According to www.onlinecolleges.net, 48% of college dropouts said they did so because they couldn’t afford the cost. This is an avoidable problem. With proper planning, college can be affordable. I have been helping families plan for college costs by helping them develop savings and financial plans to fit their individual needs. Email me at email@example.com or call 917-692-6955 to get started on the right path today. It’s never too early to start planning.
What do you want to be when you grow up? What happens when your child, who has known forever that she wanted to be a pediatric cardiologist, switches majors midstream and winds up with a degree in cultural anthropology (yes, this happened to me with my younger daughter!)?
- Take various personality and career aptitude tests. These tests can give your child a better sense of “who they are”, what careers might be good paths to pursue based on their personality and aptitudes, and can guide you into a course of study to help them prepare for that career after college. There are many free online versions of these tests. Some may seem a little silly, but they don’t take very long and can be insightful They may open your child’s eyes to career opportunities they may not have not thought of, and at least provide a guide as to potential college majors. Some of the most popular are:
- Internships help to give your child insight to a career they may be considering – they get to “test drive the profession around the block” so to speak and see if a career appeals to them. Internships can also make a difference in gaining acceptance into the college of their choice.
- If your child already has an idea of their major, but doesn’t know which colleges to apply to, have them do a little research to identify companies that need these types of majors. Then go to the websites of those companies to see which colleges their senior officers graduated from. If your child graduates from that same school, they will autmatically have an alumni connection. Remember, the purpose of college is to get a good job when you graduate.
- Have your child make a list of teachers, counselors or coaches they have made a connection with while in school. These people live in academia and have insight to both your child and various college, and can help discuss ideas for majors they think would be good for you. Talk to them and get their thoughts. One teacher is good, several will give you a broader base of information.
- Number 5 is really…use all available sources of information, Those suggested above and any others you and your child think of. Your child has only been alive for 15 to 18 years, and you are helping them make decisions for the next 40 to 50 years. It’s not that they can’t change their mind, but that change could cost you.
After 20 years in a profession, they may find themselves having to go back to school, and then they might have other significant obligations, like a spouse, children and a mortgage – and maybe their children’s education. It’s better to take the time now and use as many sources as possible to help your child make the right decisions.
It also helps financially. Changing majors midway through college can be a costly decision. You could end up having to pay for an extra year or two to make ups the credits for the new major! That could quickly add up to another $10,000 to $50,000 a year.Taking advantage of these tips can help in the decision making process for you and your child. This is not a perfect system, but it can help to provide a more clear direction.
If your child is going to attend college, would you like to pay more than the other students family’s are spending for the same degree at the same school and taking the same classes? If you answered no, you should consider taking advantage of using an Educational “Financial Aid” Consultant. As specialists in saving the most money on college education for families, they can help improve your family’s financial aid package.
In the recent article by Naomi Schaefer Riley in the New York Post, The Right Way to Cut College Costs, the author discusses some of the ways she thinks college costs should be cut. I think the important point to get out of this article, if you are planning for your children to attend college, was from Richard Vedder of the Center for College Affordability and Productivity:
And the way we distribute the aid is, as Vedder puts it, “unintelligent.” If you opt for a more expensive college like Skidmore ($44,020 for tuition, room and board), you get more federal cash than someone who chooses a less expensive school like SUNY Albany ($18,145 out-of-state, $7,525 in-state).
As I mentioned in a recent post, the college education “industry” has been charging vastly different amounts per student, depending upon a huge variety of factors, including charging what they think they can get from any one family. The difference in college costs from one student to another could be more than $50,000 per year.
In the February 26th Fox Business Personal Finance Q&A, “How to Save for College Without Hurting Your Children’s Aid Opportunities” Dave Ramsey’s answer to the question, “Should I reposition assets in order to qualify for more financial aid?” basically stated that the questioner should not try to take advantage of the system and should allow financial aid to go to more needy or “poor” people.
In my expert opinion, everyone should do everything they can, legally, following the Department of Education’s rules and regulations to qualify for the most financial aid possible. You may not be “poor”, but after putting two children through four years of college each, without trying to save as much money possible, you could very well end up that way!
