAR 1
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Fall Enrollment |
Credits |
Spring Enrollment |
Credits |
Summer Enrollment |
Credits |
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TOTALS |
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YEAR 2
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Fall Enrollment |
Credits |
Spring Enrollment |
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Summer Enrollment |
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TOTALS |
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YEAR 3
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Fall Enrollment |
Credits |
Spring Enrollment |
Credits |
Summer Enrollment |
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TOTALS |
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YEAR 4
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Fall Enrollment |
Credits |
Spring Enrollment |
Credits |
Summer Enrollment |
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TOTALS |
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YEAR 5
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Fall Enrollment |
Credits |
Spring Enrollment |
Credits |
Summer Enrollment |
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TOTALS |
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Step 2: Estimate Educational Costs
Now estimate your costs of going to school. These estimates should reflect the cost of attending school for one semester (four months).
Direct School Costs Utilities
Tuition _________ Gas _________
Books _________ Electricity _________
Supplies _________ Water/Sewer _________
Class Fees _________ Subtotal _________
Subtotal _________ Food
Transportation Groceries _________
Car Payments _________ Fast Food _________
Gasoline _________ Restaurants _________
Licensing _________ Snacks _________
Auto Repairs Subtotal _________
Campus Permits _________ Recreation
Airfare _________ Babysitting _________
Insurance _________ Movies _________
Subtotal _________ Cable TV _________
Telephone Dating _________
Local Service _________ Video Rentals _________
Long Distance _________ Subtotal _________
Internet Service _________ Gifts
Cell Phone _________ Charity _________
Subtotal _________ Weddings _________
Housing Birthdays _________
Rent/Mortgage _________ Holidays _________
Insurance _________ Subtotal _________
Property Taxes _________ Clothing
Subtotal _________ Dry Cleaning _________
Personal Expenses Laundry _________
Beauty Care _________ Purchases _________
Haircuts _________ Subtotal _________
Hygiene _________ Savings
_________ _________ Long-term Goals _________
_________ _________ Emergencies _________
_________ _________ Retirement _________
Subtotal Subtotal _________
Medical Expenses Miscellaneous
Health Insurance _________ Child Care _________
Prescriptions _________ Child School Costs _________
Co-Pays _________ _________ _________
Doctor/Dentist _________ _________ _________
Eye Care _________ _________ _________
Subtotal _________ Subtotal _________
Add up all of the subtotals to come up with your estimated educational costs for one semester.
Estimated educational costs for one semester $___________
How to Determine Total Estimated Educational Cost
Suppose your estimated educational costs for one semester calculate on page 4 are $5000.
Year 1, you will be attending 2 semesters $5,000 X 2 = $10,000
Year 2, you will be attending year round $5,000 X 3 = $15,000
Year 3, you will be attending year round $5,000 X 3 = $15,000
Year 4, you will be attending 2 semesters $5,000 X 2 = $10,000
Year 5, you will not be attending $5,000 X 0 = $0
For your total estimated educational cost, add up all of the years = $50,000
Inflation has not been accounted for in this example. If you would like to figure your total cost adjusted for inflation, multiply each year by the current inflation rate or, if you do not know it, use 5 percent (0.05). Add that amount to the yearly total, then add all the years together.
Example: Year 2 would be $15,000 X 0.05 = $750. $15,000 + 750 = $15,750 total.
You can now estimate your total educational cost.
Using your estimated educational costs for one semester (calculated on page 4) and your planned yearly semesters (page 3), calculate your total estimated educational cost.
|
Year |
Cost per Semester |
Times |
Number of Semesters |
Equals |
Total Yearly Cost |
|
1 |
|
X |
|
= |
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2 |
|
X |
|
= |
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3 |
|
X |
|
= |
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4 |
|
X |
|
= |
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5 |
|
X |
|
= |
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|
Add the yearly costs to get your total estimated educational cost = ___________ |
Step 3: Estimate Financial Resources
The purpose of this section is to help you discover how much you will have in personal resources to meet your educational costs each year. It will give you a clear picture of how much you may need to borrow. In determining your resources, explore and maximize all sources that might be available to you: work, institutional and/or off-campus scholarships, family funds, taking as many credits as you are able to successfully complete per semester to lessen the amount of semesters required to graduate.
Total Estimated Financial Resources
|
Resources |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Personal Savings and Investments |
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Employment Fall/Spring |
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Employment Summer |
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Help From Parents |
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Help From other Relatives |
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Scholarships |
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Grants |
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Work-Study |
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Vocational Rehabilitation |
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Social Security Benefits |
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Veterans/GI Benefits |
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Other |
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Totals |
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Add all of the yearly totals to come up with your Total Estimated Financial Resources__________________ |
As you begin to look at ways to pay for school, keep in mind that these are only suggested resources. Fellow students are your best source for new ideas. If you see something that works for someone else, try it!
