What should I be doing now to prepare for my children’s college expenses?
Question:) I have two young children and am worried about the rising costs of higher education and student loan debts. I’ve read about college-savings plans but don’t know where to start.
Money Coach’s Answer:
You should talk with a financial planner who can outline your options. There is more to paying for college than just saving for college. The reality is that when it comes to college there are two sets of prices: the ones paid by those who are informed and the other (higher) price paid by everyone else.
Recognize that you may not likely cover the whole cost of college yourself. In fact, the share of costs covered by parents has dropped in recent years. According to Fidelity & Investment News (8/29/11), parents were paying 16% of the tab in 2011, down from 24% in 2007.
And recognize that you don’t have to pay sticker price for college. Only a small proportion of students actually pay the published rate for college. And believe it or not, it may actually turn out to be cheaper to go to a private school that has a higher price tag than an in-state public school. This is because private schools tend to cover more of a student’s need than state schools which have more limited resources.
Regardless of how old your kids are, there are numerous strategies to lower the cost of college. While 529 Plans are an option for accumulating savings, they are not your only option. You need to consider Coverdells as well. You can also find financial advisors and institutions that offer the SAGE tuition rewards program for earning points that can be used to discount the college costs at more than 295 private schools.
You need to look at options to lower your costs. You need to consider tax and asset strategies to lower your expected family contribution (EFC). These include numerous tax breaks for business owners (even those who own a small solo practice as a side line business). One hint: Don’t give your kid an allowance when you can pay them to do work in your business which they then can use to fund a Roth IRA that may be used for their education as well. Whether this is a side business or your main source of income, this type of tax planning can work for you to lower your EFC and fund either college or retirement – a triple win.
You may have generous relatives who want to help. That’s great! But you want to make sure that they set things up right to minimize the impact on qualifying for financial aid. This certainly applies to trusts and 529 Savings Plans. I’m a fan of www.SavingforCollege.com which will cover some of this but don’t forget that a knowledgeable advisor is worth his or her weight in areas like this.
And let’s not forget about tried and true strategies to earn college credit that may help accelerate your student’s time to earn a degree. You can find out more at www.CollegeBoard.com and www.getcollegecredit.com.
While it may be early, you can also consider the role of scholarship money in your plan. Although things may change over time, it may be a good idea to get a lay of the land. Peterson’s Guide is a great resource (www.Petersons.com) as is www.CollegeScholarships.org.
Looking for ways to build up the cash for college and trying to discourage relatives from giving lots of toys at holidays? Consider using a service that helps facilitate contributions from relatives directed toward your student’s 529 Savings Plan or other savings account. This is done through the College Registry service of www.eRollover.com.
There are lots of choices and options. Confusing? Yes. But you have time. And you have access to qualified financial planners who can help you through all this.
Consider calling a qualified financial planning professional. We’re here to help. First phone consultation is free – at least that’s my policy. And like many of us here, I offer long-distance planning services.