By way of analogy, if you were shopping for a new car, Dave Ramsey’s answer would be to NOT negotiate the sticker price if you make enough to pay for it. Perhaps an even better analogy would be for homeowners to not take the option to deduct their mortgage interest from their taxes because they make enough money to not need the deduction. It’s basically saying, “Here, you’ve got this option, but don’t take it.” This just doesn’t make sense.
Education costs have increased at more than double the rate of inflation for many years, and families are refinancing their homes and taking money from their retirement accounts to pay these costs.
Educating our children without reducing their parent’s retirement savings helps everyone. Since congress has spent us into debt, they claim that the only solution is to cut back on Social Security and Medicare. Medical costs alone will “break the bank” for many baby boomers. How can parents afford to not take advantage of the rules for the privilege of spending more for college and have less for retirement?
“There are some normal scholarships, and then some more unusual scholarships that involve quirky things like playing marbles,” noted NY Times Education reporter and scholarship expert Mark Kantrowitz.
According to this recent article in The Chronicle of Higher Education, the amount different students are charged for tuition and board at their colleges and universities is not the same. Perhaps we all are vaguely aware that those students who are eligible for needs-based scholarships and work-study arrangements are given a financial break. However, as the author of the article, Richard D. Kahlenberg, notes, he was “dumbstruck” by the disparities when, on a recent campus speaking tour, students from the group sponsoring his talk introduced the forum by publicly announcing their names and how much they and their families paid each year in tuition and fees.
The differences were quite shocking — from the full $56,000 going rate on one end of the spectrum, to a mere $1,200 on the other.
I flew to California recently for a vacation with family. On the plane, I wondered what each passenger had been charged for the same flight. How many different rates were charged, and what was the difference between the highest fare and the lowest fare each passenger paid? For those who booked a flight at the last minute, the price may have been $1,000 or more than those were used their Frequent Flyer miles and paid a $25 service fee.
The college education “industry” has followed the same path, charging vastly different amounts, depending upon a huge variety of factors, including charging what they think they can get from any one family. The difference in college costs from one student to another could be more than $50,000 per year.
And it’s not going to change. So the main point here is to make sure that you and your family are getting the best possible rates. An Educational Consultant can help you identify a school that provides the most student aid and perhaps even more importantly, the most financial aid that does not have to be repaid.
You want your child to go to college. Your child wants to go to college. Unfortunately, your child came to this decision rather late in the game. Or maybe you have one of those Little Einsteins — brilliant at some things, but it’s not reflected in his or her grades. Now what?
There are several possible routes out of this dilemma for your child who wants to be college-bound:
- Take online college courses to beef up the college application
- Attend a local community college to build up the academic record prior to transferring to a four-year school
- Take college courses on a non-matriculate basis to prove that you are up to the task.
There are some other choices you may not have considered. There are over 850 colleges that do not require SATs or ACTs to enter their school, according to research published by Fairtest.org, the “National Center for Fair and Open Testing.” Some colleges on this list may not be the most ideal schools one would prefer to have on a resume, but others are surprisingly desirable.
Take a look at the list. It may offer some options you had not previously considered.
Three dozen private-college presidents earned more than $1 million in total compensation in 2010, the same number as in the previous year, according to The Chronicle of Higher Education’s analysis of federal tax documents.
In fact, this story reports that the median total compensation among the presidents was $396,588, up 2.8% from the previous year. In addition, in 2004 — only 9 years ago — there were only five presidents whose compensation was over $1 million. But since 2010, the number earning more than $1 million has grown every year — and the number earning more than $500,000 more than tripled, from 50 to 157.
Still not every college and university president is earning that much, and similarly, not every family is paying the same amount for the same education. Everyone knows that when you are flying on an airplane, every passenger on the plane might be paying different fares, and some are paying a lot less than you may be paying. The same goes for college.
If you would like to know how you can pay less for your child’s college education, send me an email or give me a call — or get a copy of my book, 10 Ways to Fund a College Education Without Giving Up Your Retirement, available in either PRINT or for KINDLE READERS. There are many aspects about planning and paying for college that may surprise you.
