It's always a good time to talk about how to pay for college. Thousands of young adults have recently started college. Social media newsfeeds were filled with dorm room photos and roommate selfies. It’s easy to only see the smiles, excitement and emotional goodbyes, but I see something that isn’t in those pictures. I know there is likely someone in that young person’s life that is bracing for tuition bills. Some are more prepared than others. That’s why I was happy to discuss options to fund college and, perhaps most importantly, how NOT to fund college.
As a financial advisor for the better part of 30 years, I know the biggest financial burden you have is adequately funding your retirement years. However, many parents get so focused on figuring out how to send their children to college they make decisions that could harm their retirement plans. While there are many variables that go into your personal plan, my experience has been that there is not just one way that people pay for their kids’ college education. It is usually some combination of savings, grants, scholarships, financial aid and student loans. That’s what I want to dive deeper into for you.
Important resources
The Department of Education and many states offer resources for helping you navigate the numerous college funding options.
- collegescorecard.ed.gov – This site includes links to organizations and agencies on the state level that can provide assistance with grants, scholarships and financial aid.
- Free Application for Federal Student Aid – The FAFSA application is one of your first steps to take when planning for funding. A parent and student will want to complete the FAFSA application and indicate the colleges they would like to have it submitted to. The colleges will then respond back in a few weeks with a list of potential federal and state financial aid packages available. Then you are ready to contact the admissions office of the college to formally apply for financial aid.
The early starters
I have been asked if people really start saving for college when their child is a baby or is that just in commercials. While not everyone starts a college savings account as soon as they get home from the hospital, I would encourage new parents to start as soon as possible for the sole reason that compound interest is one of the most powerful financial tools, and the earlier you start, the more time it has to grow. The other advantage to setting up a college savings fund as soon as possible is that it helps form a positive financial habit of setting money aside on a periodic basis.
The late starters
More often than not, I get the opposite question. My children are X years old, is it too late to start saving? My answer to this is always this: The best time to start saving for college was yesterday. The next best time to start saving for college is today. A longer horizon to the start of college gives your savings more time to grow, but even if your child is already in high school, any funds you can set aside will help with future college costs.
Additionally, if your child is in high school, NOW is the time to talk with the college admission counselors at their high school. These individuals should be able to help you navigate through the various grants, scholarships and other types of financial aid available for your child. Getting a head start is an important part of the college funding process.
The risk takers
Parents getting a later start to college planning don’t scare me as much as the parents that plan to pay for college in a way that puts themselves at more financial risk. It worries me when I hear of people planning to borrow from the equity of their home. Or worse, when people borrow from their retirement accounts to pay for their child’s tuition. I completely get the desire of a parent to provide their child with a college education, but I get really concerned when I hear about people not prioritizing their retirement needs and sacrificing their personal assets to do so. There are scholarships for college, but there are no scholarships for retirement.
While you can certainly open college savings accounts on your own and do the FAFSA application, understanding the long-term impact from certain decisions or seeking the guidance of a financial professional can be a benefit when it comes to planning for college. The right financial professional can serve as a coach. A coach teaches, a coach helps guide us to our financial objectives and, most importantly, a coach will hold us accountable. This accountability is often in the form of periodic meetings or financial planning reviews to measure your progress in reaching the financial goals you want to achieve, such as saving for college and retirement. A good coach can cheer you on and give you that swift kick in the pants we all periodically need.
This material is for informational use only and does not constitute advice or the solicitation of any product or service.
Greg Patterson offers Advisory Services through Concourse Financial Group Advisors (DBA Simplicity AFG), a Registered Investment Advisor and division of Concourse Financial Group. Securities offered through Concourse Financial Group Securities (DBA Simplicity AFG), a Registered Broker/Dealer and Member FINRA/SIPC.
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