Benjamin Franklin once said that “an ounce of prevention is worth a pound of cure”. While he wrote this in reference to fire safety, his assertion that it’s easier to stop something from happening in the first place than to repair the damage after it has occurred can be applied to multiple scenarios.
Take, for instance, college planning. Would you rather plan beforehand, or clean up afterward?
We instinctively know that planning ahead of time is more beneficial than figuring things out after the fact. Making it happen is not always that simple.
On the bright side, whether you find yourself with years to plan or less than twelve months to get things in order, there are several things you can start right now to minimize frustration and the financial burden that often comes with preparing your child for college.
College Planning
Much like the fires that Franklin was speaking about, many families don’t focus on paying for college until it’s too late.
The days are long but the years are short, as any parent with college-age kids can attest. The years go by quickly and just because you have a long time until your toddler heads off to university doesn’t mean you should hold off on planning for their future.
When it comes to planning for college, here are a few things to consider:
- Not every child needs to go to a four-year school. According to a Georgetown University study, by 2020 35% of job openings will require at least a bachelor’s degree, 30% will require some college or an associate’s degree, and 36% will not require education beyond high school.
- Not everyone who starts college ends up graduating. Fewer than 40% of first time college enrollees graduate in four years.
- Scholarships can help make the overall college expenses seem achievable. Scholarships.com says: Sure, you may not pay for ALL of your school with scholarships, but even $3,000 or $4,000 per year would be a big help.
- State and federal grants can help to offset the bills. Take advantage of this free money from the government and from your state as they don’t require repayment.
- Students who work have better time management skills and value their education better than those students who are ‘sent to’ school.
With that in mind, here are a few places you should start no matter what path your child may take pursuing higher education.
529 Plan
The first order of business in planning for college is to start saving early and one way to do that is by contributing to a 529 plan. The 529 plan is a savings option that offers tax deferral as it’s main benefit. In many states, there is at least one 529 college saving plan option available for those intending to pay for their college tuition.
Before starting your contributions, it is best to get a rough estimate of what is needed for the entire duration of the college degree. Once you have that information, we encourage saving at least 50% of what is needed before your child even steps foot on campus.
Why only 50%? Lots of reasons. Kids have a mind of their own and may not want to attend college. They may get a full scholarship. The government could change the rules. Just like the previous considerations, anything could happen. You don’t want to be in a position where you are penalized for taking money out of the account.
FAFSA
The Free Application for Federal Student Aid (FAFSA) is also another facet of the college planning process. It is an annual form that parents complete to determine their student’s eligibility for financial aid.
The most common types of financial aid available are:
- Pell Grants
- Federal Work-Study Program
- Subsidized and Unsubsidized Loans
Since this application is the gateway to almost all your financial aid, be sure to prepare for it ahead of time. This means looking at your income, assets and taxes ahead of time. Having a lower income about two years prior to your student leaving for college will help with their aid package.
Student Loan Planning
For those who are not able to plan ahead of time, or if you have just graduated and are facing a mound of school debt, Student Loan Planning is your chance to clean up “after the fire”.
When approaching the Student Loan Planning conversation, it’s important to be honest about what you’re up against. Student loan debt weighs you down on an emotional level and can often hinder future goals like buying a home or starting a family.
Now, that’s not to say that student loans have to stick around forever, because there are plenty of success stories where grads have paid off thousands (and in some cases hundreds of thousands) in just a few years.
The challenge is in creating a concrete plan that accounts for the amount of debt taken out with a strategy to pay it off as soon as possible.
The average college graduate leaves school owing $28,400 — which can take nearly 20 years to be paid off. Think about that amount. It’s about the same as a new car. Would you pay off a car in 20 years? Certainly not! You’d buckle down and pay it off in five.
Here are some small steps that can help.
- Don’t make the problem worse than it already is. Many students consider continuing their education with a Master’s Degree. Without practical work experience as support, an advanced degree may be unnecessary. (Unless you are going to be a doctor or lawyer.) Don’t forget that some employers will help you pay for advanced education. You are likely better off to wait, start working and pay off your current loans before taking out new ones.
- Loans could be forgiven if you qualify. There are a number of jobs that can result in forgiveness for student loan balances after a certain period of time. Federal programs like Public Service Loan Forgiveness that focus on work in government, education, and the nonprofit sector, as well as state-based programs for teachers, healthcare professionals, and other industries, are all viable options.
- Purposely live on less. Encourage your grad to live on a set budget and put any income above that budgeted amount straight into the student loans. Live like a college student now so you don’t have to live like a college student later.
Whether college is an expense happening in 10+ years or less than 10 months, the key takeaway in all of this is the importance of planning ahead. Doing so will save you years of frustration and prevent hundreds (possibly thousands) of dollars from leaving your bank account.
Could you use a hand in planning for your child’s college-related expenses? We should talk! Click here to schedule a complimentary intro meeting to get started.
Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.
Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.