Should your children attend college, even if it means they (or more likely, you, the parents or grandparents) are drowning in debt to make sure they get a college degree, even though there’s no promise of a job after they graduate?
Or would it be better for your child to try to duplicate the success of those well-known successful entrepreneurs, like Steve Jobs, Bill Gates or Mark Zuckerberg, who never finished their undergraduate degrees? How about Kobe Bryant and LeBron James, who didn’t go to college at all? And Carmelo Anthony, who only went for one year.
No college degree — and yet all of these individuals made many millions, or even billions of dollars. So, is that what you should encourage your own child to do?
The answer is no, according to the writers of this recent New York Times article, Don’t Encourage Kids to Skip College, by Rick Wartzman and Randyi Hoder. According to Wartzman and Hoder, your child has a better chance of winning a mega lottery than succeeding as an entrepreneur like Steve Jobs or Bill Gates. They also say that your child’s income level is guaranteed to be much higher if he or she attends college.
So, in essence, what they are saying is that even though the costs of college are incredibly high, acquiring a college education is worth the cost and effort necessary to graduate with any degree — although obviously, some majors are more profitable than others, but that’s a discussion for another day.
So, yes — it IS better for your child to get a college degree, despite the cost. Speaking personally, after spending over forty years in the financial services industry and having experienced trying to cover the costs of college degrees for two daughters and a wife, I wrote a bookon the various methods of saving for college.
But the real secret to covering the costs of a child’s college education? The secret is to start planning for college early. Not early in the senior year of high school, and not even your child’s junior year of high school. Early! Like when they are just starting school — yes, in kindergarten, if not before.
If parents have a plan in place when their kids are very young, they will have more savings, and yet still be eligible for more financial aid. And they won’t have to give up their retirement funds, or dip into the equity in their homes.
Ask me how, either by purchasing a copy of my book, 10 Ways to Fund a College Education Without Giving Up Your Retirement, which is available also as a Kindle book. Or send me an e-mail. Or call: 917-692-6955. I’d be happy to discuss your options with you.
I’d like you to think about this: A lot of the people you assume can give you advice about how to pay for your child’s college education are actually not the best people to advise you. High school guidance counselors, college financial aid officers, accountants, bankers, stockbrokers, and insurance agents — do you really think they all can give you the best, up-to-date advice about which plans are the best savings vehicles for accumulating money for your child’s college education?
The answer is no, or at least rarely.
Think about this: A doctor who is a “G.P.” (general practitioner) is a smart and very well-educated person, but if you have heart problems, don’t you want to see the heart specialist?
Consider this: By the time a child goes to college, a four-year degree will, for most, cost more than the home the child was raised in. If the cost of education is more than any other item in your life (except, hopefully, your retirement) doesn’t it make sense that you would go to a specialist?
Many accountants and stockbrokers, for example, might recommend a 529 Plan. Now, there are some great tax advantages to 529 Plans, and the stockbrokers and accountants are well aware of them. But they are NOT educational consultants, and therefore do not usually consider the fact that, when your child is applying for financial aid, 529 Plans will be considered an asset, and will therefore automatically reduce the amount of financial aid your college-age child is eligible for. For example, if you saved $50,000 in the 529 Plan, that could mean $50,000 less in financial aid.
A few years ago, federal law was changed to minimize this problem, allowing the 529 Plan assets to be considered the parents’ asset, rather than the child’s, so there would be a reduction in how much aid was lost. But it was only a reduction — the amount of aid lost is still a lot!
However, many schools require that you complete the CSS form in addition to the FAFSA form required for financial aid, and we have found that many well-endowed private schools still consider this when awarding financial aid.
Think of it this way: You saved money and only earned 1%, but none of it reduced your financial aid. Now compare that to an investment that earned 10%, but reduced your financial award by 100% of what you saved. Which would be better for you and your child?
This is the information that usually isn’t taught in accounting school, nor is it included in the software that your accountant uses when completing your tax return. Additionally, it isn’t taught to most stockbrokers.
