What exactly is college planning?Submitted by Financial Planning Solutions, LLC on August 2nd, 2018
With the cost of a college education continuing to rise, it is becoming much more important for one to have a college plan. If one has a toddler and discretionary income, saving for college is the way to go. With time on your side, a systematic investment plan over time can do wonders in helping fund a college education. We help set these up all the time for clients with young children.
If one has a child in high school, the clock is ticking a bit faster and unless one has a lot of discretionary income (or has set aside funds), a college plan is imperative.
Without a plan, one can make some irreversible mistakes. One of which is sacrificing and jeopardizing their own retirement for their child's college education.
So what exactly is a college plan? Isn't it as simple as a child taking the SAT's and applying to the schools they are interested in?
Well, that's one way to go about it but probably not the wisest financially.
If one attends a private school for example at a cost of 50,000 plus a year, that is roughly a $200,000 education. With student loans now exceeding the 1 trillion mark, burdening oneself with that level of debt is not the best way to start off in life.
We feel that one should attempt to not have more student loan debt when they graduate of more than their first year's income. They get a job earning $65,000 out of school, then that should be their maximum loan debt.
Of course this isn't always realistic. What if they want to go to Yale and the parent's income is too high to receive any need based financial aid?
This is where true college planning comes in. By having a college funding plan, we can ascertain the best way to fund a college education.
Bear in mind, that there are companies out there that claim to be able to help a student get the most financial aid possible by moving the parent's assets around. This usually involves buying certain insurance type products. What we have found is this generally does not ensure a better financial aid package.
The reason being is the colleges look at the parent's income much more stringently than their assets. Since it generally isn't practical for a parent to quit their job to maximize a financial aid package, more sensible strategies should be looked at.
So here is my advice. First, determine if a high cost school is really necessary in your child obtaining a job after graduating. When you decide to buy a house, the mortgage lender looks at your income and assets (as well as your credit report) and determines how much of a house you can afford. Colleges don't work that way (although they should) as they could care less how you pay for it or if you have loans for 20 years. It is up to us to be realistic. We might want that 4 bedroom 3 bath 3500 sq. ft. home but if we can't afford it we can't afford it. It's pretty simple.
We are happy to sit down with you and your child to determine the best college plan for your family.
Just as when house hunting it is easy to fall in love with a home you can't afford, it is easy to get caught up in the school selection process.
We are here to help you make sensible decisions on how to pay for this important financial goal.
To good health!
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions,LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client.
Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.