Step 4: Identify and Analyze Unmet Need
To begin, compare your total estimated educational cost (page 5) with your total estimated financial resources (page 6). Then use the worksheet provided to help you identify your unmet need—the amount of money you will be lacking to pay for your education and may need to borrow.
Example:
|
Unmet Need |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Total |
|
Estimated Educational Cost |
$10,000 |
$15,000 |
$15,000 |
$10,000 |
$0 |
$50,000 |
|
Estimated Financial Resources |
$7,379 |
$8,922 |
$8,967 |
$8,500 |
$0 |
$33,768 |
|
Unmet Need (Potential Debt) |
$2,621 |
$6,078 |
$6,033 |
$1,500 |
$0 |
$16,232 |
To calculate your unmet need, take the total estimated cost (page 5) and the total estimated financial resources (page 6), and complete the worksheet.
|
Unmet Need |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Total |
|
Estimated Educational Cost |
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Estimated Financial Resources |
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Unmet Need (Potential Debt) |
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If you have unmet need, decide where you can reduce your spending or increase your resources. BE CREATIVE!
Now add to this unmet need any outstanding student loans. If you are free of student loans at this point, place a zero in the indicated space. Adding the adjusted unmet need and outstanding student loans will give you your potential loan debt.
Unmet need $___________
Outstanding Student Loans $___________
Total Potential Loan Debt $___________
Step 5: Establish Your Maximum Debt Limit
A wise person approaches debt very cautiously. Experts suggest that a reasonably monthly payment for student loan debt is no more than eight percent of your monthly take-home pay (net income). In this step, you will learn the maximum amount you can reasonably borrow using your estimated starting salary.
1. Estimated Starting Salary
How much do you think you will be making when you get your first job following graduation? You may refer to the list on the next pate. (If you want detailed starting salary information, you may request information from your individual college or university career services office). In addition, the Bureau of Labor Statistics website ( http://stats.bls.gov/oco/ocoiab.htm ) offers detailed information on salary and career opportunities in numerous areas.
Gross annual income from work $__________
2. Net Annual Income From Work
Subtract 25 percent from your gross annual income to account for taxes, Social Security, insurance, etc. This will give you an estimate of your net annual income from work. (If you plan to make charitable contributions, add that percentage to the 25 percent.)
Example: $24,000 X .25 = $6,100; $24,400 - $6,100 = $18,300
Net annual income from work $__________
3. Net Monthly Income From Work
Divide the net annual income from work by 12 to determine your net monthly income from work.
Example: $18,300 / 12 = $1,525
Net monthly income from work $__________
4. Other Monthly Income
Write down any other income you receive each month. This could be money from odd jobs, money received from parents or other family members, Social Security benefits, workman’s compensation, disability, child support, interest income from saving or investments, etc.
Other monthly income $__________
5. Total Net Monthly Income
Add together the net monthly income from work and the total other monthly income. This will give you your total net monthly income.
Total net monthly income $__________
6. Monthly Student Loan Payment
Multiply the net monthly income by 8 percent to estimate a reasonable amount you could pay each month for a loan payment. (Eight percent of net monthly income is the industry standard for a monthly student loan payment.
Example: $1,525 X .08 = $122
Monthly student loan payment $__________
7. Your Maximum Student Loan Debt Limit
Refer to the loan repayment chart (page 11). Locate the monthly payment in the left that is closest to your own. By reading from right to left, you will be able to determine an approximate figure for your potential loan debt. Record that figure for the maximum debt limit.
Example: $10,000
Your maximum student loan debt limit $__________
Compare your total maximum debt limit to your potential loan debt. If your potential loan debt is greater than your total maximum debt limit, you should reevaluate your options. You may want to consider other resources and look for ways to reduce your expenses.
2012 Median Yearly Starting Salary Offers (Bachelor’s Degree)
Accounting $47,800
Advertising $44,700
Aerospace Engineering $64,200
Ag Business/Management * N/A
Ag Engineering* N/A
Animal Science* N/A
Biological Sciences $38,300
Business Administration/Management $49,200
Chemical Engineering $63,000
Civil Engineering $55,300
Clothing/Apparel/Textile Studies * N/A
Communications $39,400
Computer Engineering $67,800
Computer Science $58,300
Economics $54,800
Finance $49,700
Electrical Engineering $57,300
Elementary Education $35,800
Hotel and Restaurant Management $31,700
Marketing $49,600
Mathematics/Statistics $47,000
Mechanical Engineering $58,600
Psychology $33,500
Secondary Education $38,600
Sociology $31,700
NOTE: *2012 data not currently available. The National Association of Colleges and Employers (NACE) Salary Survey contains data obtained in February 2012. The data is provided by career planning and placement offices of colleges and universities across the United States. The numbers of actual offers vary between majors and the salaries reported are on average of those offers. Consequently, the starting salaries reported should be used as a guide, not an absolute.