Are there exceptions? I am sure there are, but thus far I haven’t met any stockbrokers or accountants who were aware of this, nor were they aware of the similar impact on UTMA’s or the older UGMA’s.
This is why I suggest consulting with a specialist when you are ready to start planning how you are going to pay for your child’s college education. It may sound a little self-serving. But it’s not about me — it’s about you, and it could mean many thousands of dollars in savings to you and your family.
Good question! There are many studies that show that the average college graduate will earn over a million dollars during their working lifetime. But what does that really mean? And does that data apply to every college graduate?
Here is an article from Business Insider which captures the skepticism many middle-class families currently have about the value of a college degree, which is in part due to the differences in future income based on career choice, especially when measured against the rising cost of higher education, and the monumental debt that many graduates face.
The author, Mandi Woodruff, a reporter for BusinessInsider.com, cites several examples of this disparity, including the fact that people with degrees in Social Work have a median income of $45,300 per year, while those earning a degree in petroleum engineering report a median income of $163,000 per year.
Does this mean that it’s just not worth it to pursue a career in Social Work? Of course not. The point is that when your child finally attains that piece of paper that qualifies him or her to start practicing in their chosen field, that they are not saddled with so much debt that they can never expect to pay it off, based on the median income for that profession.
As with most things in life, there are choices to be made and planning should begin early. Obviously, starting to save money for college very early on is a great first step, but seeking the advice of an educational consultant is the next best step. A professional in this field can help you identify the best plan for covering the cost of college for your child, while preserving your income and assets. An educational consultant can also guide you through the perplexing process of identifying the best schools for your child and how to get into them.
A word of explanation about using the services of a professional educational consultant: If you seek the advice of a stock broker, I think you would expect the savings plan suggested might be in the stock market. That’s not always a bad choice, but I have found that few stock brokers have been trained or have studied the specifics of saving for college. Just as in the field of medicine, an expert in a particular field is usually much better that a generalist when you have a very specific special need.
Another important point is helping to educate your children financially. I know many musicians who are outstanding at what they do, and they love their chosen career, but they struggle to make ends meet teaching classes, playing for weddings and corporate events, and pursuing gigs at piano bars, restaurants and hotels, or with bands. What is their return on their college costs investment?
Here is the point. If these musicians – and their parents and grandparents — started saving early, the interest earned on that savings works FOR them. If, on the other hand, they wait until the last minute — when the child is filling out college applications — they most likely have to finance their education through loans and financial aid. In that case, any interest earned works against them.
Many parents help pay for their children’s college education by refinancing their homes or taking money out of their retirement. When that happens, those parents lose the ability to have interest earned work for them for those expensive retirement years. A good plan for college is to start saving very early on in the best possible plan for you, structure your family’s finances to qualify for the most financial aid long before that application process is needed, and research, research the best schools of choice and have a plan for how to get into them.
Sounds like a lot of work and a lot of information, doesn’t it? That’s why you need a professional!
When I begin working with a client family, I always start with the reminder that the earlier you start to plan for your child’s college education, the better. How soon to start planning? Yesterday was the best day to implement your plan. If you have children, even infants, it’s not too soon to start putting together a plan. Of course, things change, and that will always be the case. But a well thought-out plan will help in so many ways, and it can then be adjusted along the way to adapt to the changes in one’s life.
Consider the college admissions people. How many essays have they read in any one year? Have your teen-ager start a first draft early on — even in their freshman year! There will be lots of time to rewrite, and they should at least be thinking of possible topics by that point. Every potential college student needs to write something original. How many original ideas will that admissions officer read?
The idea of going to a community college or state college and then transferring into the college of your choice is not a new idea for saving money on total college costs. But there are issues to consider. Does the student want to leave all their current friends behind when they transfer? How about their academic advisors? Will the student be able to transfer all their credits? Have they regularly communicated with the head of the department at the school they hope to attend? Forming that relationship early demonstrates something to the new school — it shows that you are serious and you are mature enough to have a plan and it is a strong indication that you will graduate, which helps the metrics of the school you hope to transfer to.
