College Funding: Three Steps for Getting Your Ducks in a Row

After retirement, college planning is the second most common financial concern for many families. That is not a surprise: collectively, American owe $1.4 trillion in student loan debt, and an average 2016 graduate owed $37,172 by the time he or she walked across the stage to collect a diploma. Student loans don’t go away until they are repaid, which means that families must think long and hard before they allow their high-school aged kids to sign financing agreements that will have decade-long consequences.

1. Save for college.

In theory, we understand that saving for college is a good idea. In practice, today’s needs and desires can feel more urgent than the thought of paying for college way down the line. I recommend setting up a qualified 529 plan and automatically transferring a set amount from every paycheck – good habits work best when they are on autopilot.

There are two little-known bits of advice when it comes to the 529 plans. First, you are allowed to continue contributing to the plan even after your child starts college. Doing so can help you fund more of his or her education with pre-tax dollars. The best website I’ve seen for information about how 529 plans work is Joe Hurley’s site www.savingforcollege.com.

Second, talk to your tax preparer or financial planner about getting the most out of your tax credits. For example, many parents tap the 529 funds each year before covering any educational expenses out of pocket. If they opted to pay the first $4,000 out of pocket, they would get the benefit of the full American Opportunity Credit.

2. Research scholarships and grants.

If I could get a giant billboard and put it in front of every parent, that billboard would say “Research scholarships and grants NOW!” Too many families wait until their child’s junior or even senior year before they delve into the world of scholarships. While they may be able to have moderate success, they are at a disadvantage compared to the kids who started the process in 8th grade. Early research allows your child to choose the right extracurricular activities and educational credits to position him or her as a prime candidate for scholarships.

The key to getting more scholarship money is simple: apply, apply, apply! Kids often disqualify themselves by thinking they are not smart/involved/experienced/interesting/qualified enough – as a result, thousands of dollars in scholarship funds go unclaimed every year. Help your child choose the scholarships for which he or she is a good fit. Don’t limit yourself to one or two large-payout opportunities: multiple smaller scholarships put together can make a difference, too.
Finally, set up a system to stay organized. Multiple scholarship applications mean that your child will have to track submission deadlines, letters of reference, interview dates, and all kinds of other paperwork. Create a filing system and a monitoring method to stay on track and minimize last-minute rush.

3. Understand student loans and financial aid.

Financial aid should come with its own textbook! The intricacies of the application process, combined with the complex lingo and dozens of abbreviations, are enough to get many qualified families to give up on the process. My advice? Take it one step at a time, and don’t get discouraged too quickly. There are excellent online resources to guide your efforts: FinAid and Federal Student Aid are just two to get you started.

Keep in mind that public schools aren’t always less expensive than private ones if you consider scholarships, grants, and financial aid. Keep your options open, and don’t eliminate possibilities without researching them first.

Last point on student loans: if you are thinking about loans, read the fine print and be sure that your child has a plan for paying back the debt after graduation. A vague intention along the lines of “I will just get a job” won’t do! Develop a budget, calculate the minimum annual salary that would be required to support a modest lifestyle and loan repayments, and be sure the math looks reasonable. Of course, your budget is just an estimate: living expenses and circumstances will change in 4 years. However, a roughly reasonable (if unprecise) blueprint is still better than nothing.

College planning: getting your ducks in a row

In closing, 529 plans, scholarships and financial aid are just the beginning of giving your child the opportunity to get the most out of college education. You must also teach him or her good financial habits. No matter how well-funded your savings plan is, your child will have to make responsible money decisions once he or she is in college. That won’t happen without a solid foundation in budgeting, and good saving habits. Your child must also understand that credit cards are not free money! The goal of college planning is to give your child maximum opportunities with minimal financial regrets, so approach the process accordingly – and be sure to involve him or her in the process.

Image credit: https://cdn2.hubspot.net/hubfs/203330/Blog/ducks.jpg