A Practical Approach to Paying for College

Paying for college creates a financial planning dilemma for many families: How can working parents save for their own retirement while also saving for their children’s educations? As a profession, financial planners have not always been as helpful as we should have been in this area. College planning advice has focused on saving for retirement first and then putting whatever resources are left toward education expenses. The old cliché has always been that you can get student loans for college but there is no such thing as a retirement loan, and usually that was the end of it. While that advice is not necessarily incorrect, it ignores the family dynamics involved in education planning decisions. Parents still want to ensure that their children receive the best education possible. So, with inadequate savings and little planning, they borrow, and their children borrow, funds to send their kids to their dream colleges with little regard to what that debt will mean to their retirement and their children’s futures.

College is the only major purchase we tend to make without a budget and a careful analysis of what we can afford. Traditionally, we help our students get accepted to the best school possible and then worry about how to pay for it. This traditional approach is backwards and has led to students and families stuck with unaffordable student loans. Here’s a more practical approach:

• The key to successfully funding your children’s educations is to begin by determining in advance how much tuition you, and your child, can reasonably afford to spend, and shop for schools according to that budget.
• The process should begin when the student is a freshman or sophomore in high school. Assess your resources and consider all the possible sources for funding college education expenses.
• Research and understand the financial aid and student loan process so that you know what programs may or may not help your family, and what financial moves may be most beneficial.
• Discussing finances and budgets with your college – bound student should be part of the discussion and part of the college placement process. Set realistic expectations and talk with them about the importance of spending within the family’s means.
• As part of the college selection and the budgeting process, discuss possible career paths and outcomes with your student. The goal should be for your student to finish undergraduate with no more in student loans than one – years’ worth of their expected salary.
• Keep in mind that resources should include savings that is earmarked specifically for education, like 529 plans, along with funds from your monthly cash flow while your student is in college, funds your student may earn from work study or part – time jobs, support from grandparents or other family members, financial aid, merit – based scholarships, and Federal student loans.
• Financial planning for college should be part of a wholistic financial plan that encompasses your retirement and other goals along with saving and spending for your children’s educations.

Ultimately, the goal is to develop a budget for college that allows you to see how you will pay for room and board each year without totally neglecting your other financial goals. The pieces are difficult, but not impossible, to put together. If you or someone you know is struggling with how to pay for their children’s education, please give our office a call and we will help develop a plan.