Every year thousands of students graduate high school in Puerto Rico with aspirations of a Stateside college degree and the Stateside college experience.
The college application process and college aid process are stressful and confusing for most and can be even especially overwhelming for residents of US territories like Puerto Rico (#colonialproblems).
This article looks to address and clarify some of the questions we hear while helping Puerto Rican families plan for college.
1. When should I start saving to pay for my kid’s college education?
As soon as possible. Time can be your best friend or your worse enemy. Putting in a little legwork early on will provide flexibility and mitigate stress when the time comes to write the check.
Try and put a little bit each month toward your college-funding goal by utilizing a tax-advantaged account like a 529 Savings Plan. Consider putting in more on the front end to maximize the miracle of compound interest.
Note: The 529 Savings Plan is a tool, NOT a college funding strategy. We have college funding coaches in Puerto Rico who can help tailor a financial game plan to your unique family situation.
The major challenge, of course, is trying to put money away for college when there are so many more pressing or significant issues taking up your time and money: bills, food, childcare, paying for a home or car, and the big one—retirement.
Financial experts emphasize that retirement is always the priority. There is a litany of funding options and strategies available to pay for college, but, as many financial advisors like to say, you cannot borrow for retirement.
That being said, saving for college vs saving for retirement is not a zero-sum game. There are ways to prepare for both at the same time.
2. Do I qualify for federal student aid?
To qualify for federal aid, you will need to submit The Free Application for Federal Student Aid (FAFSA). Submitting this application may make you eligible for federal grants, work-study, and subsidized loans. Anyone who submits the FAFSA will have access to federal unsubsidized loans. Some schools also require the FAFSA if you want to be eligible for merit aid.
It is also helpful to have your financial info on file at the school if something happens to your family, such as a lost job, injury, death, or illness that causes a large change in finances.
Moral of the story: fill out the FAFSA no matter what.
The application form opens on October 1st and must be filled out every year. It is wise to submit as soon as possible since some aid is first-come, first-served.
After you submit the FAFSA, you will receive your “Expected Family Contribution.” This is a measure of a family’s financial strength and is used to determine need-based aid eligibility.
3. The CSS Profile: What is it and what is it for?
Some schools require you to file an additional financial aid form called the CSS Profile. Individual schools use the CSS Profile to determine whether you qualify for institutional need-based aid.
This form delves much further into your family’s finances because the colleges want to be as accurate as possible when dipping into their own coffers.
Unlike the FAFSA, the CSS Profile is not free to submit. It costs $25 to send to the first school and $16 for each school after that. Unfortunately, students with parents who reside in Puerto Rico cannot qualify for a fee waiver.
4. Is it worth filling out the FAFSA and CSS Profile if I’m a “high earner”?
Yes, as briefly discussed in question two. To reiterate why you should do so even if you make a lot of money:
- It is helpful to have access to federal loans – you may not need them, but they may come in handy/provide flexibility
- Some schools require the FAFSA for merit aid purposes
- Makes it easier to appeal for more financial aid if something happens to your family
- Some private schools that require the CSS Profile can be very generous with aid, even if you have a substantial income.
5. Work-Study Programs: What are they?
Federal work-study is a program designed specifically to provide part-time jobs to students who demonstrate financial need on the FAFSA.
Each school administers its own work-study program, and even if you qualify for it on the FAFSA, you need to check with each individual school to see if they have it. If they do, you still need to apply and interview – nothing is guaranteed.
There are usually a limited number of jobs available. Depending on the school, it could be an on-campus job where you can study at the same time or an off-campus job with an affiliated organization.
It works like a real job – you are paid directly. There is an hour limit; you can’t exceed your work-study allotment.
The good news: the income you receive through work-study does not count against you for future financial aid.
6. What’s the difference between federal loans and private loans?
Federal student loans for undergrads have more flexible repayment plans and, in general, lower interest rates than private loans. The one possible exception to this is the parent PLUS loan, which currently has a 6.28% interest rate and 4.228% origination fee. Parents with good credit scores may be able to find a cheaper loan on the private market.
As a good rule of thumb, PLUS loans and/or private loans should only be used as a last resort.
Direct Subsidized and Unsubsidized Loans are a much safer option. Subsidized loans are available for families with low incomes and do not accrue interest while in school. Unsubsidized loans are available for anyone who submits the FAFSA.
