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Definitions and Explanations

College planning comes with its own set of terms and acronyms. Rather than delve headlong into all the jargon, we'd like to provide assistance on the terms and concepts relevant to financing a college education.

If you find yourself (justifiably) confused by college terminology or the college financial process, contact us and we will put you in touch with one of our edCelerator™-Certified College Planners (eCCP) who will help you navigate your way.

As far as financing college goes, there are some terms, processes and costs that you should understand, prior to signing for a loan of any kind and there are some terms and definitions we use that are somewhat unique to us:

About VARIABLE RATE?

Currently, the online edCelerator™ Analysis software does not automatically account for variable-rate, interest-only or balloon payment current mortgages. We are delighted however, to provide you with a detailed analysis manually for these types of situations. Our Client Care Center will run the free Analysis for you and email our findings the next business day. Simply email us the details of your current mortgage (original amount, current balance, current rate, adjustment parameters, cap, term, Principal & Interest payment, etc.) by clicking here.

Given that interest rates are neat all-time lows, it probably makes good financial-planning sense to convert any loan that is currently variable to a fixed rate.

About RATE

The Rate to input on this line is whatever rate you feel confident you'll get on a new, fixed, 30-year mortgage. Why a 30-year mortgage? Perhaps counter-intuitively, because it will empower you to pay off college - and your home - sooner than you will with a shorter mortgage. The lower interest-per-month payment on a 30-year fixed enables you to attack the principal more effectively, paying the loan off more quickly. There are other reasons to opt for the fixed-30:

1. Monthly Principal & Interest payments are lower than for 15 and 20-year mortgages, reducing the cash flow required to maintain your new "College Mortgage."

2. The lower P&I required payment provides you with more flexibility to meet unforeseen expenses, like medical bills, home or auto repairs.

3. With rates at or near all-time lows, it makes sense to lock in a near-record low rate for as long as possible so the choice of how quickly to pay off the loan remains yours, not the bank's.

For further information about RATE and why we use fixed-30 mortgages where appropriate, contact us.

About YEARS TO PAY OFF COLLEGE

We describe "Years to Pay Off College" as the time it takes for the balance on your new (College) mortgage to reduce to the balance on your current (No-College) mortgage. In other words, how long will it take you - if you continue to input your stated Monthly Maximum College Budget - to pay down your college mortgage to the point you were prior to taking out that new college mortgage. Years to Pay Off College answers the question, "How long does it take me to get to get back to the balance on my current mortgage (i.e. as if college never happened)?

For instance, suppose you have a mortgage balance today of $100,000. If you refinance to a $200,000 mortgage because the college education is expected to cost $100,000 then this result tells you how long it will take you (using edCelerator™) to get back to the $100,000 you had as a balance, prior to financing college.

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About YEARS TO PAY OFF MORTGAGE

Similar to our Years to Pay Off College definition, "Years to Pay Off Mortgage" describes the length of time it takes - assuming families continue their edCelerator™ Inputs (the Maximum Monthly College Budget) - for the new (College) mortgage to be paid off. Often, families who stay on-budget will find that they will pay off their new, College Mortgage, sooner than they would have paid off their current mortgage, were they to continue making the scheduled monthly mortgage payments, even though they also financed a college education (or two or three) in the process!

edCelerator™ calculates this time frame based upon the new rate and size of the new College Mortgage. It further assumes that the family sticks to its budget discipline and continues to input the Monthly College Budget, even though college may have already been paid off, until the College Mortgage is eliminated.

Debt is Death! The American financial system changed in 2008 and carrying debt - particularly consumer (cars, credit cards, etc.) debt - costs more than ever. When credit cards last cost 20% interest, banks were paying 5% on Certificates of Deposit (CDs), theoretically making the cost of carrying credit card debt 15% (20% - 5%). Fast-forward to 2011 and we find many credit card rates at 24% at the same time banks are paying less than 1% on CDs and savings. The only way we can calculate an Effective Cost to Finance College is by assuming the family has a goal of becoming debt -free and as we explain in more detail below. Years to Pay Off Mortgage calculates how quickly edCelerator™ will help you become debt-free.

About EFFECTIVE COST TO FINANCE COLLEGE

edCelerator™ empowers families to know, in advance, exactly how much college will cost them*. The Effective Cost to Finance College represents how negatively college impacted your family's ability to become debt-free, in dollars. It instantly compares the difference between paying off your current mortgage by continuing to make the payments you do now with paying off your new College Mortgage by applying the Monthly College Budget - even after college is over - to pay off the new College Mortgage. The difference between what it will cost you to pay of the College Mortgage and what it would have cost to pay off the current mortgage is the negative impact of financing college, expressed in dollars.

Remember, when financing is involved, the cost of anything is the cost to pay off the principal PLUS the cost of the interest on the loan. edCelerator™ calculates the cost to pay off the new College Mortgage and deducts from it the cost to pay off the current mortgage to determine how badly financing college "hurt you."

Predicting the Effective Cost of College when variable rate loans are involved is impossible; parents who use variable loans are buying a product (college) without knowing its cost. It is for this reason that edCelerator, LLC recommends the use of fixed-rate loans to finance college. If you use variable-rate loans, or if you use one of the mortgage acceleration schemes that involve variable-rate Home Equity Lines of Credit (HELOCs), you cannot predict what college will end up costing you because rates will always change and based upon this, are likely to change against parents (i.e. go up!).

It is for this reason - the likelihood of interest rates rising - that we also do not recommend "borrow as you go" plans (if they can be called that) for financing college. If you are one of those parents that intends to tap the HELOC every year to pay for college, ask yourself these questions:

1. What will interest rates be on your variable-rate HELOC loans for College Years 1, 2, 3, 4, 5 and what will the rates be six or eight years from now, when you are (hope to be) in payback mode?

2. On what date will you have paid off the loans you took out for college?

3. If you become disabled or die during the college years, how will your children finance the remainder of their college careers?

"Borrow as you go" is not a plan: it's expensive "winging it!"

The ONLY way to know how much college will cost, when the college loan will be repaid in full and when you will be mortgage-free is by combining a fixed-rate loan with the edCelerator™ System. Contact us now to get started or to receive contact information for the edCelerator™-Certified College Planner (eCCP) nearest you.

* We or your edCelerator-Certified College Planner (eCCP) try to estimate the cash cost of college, based upon an individual college's historical cost inflation rate and financial aid award history but we have no control over either of these factors. This is true of ALL college planners. Where we and our eCCPs are different is that we can tell your family what the total cost to finance college will be and when loans will be repaid in full, based upon these estimates.

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