Top Five Strategies for Successful College Planning
College applications are out and if you are like us, you are quietly holding your tongue allowing your child to attempt navigation of this formidable process on their own. After all, this is often their first encounter with adulthood and the responsibilities of getting it right or the results won’t happen. Of course, as a parent, you are available for input when asked, but often it is when it is late in the application stage or it may even be something you do not have any idea how to help!
Our daughters were self-starters and took it upon themselves to research colleges, obtain the applications, letters of recommendation and write their essays. Easy, right? Not so quick…applying for college was just the beginning and it was a ton of work. As their parent, we had college in mind for them since they were born. Now the time was upon us the big questions came: How much is this going to cost? What sort of financial aid should we expect? What scholarships will be available? Did we save enough?
Let me share with you some of the answers we found as we muddled through the process. Even with preparation it was an interesting and enlightening journey. Here are five tips we believe can assist you and your children in this often-exciting yet stressful time:
1. Understand the Costs: “A Lot” is not sufficient here, you need to know what each college charges in tuition, fees as well as expected living expenses. We found these to vary from $24,000 in State to over $80,000 out of state or private. Multiply this by four and you now know what “A Lot” is. These costs have been and are expected to continue to outpace inflation. So if you have a young baby in your arms, plan on a lot more of “A Lot”.
2. Know what to expect from financial aid: many families expect more than they will actually receive, ourselves included. Less than half of all students actually get grants and scholarships, and only .3% receives enough for a free ride to college. We were surprised as you probably are when it comes to scholarships. Our daughters received some great ones provided by the Universities themselves. For the most part, after applying to dozens, they received the tuition based merit scholarships from their schools. Encourage your kids scholastics…it pays off for them!
3. It’s never too late, so start now: Invest in your child’s future! Given the answer you saw in #1, you can see how putting money aside for college will be paramount to your child not being burdened with a ton of debt for college. We understand it isn’t easy but the old adage, earlier the better, really is important here. Also, make sure you put those funds to work, not just a savings account. Power of compounding and building over time can really help.
4. Keep college and retirement accounts separate. This may seem obvious to some, but we have clients that only have retirement accounts and believe that will be their source for funding college. This can cause all sorts of issues; tax liabilities and jeopardizing retirement security just to name a couple. Keep the accounts separate, you can finance college, you cannot finance retirement.
5. Make the most of Tax-Advantaged 529 Plans. These are great vehicles for investing for college. Besides the tax free growth for qualified withdrawals, they count less towards financial aid calculations, there may be a tax deduction for contributions, and they can be used in a variety of educational applications. There are a lot of options here and you are not restricted to only using your State’s plans.
I also encourage all of our clients, many who are now grand-parents to fund the 529 accounts for their children and grandchildren rather than buy more toys. It is a great way to create a legacy and trust me, your children will really appreciate it when the college options and experiences are not limited by finances. Who needs that Pokémon anyway?
We could go on about this topic as fresh as it is in our lives, but this is a good start. We welcome you to share this with your friends on the soccer field, ballet class or gymnastics. Being a parent is the most amazing part of life, but also the toughest job there is. A little planning goes a long way and if you need some help, reach out to us via www.scfinancialservices.com or give us a call at 480-214-9596. We welcome the opportunity to assist!