Due to current economic conditions, private schools may have more scholarship and financial aid money than state schools. And the awards are frequently given to the first to apply, so apply early and often.
Help your child to be an attractive student to the college. Make sure they are applying for internships and summer jobs in their desired field of study. An internship in one’s chosen field demonstrates experience, which will help the student do better in the course work and show the school they are serious about their career of choice. We’ve all heard the stories of the medical student who got great grades but passed out during operations. If you’ve done an internship or have worked in the field of your study choice, the college knows you already have firsthand experience in the profession, and it makes you a better candidate in their eyes.
These ideas help in several ways. Getting your child involved early in the process helps them be more focused on the difficulties involved in just getting into college, and the internship that helped them get into college could very well be their best chance of getting a job when they graduate.
This recent article from Your College Advisor at NorthNewJersey.com provides some good advice on the college application process, and how to get the information you need. But even the writer, journalist Pat Restaino, notes that one of the problems is that there’s almost too much information out there, and “too much information often results in confusion and indecision.” Additionally, is the information accurate and do you know the right questions to ask?
It always amazes me to find that parents and children tend to select schools based on what family and friends have to say, with the focus usually on a few schools, none of which might be the best school for them. High schools tend to give out lots of helpful information. The internet is full of good information as well. In fact, as Restaino puts it, there’s almost too much information available. So how do you find your way through this thicket of information without it becoming your new full-time job?
What is the most expensive thing the people purchase in their lifetimes? For most people, that would be their home. But when you stop to look at the numbers, in most cases, educating just one child could cost more than buying a home. If a family has two children or more, the cost only increases with each child.
Isn’t it worth it then, to invest the time to attend a seminar given by a full-time educational consultant? A professional in this field save you money – assuming they have the right credentials and training — and I am speaking in terms of tens of thousands of dollars in savings.
School guidance counselors try to help, but they usually don’t have the time to remain current on all the regulations involved. College financial aid officers are not in the business of giving away more money. And entrusting your decision about which college to attend to your family and friends, or your child’s friends may not be the best idea either.
Get those applications submitted early, and usually you will be ahead of the process. Many colleges tend to give aid on a first-come, first-served basis. By having your applications in early, not only can you get your financial aid letters out sooner, but also it gives you the time to take the first offer and use it as leverage to appeal to the school your child (or you) would prefer.
There is so much more to this process, but the point is getting professional help early in the process can save you tens of thousands of dollars towards the cost of education, and make sure that the process of applying for college and financial aid doesn’t become a new full-time job for you.
Here is a news item from LearnVest.com that points to the fact that, unlike the common misconception, attending a state school might not be cheaper in the long run than attending a private college. It gives, as example, five states where the costs of attending the state universities have gone up substantially in recent years.
However, the article just skims the surface of this problem. There are many other reasons which make private schools more of an option than most parents and college-bound students would have thought.
For example, the state schools may not have as much financial aid available to award students who need assistance as many heavily-endowed private schools.
Nationally, it takes an average of five years for students to graduate from a four-year college, and the reasons are myriad, according to this article from Collegeparents.org. But did you realize the average number of years it takes a college student to graduate from state schools is higher than it is for private schools?
At state schools, if a class doesn’t get full enrollment, they might cancel it until another semester. This means that a student may have to wait until that particular course is available, even perhaps having to postpone graduation if it is a required course. Since tuition tends to increase every year, it will cost more to take that course later. Additionally, there could be more on-going room and board costs if the student needs to stay on campus for an additional year, waiting for the right courses to be offered.
There are pros and cons for each type of college experience, and you can find these discussions in many news articles and on blogs, such as this article from scholarships.com, this article from parentsandcolleges.com, and this article from collegecostnavigator.com. The important point here is that parents and their children should not automatically reject private colleges as being out of their reach until they have examined the facts.
