Are your children or grandchildren getting ready to begin their college careers? A post-secondary degree is expected in today’s day and age, but choosing the best way to fund such an endeavor is no easy decision. In this article, I share nine (9) important financial tips that one should consider when planning for college.
1. Consult with a college education planning specialist to guide both parents and child through this complex process. There are an overwhelming number of options and decisions that must be made.
2. Evaluate the total costs of the school choices broken down by these categories:
- Tuition and fees
- Room and board
- Books, computers, and other supplies (plus accessories)
- Personal expenses for the student such as clothing, bedding, and furnishings
- Travel and transportation
3. Consider a variety of funding options:
- Loans (Federal, Stafford, PLUS, private, college, state, and family)
- Educational Tax Benefits
- Tax Credits (Tuition & Fees, AOTC, LLC)
- Student Loan Interest Deduction
- 529 plans
- Coverdell ESA
- US Savings Bonds
- Sections 2503 (family member pays tuition) and 127 (employer pays)
- Scholarships (need-based and merit), work study programs
- Tax-deferred accounts that allow non-penalty, tax-free withdrawals for educational costs
4. Don’t let college loans be the “hangover” after the “party” of college. Payment programs include:
- Income-based repayment;
- Public Service Loan Forgiveness;
- Prepayment of loan principal: Birthday/holiday gifts from family/friends and/or bonuses/overtime;
- High-interest rate loans: First pay; and
- Loan consolidation for federal/private loans: Only if one can obtain an overall lower interest rate.
5. Do not let emotions sway the decision-making process. Both parent and child need to be realistic and pragmatic regarding what they both can afford.
6. Consider only schools which are appropriate for the student’s values, interests, and abilities.
7. Require that the child share in their higher education costs.
8. Complete the Free Application Federal Application for Federal Student Aid (FAFSA) form. This is a MUST-DO!
A. The FAFSA form should be completed every year that each child attends college, as the parent/child financial position can change.
B. After filing the FAFSA, the family receives a report containing its Estimated Family Contribution (EFC), which is an estimate of what the family may need to pay.
C. Colleges and universities review the EFC annually to determine if there is a financial need and how much aid they might be able to offer.
D. Income and certain assets (of both the parents and child) are “assessed” each year as being available to pay college costs.
9. Evaluate the other general guidelines and strategies listed below:
- If the assets/income of the parent/student are to be re-positioned, for the FAFSA base year, do that two years in advance of when the student will enter college.
- If loans are used, be sure to structure these in ways that are manageable to the borrower, whether the parent or student.
- Adhere to the Cardinal Rule: Thou shalt NOT borrow from thy retirement plans to pay for college.
In addition, my website has dozens of articles about this issue. Particularly, I recommend this video here, Saving for College 101. Be sure to also read these articles: Countdown to College and 5 Tax Tips for New Families.
Finally, I want to tell you about an interesting website that I think is a helpful resource for parents and students who are looking for college funding ideas. TheSimpleDollar.com has tools and guides on various financial literacy subjects, including those relevant to college. Check out their education resources here.
If you have questions or comments, please do not hesitate to contact me.