Rescue Capital Blog Your Money, Your Way

Selling your annuity in order to pay for college, good idea or bad?

Paying for a college education is a serious consideration for most young adults and their parents.   Now is the time in fact that colleges will soon start sending out acceptance letters and financial aid packages to those who were admitted.

For many looking to pay for their higher education they will turn to the Office of Federal Student Aid and fill out the Free Application for Federal Student Aid (FAFSA).  There is an overview of this program on the government website, http://studentaid.ed.gov/fafsa.   An important note! Start this process as soon as you can, the sooner you apply the greater your chances.

If you are one of a select few to have a structured settlement annuity, should you sell the future payments to pay for college?  The answer is simply NO – not until you have explored all other options first.  This is the answer given by many Judges around the country.  As expressed by a NY Judge In The Matter Of The Petition Of J.G. Wentworth Originations, LLC (Pretto) “However admirable Pretto's intention to obtain a degree… the taking of such a deep discount on her settlement funds is a questionable means of attaining her goal.”

The US Department of Education, the lender for low-interest loans for students, has current rates of 3.4%.  The loan is commonly known as a Stafford Loan.  A Stafford Loan is a student loan offered to those eligible students enrolled in accredited Colleges and Universities.  A current variable student loan that is pegged to the 91-day Treasury bill is less than one percent at .075%.  Graduate students can access student loans at 6.8%.

We estimate industry rates for structured settlement transfers to be on average around 14.5%.  This is much higher than student loan rates currently available.  While some sellers of structured settlement annuities can obtain rates in the single digits, say 8%, those are available to annuities with much larger values and do not comprise the majority of annuities in force.

It is very common for minors involved directly or indirectly during a tort settlement to have a structured settlement designed for them so as to provide a stream of future payments.  From our experience of reviewing thousands of structured settlement annuity policies, a majority of these policies, had college education as a factor; and more oft than not payment streams begin to be dispersed from ages 18-22 or at the age 22 assuming completion of a higher education program.

Looking at the comparable rates, 14.5% vs. 3.4% it doesn’t take a higher education to figure out the better deal.  Explore all of your options first and like and good student – do your homework and obtain multiple structured settlement quotes before choosing a buyer.