Federal undergraduate loans do have limits. A dependent student can take up to these amounts:
First Year: $5,500 overall; $3,500 subsidized
Second Year: $6,500 overall; $5,500 subsidized
Third Year and On: $7,500 overall; $5,500 subsidized
For more information on student loans, check out the following blog: Navigating Your Undergraduate Student Loan Options Wisely
7. Does my child need to take the SAT/ACT? Are my children at a disadvantage because they receive less preparation for the English portion of the SAT than Stateside students?
You should take the SAT or ACT if you want to go to school in the continental US. Most schools on the mainland do not accept the PAA (Prueba de Aptitud Académica (PAA) – also known as “el College Board.”
If you score well and are eligible for need, look at schools that meet 100% of need. Some schools also offer large merit packages to lure good students or even to round out their incoming class demographics.
The problem: there is no Spanish version of the SAT or ACT, which does put many Puerto Rican students at a disadvantage when it comes to the Language sections. Some experts recommend trying out the ACT instead of the SAT, as it is known to be a little more straightforward.
Given the lower average scores in the language sections of the SAT, some Puerto Rico students with aspirations of going to a Stateside College also take the TOEFL (Test of English as a Foreign Language). It is NOT required for Puerto Rico residents, but we are eligible to take the test and it can supplement a lower-than-average language score on the SAT.
8. Are pre-paid tuition plans available to my children?
No. But you can open 529 savings plans. Consult with a local financial advisor to identify which 529 Plans you can open as a Puerto Rico resident.
9. Can I save in Roth instruments as a resident of Puerto Rico?
Yes and no; you CAN contribute to Roth IRAs but we DO NOT have Roth 401(k)s on the island. The only exception is employees of the Federal Government as they have access to the same qualified retirement plans as Stateside Federal employees.
Fortunately for Puerto Rico residents, there are no income restrictions that limit who can contribute to a Roth IRA. Every Puerto Rico resident with an income can contribute up to $5,000 per person to a Roth IRA in a given tax year; this is true for a household that makes $5,000 and a household that makes $500,000 per year. Married couples that file taxes jointly can contribute up to $10,000 per year, even if only one spouse generates an income.
10. Can I open a Coverdell Plan as a resident of Puerto Rico?
No. Coverdell Plans are not available to Puerto Rico residents. The closest comparison are “IRAs Educativas” (Educational IRAs) offered by several banks and life insurance companies.
Educational IRAs are fixed annuities. Contributions are tax-deductible for the tax year in which the contribution is made and the growth in the account is tax-deferred. If the funds are used to pay for qualified education expenses, the tax on the contributions and the growth is forgiven.
You can contribute up to $500 per year, per student to an Educational IRA.
11. Do I need to pay the full cost of attendance of the colleges my children are accepted to?
The good news is that very few families pay the sticker price for college. Many families avoid applying to private schools because of their exorbitant sticker prices, but private schools can be extremely generous with their financial aid.
Certain colleges are more affordable than you think when you take any of the following into account: federal need-based aid, institutional need-based and merit-based aid, and outside scholarships.
12. Are my children ever eligible for in-state tuition?
There are a few ways for Puerto Rican students might receive in-state tuition, or at least get the out-of-state premium reduced. To learn more, check out this post: How Out-of-State Students Can Get In-State Tuition.
13. Are there any scholarships available to my children as Puerto Ricans or descendants of Puerto Ricans?
Yes! There are several scholarships available to Puerto Rican students and students that are descendants of Puerto Ricans. Here are some of the more prominent ones:
- The National Puerto Rican Day Parade Scholarship Program: They award $2,000 per student for students with Puerto Rican heritage (up to 2 generations removed). In 2021 there were over 70 scholarships granted.
- Beca Evertec Puerto Rico: Awards up to $1,000 per student every year to students that are full-time residents of Puerto Rico.
- Café Bustelo Scholarship Fund: Awards 25 students a $5,000 scholarship every year. Students must be of Hispanic descent.
To learn more about saving and paying for college, feel free to join one of our free workshops covering the Little-Known Secrets of Paying for College.
If you do not think you will qualify for financial aid or have questions about college financial planning, schedule a free consultation with one of our college funding experts.