And, how do students select the college they will attend? In many cases, it’s from a glossy brochure, or worse, from statements made by friends. The best way to make the all-important decision about which college to attend is to:
1. Decide which schools offer the programs of interest to the student
2. Find out which schools will most probably accept the student
3. Find out which schools tend to offer the most financial aid.
Adam Levin has a very interesting idea. Levin, the founder of Credit.com and former director of the New Jersey Division of Consumer Affairs, suggests a change in the way we prepare for college. In a recent article that appeared in the Huffington Post “A National Service Corps Can Solve the Student Loan Crisis“, he wrote that “Education is the life-blood of a civilization, and excessive debt is like cancer.”
Levin has a great idea, and a creative idea, in his proposal that a national service corps could be the solution to the student loan debt crisis. But will it work? He points out that as a country we can’t plan on borrowing to pay for a college education, but that students and parents need to have better coaching. Guidance counselors already have too much to do to become qualified financial advisors and financial aid officers work for the college and it’s their job to charge as much as they can.
Start by working with an education consultant early on — when your child is in grade school, not when they are filling out college applications. Education consultants have the specialized knowledge to help answer the three big questions:
- How can I get my child into the best possible educational program available
- What’s the best method to save for college?
- How do we qualify for the most – and best – financial aid package?
The Federal Pell Grant Program provides need-based grants to low-income undergraduates and certain post-baccalaureate students. But recently Congress voted to reduce the number of people who can qualify. There are now 400,000 fewer students who will be considered eligible for Pell Grants. Among those who will lose out on Pell Grants this summer are at least 65,000 new college students without high school diplomas and 63,000 who have spent more than six years in college, according to this article published recently in San Jose Mercury News. Changes in income requirements will reduce or eliminate grants for nearly 300,000 others.
The “6-Year Rule” requires that your education be completed in 6 years, regardless of extenuating circumstances and this Rule hurts a lot of unwitting people. It penalizes single moms who work; it penalizes people who have been laid off and have to take any available temporary position; and it penalizes people whose local high schools didn’t prepare them for college properly, just to cite a few examples of college students who may not be able to complete their undergraduate degrees within six years. Combine this reduction in available financial aid with other federal and state financial aid reductions, and you have a situation in which fewer people will qualify for financial aid, and of those that do qualify, there will be less financial aid available.
President Obama has said that “our children need higher education in order to compete for careers in our global market place.” One thing is for sure, whether or not you agree with Obama, our government has big deficits at all levels, and almost all budgets are being cut – education funds being only one area the government is cutting back. We all need to write our senators and congressmen and women and let them know we need this financial support as a nation to help us compete in the world marketplace. And if you are a parent of a child who will be going to college one of these days, you have even more important reasons for petitioning your representatives on these issues.
In the meantime, in order to get the most financial aid possible, you could probably use help in completing the FAFSA and CSS forms to make sure you put your best financial foot forward to help your children qualify for the most possible financial aid. For many, financial aid is the key to getting that necessary education without having to be saddled with crushing debt when they graduate.
If you have questions about this or other issues related to figuring out how you will pay for your child’s education, give me a call or send an email.
Despite the numerous articles I’ve read in the past year about the current student loan debt crisis, there have been few stories focused on the schools themselves — why their tuition is so high proportionate to the average family income, and why they keep raising it. It’s so unusual, in fact, that it made headlines recently when one Florida school (Barry University) announced a tuition freeze — especially because at the same time two major Florida state schools (Florida State University and the University of Florida) announced a 15% tuition hike!
College tuition has gone up 6-8% a year, on average, for many years while the average annual inflation rate has only been about 3%. That means that college tuition is outpacing inflation by about 3% per year. Is it any wonder that this has become a crisis situation? Our kids and grandkids are graduating from college saddled in debt and facing a stagnant employment situation. It’s a Catch-22 situation. So, it becomes “big news” when a college decides not to raise its tuition for one year.
What will the cost of a college education be when your two-year-old or first-grader is filling out college applications? What is your plan to make sure your children get a college degree? Will you be moving to Florida? Do you plan to become part of the crisis by relying on borrowed money to fund your child’s education? Maybe it’s time to think outside the box. Let me help you come up with a better plan, one that fits your family’s situation and goals for your children, and maximizes every tax benefit you are entitled to. Contact me today.