Step 6: Identify the Costs of Borrowing
You have made your academic plan, calculated your total educational costs, and determined how much you can afford to borrow by using your expected income once you graduate. Now you can look at your potential loan debt and see what your true cost of borrowing will be.
1. Take your potential loan debt as calculated on page 7.
$__________
2. Using the payment chart on the next page, locate the total interest you will pay on that debt.
+__________
3. total repayment (1+2)
=$__________
Now calculate the minimum annual starting salary you should earn to “afford” this debt
4. Find your estimated monthly payment on the chart on the next page.
$__________
5. Multiply this by 200*
X__________
6. Annual salary
=$__________
*You are making two assumptions by using the number 200
1. You are taking into account 25 percent for monthly federal and state taxes.
2. You are using the 8 percent rule, the industry standard for maximum student loan debt repayment. Debt above this amount can create financial hardship.
If the calculated salary needed to repay your loans seems unrealistically high, return to potential loan debt (page 7). You will want to look at how you can decrease your educational costs and increase your financial resources (page 6).
REMEMBER: If the job you want once you graduate will not provide the kind of income you will need to repay the loans you choose to borrow, you need to plan NOW.
Loan Repayment Chart
|
Monthly Payment |
Number of Payments |
Potential Loan Debt |
Total Interest |
Approximate Total Repayment |
|
50 |
107 |
4000 |
1340 |
5340 |
|
58 |
120 |
5000 |
1910 |
6910 |
|
69 |
120 |
6000 |
2290 |
8290 |
|
81 |
120 |
7000 |
2670 |
9670 |
|
92 |
120 |
8000 |
3050 |
11050 |
|
104 |
120 |
9000 |
3430 |
12430 |
|
115 |
120 |
10000 |
3810 |
13810 |
|
127 |
120 |
11000 |
4190 |
15190 |
|
138 |
120 |
12000 |
4570 |
16570 |
|
150 |
120 |
13000 |
4950 |
17950 |
|
161 |
120 |
14000 |
5330 |
19330 |
|
173 |
120 |
15000 |
5710 |
20710 |
|
184 |
120 |
16000 |
6100 |
22100 |
|
196 |
120 |
17000 |
6480 |
23480 |
|
207 |
120 |
18000 |
6860 |
24860 |
|
219 |
120 |
19000 |
7240 |
26240 |
|
230 |
120 |
20000 |
7620 |
27620 |
|
242 |
120 |
21000 |
8000 |
29000 |
|
253 |
120 |
22000 |
8380 |
30380 |
|
265 |
120 |
23000 |
8760 |
31760 |
|
276 |
120 |
24000 |
9140 |
33140 |
|
288 |
120 |
25000 |
9520 |
34520 |
|
299 |
120 |
26000 |
9910 |
35910 |
|
311 |
120 |
27000 |
10290 |
37290 |
|
322 |
120 |
28000 |
10670 |
38670 |
|
334 |
120 |
29000 |
11050 |
40050 |
|
345 |
120 |
30000 |
11430 |
41430 |
|
357 |
120 |
31000 |
11810 |
42810 |
|
368 |
120 |
32000 |
12190 |
44190 |
|
380 |
120 |
33000 |
12570 |
45570 |
|
391 |
120 |
34000 |
12950 |
46950 |
|
403 |
120 |
35000 |
13330 |
48330 |
|
414 |
120 |
36000 |
13720 |
49720 |
|
426 |
120 |
37000 |
14100 |
51100 |
|
437 |
120 |
38000 |
14480 |
52480 |
|
449 |
120 |
39000 |
14860 |
53860 |
|
460 |
120 |
40000 |
15240 |
55240 |
|
472 |
120 |
41000 |
15620 |
56620 |
|
483 |
120 |
42000 |
16000 |
58000 |
|
495 |
120 |
43000 |
16380 |
59380 |
|
506 |
120 |
44000 |
16760 |
60760 |
|
518 |
120 |
45000 |
17140 |
62140 |
|
529 |
120 |
46000 |
17520 |
63520 |
|
541 |
120 |
47000 |
17910 |
64910 |
|
552 |
120 |
48000 |
18290 |
66290 |
|
564 |
120 |
49000 |
18670 |
67670 |
|
575 |
120 |
50000 |
19050 |
69050 |
Federal Stafford Loans have an interest rate cap of 6.8%, as used here.
Calculations made from Federal Student Aid calculators.
The publication of this workbook was made possible
by a generous grant from the
UTAH HIGHER EDUCATION ASSISTANCE AUTHORITY
Prepared by the
BRIGHAM YOUNG UNIVERSITY
FINANCIAL AID OFFICE
Copyright © by Brigham Young University
First edition 1997
Second edition 2001
Revised edition by Iowa State University Financial Counseling Clinic 2013