Let’s link arms and walk through the dark forest of college planning together, shall we?
Whether you’re expecting your first child, navigating parenting teenagers, or helping a child in your life achieve her higher education goals, this post is for you. The emerald city might appear distant on the horizon, but the time has never been better to get started on the right path.
Over the years, we’ve blogged about college funding multiple times…so consider this your entry into the rabbit hole of advice about “How Am I Going to Pay for College?”
Outline the path, then follow the yellow brick road.
You likely have a lot of questions about how to get started. Let’s address these!
When should I start saving for my children’s college?
The answer is typically “now,” but this calculator gives a great illustration of the impact of saving small amounts, early and often.
How much will college cost?
This is a great question, and not an easy thing to estimate. If we use historical data, college expenses overall (tuition, room and board, out-of-state expenses, and books) have grown at a rate of 5-8% annually, depending on whom you ask. This outpaces general inflation, and probably your cost-of-living raise by a factor of two. Assuming an annual 5% increase, the average four-year college degree that costs $113,000 today will cost $258,000 in 17 years.* So your investments will have to work really hard to keep up with this kind of price inflation!
How do I get started?
Take a look at one of our prior posts where we break the path down into 5 manageable steps to take.
What are my savings options?
A tax-qualified education plan is a savings vehicle that gives you tax advantages when saving for college. We review 529 plans in this blog post. A couple of the top options include:
- CollegeAmerica is only offered through a financial advisor. The mutual fund fees tend to be high, and we believe that you can do this yourself, or with help from your advisor, but using the (less expensive) Invest529 plan option.
- Invest529 is a self-direct option – but you can ask your advisor to help you with investment allocations (or invest in a target date fund) and not pay the higher fees associated with CollegeAmerica.
Not sure if you need a 529? Go to the Virginia529 site to review the benefits.
Can I get help? In most cases, “yes.”
Characters you’ll meet on your path to help. FAFSA, EFC, loans, grants, scholarships. The information can be overwhelming, but it’s really all about leveraging other people’s money to help defray the costs – at least temporarily.
FAFSA is the Free Application for Federal Student Aid that you’ll fill out your student’s senior year. You use the form to apply for financial aid (grants, work-study, and loans) to pay for college or career school. But you don’t have to wait until it’s too late. By projecting your EFC (Expected Family Contribution), you can anticipate how much to save. Here’s a calculator to estimate that.
What if your child decides college isn’t for her?
You don’t lose your money. You can designate another beneficiary of the 529 plan to anyone else in the child’s immediate family (including yourself) and pay no penalty. With the passing of the Tax Cuts and Jobs Act or the Trump Tax Plan, you can now use up to $10,000 per year from a 529 plan to fund private, religious, and even some public K-12 tuition.
Twists, turns, and flying monkeys!
Things come up in life and we want you to be ready. While parents typically want to help their children defray the cost of college, if it’s a choice between which to fund first – your children’s college or your retirement – the answer may be your retirement. A meeting with your fee-only financial planner will help you balance these often-competing demands.
There’s no place like home…
…to talk about and plan for college. You’ll want to get your kids engaged and excited about their education as early as possible. Remind grandparents and friends that the toy they want to purchase for the child’s birthday may go in the donation pile as soon as next Monday, but a gift to their college account can compound over time. Raising your children to be mindful about their present wants and future wants is one step on the path to mindful parenting.
If you’re ready to get started on the journey, we’re here to help.
* How Much Will College Cost in 17 Years: Barron’s – May 3, 2019