This article in the New York Times, “A Generation Hobbled by the Soaring Cost of College,” attempts to explain the depth and breadth of the problem students and their families face today in trying to pay for college — the main problem being that after graduation, they are saddled with an alarming amount of student loan debt which they are then paying back for many, many years.
According to the writers of the article, Andrew Martin and Andrew W. Lehren, this problem is made even worse because the job prospects for college graduate are rather dim. Approximately 50% of graduates cannot find employment for at least one year after graduation. In many cases, colleges sell the incoming student and the family on the financial value of a college education, but do not also point out how much money the graduate will have to pay for many years into the future, and that they may have to postpone buying a home, getting married, and having children.
The authors cite many examples of graduates who can’t find “real” jobs. One young college grad, Kelsey Griffith, is working at two restaurants, earning only $225 per week, which she uses to pay for her $900 per month college loan payment; she has $120,000 in outstanding student loans. And did Ms. Griffith go to an expensive Ivy League school? No, she attended Ohio Northern University, a church-related institution, identified as having the most indebted recent college grads in the U.S.
What’s the solution? It is important to note that college debt can not be eliminated by declaring bankruptcy. Kelsey’s Griffith’s mother took out an insurance policy on her daughter’s life, just to be on the safe side, because she is the co-signer of Kelsey’s loans. But those are solutions AFTER the fact. A better solution is to develop a plan for your children while they are very young, to identify the best way to start accumulating money now that won’t negatively affect your child’s eligibility for scholarships and financial aid, and to prepare your child to get into the best schools.
People don’t usually realize that the financial aid office at a college is not working for them, the parents of college students and the college students themselves. The college financial aid office staff work for the college, not for you. The more YOU pay, the better they are doing their jobs, in the eyes of the college administrators. And there’s a lot of “fuzzy math” and fine print when it comes to college financial aid promises and packages, according to this article from Bloomberg Businessweek: http://www.businessweek.com/printer/articles/23572-the-fuzzy-math-in-financial-aid-offers — in fact, as the author, Janet Lorin, discloses, the format for financial aid packages “varies by school, making it difficult to comparison shop: Loans and grants offered by the federal government are lumped together with the school’s scholarships, and the statements often don’t include information on interest rates.”
My point is, as always, buyer beware! You need to know the right questions to ask, and you need to know how best to position your family and your college-bound child so that you will be eligible for the most financial aid, as well as scholarships. You need to start the process early. And you need to know how to navigate the complexities. In short, you may need some professional guidance.
Helping people save money on taxes is a good thing. That’s what I like what I do. And one of the things I do is caution people not to believe everything they read. This article makes suggestions about two types of savings vehicles — Coverdell and 529 Plans. Though the suggestions may be good in general, these savings options may not provide the same benefit for you that they might provide for a family who is looking for ways to put aside money to cover the cost of their child’s education, while getting the maximum tax breaks.
For the most part, money invested in a Coverdell or 529 is invested in mutual funds. Putting aside for now what the long-term prospects are for the economy, let’s look at two considerations that have a more direct impact on families who are trying to accumulate funds to pay for their children’s education:
Coverdells can be a good thing, and can seem like a sure thing, because you can put $2,000 away per year, free of tax on the accumulation, for each of your children for their educational expenses. In addition, this money can be used for many legitimate K-12 expenses. However, the amount one can put into these plans is small, relatively speaking, and won’t accumulate much, unless it’s started when a child is very young. In a bad economy, the maintenance fees for the account may even negate any interest earned.
Likewise, 529 plans, in general, are a good thing because a parent or grandparent can contribute up to $13,000 a year, (to avoid gift taxes,) to a child’s 529 plan and the child, or owner of the 529, will not be taxed on that “income.” The not-so-good thing about 529 plans is that the money in the 529 will reduce the amount of financial aid your child will qualify for when completing the financial aid forms. If the owner dies before the funds are dispersed for educational purposes, there could be an estate tax.
Good thing? Bad thing? A lot depends upon your own particular situation. I always suggest that parents speak with a qualified educational consultant in advance of starting these plans. Planning for your child’s educational expenses should be part of your family’s overall financial plan.
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