College financial planning is about more than saving money. It’s also about reducing the cost of college and reducing the burden of future student loan repayment. There are three phases to college financial planning:
- Saving up for college
- Paying the cost of college
- Paying off student loan debt
If you have college-bound children and plan to help pay for school, this information can help you best prepare and pay for college costs.
Saving up for college
Many people equate saving up for college as college financial planning. However, we believe for any savings goal you should first calculate how much will need. The average cost of a four-year college education is $80,000– $180,000. Once you have the exact target in mind, you need to know how much you need to save, and the rate of return you need to achieve to reach your goal amount.
You may decide to target just half of the projected cost of a 4-year in-state school, or you may have higher aspirations. After you have run the numbers, you may see that you may have to use several different funding vehicles to achieve those amounts.
There are several choices in types of accounts to saving for college, such as the 529 education savings plan. Each account type has its own rules and tax consequences, and even every 529 plan is different. You aren’t restricted to your state’s saving plan either. Saving in the best account type for you can decrease how much you must save.
Opting for simple answers can easily leave you wanting. Unlike retirement dates that can be flexible, we haven’t heard of parents telling their children to wait a few more years to go to college so that the parents can save more.
Then there is the tradeoff between retirement and college savings. You can’t take a loan out for retirement but can for your children’s college. Assessing your resources now will help determine the appropriate balance for you.
Paying the cost of college
An underappreciated phase of college financial planning is the college selection phase. This decision creates the loans that so many student loan repayors often didn’t consider. Our software can help you determine the true cost of college for your child. Many children and parents have no idea how costs may be shown on offer letters. What may appear to be a scholarship or some student work in the library, is simply student loans disguised. Which of the colleges has the least negative impact on your child’s and possible your future finances. Are you helping your child take a return-on-investment view? A career may appear to be high paying, until one considers the location of those careers and the after-tax and benefit cost, net income.
While many people think of a 4-year degree. Many students find themselves taking more than 4 years to graduate. How much will unsubsidized vs. subsidized loans make? What about the cost of a graduate degree. Should you take out Parent Plus loans? Do you expect that your child will pay those loans.
Understanding what you are signing up for when you accept an offer is important as it may lead you into student loan debt.
Student loan debt repayment
Most clients we speak with bemoan student loan debt. Many find themselves seeking forbearance and income-based repayments to reduce the current burden, but even those options do not mean that the loan will go away. While we have helped some clients pursue public student loan forgiveness, most people will not be so fortunate. Let us help you navigate your choices.
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