Personal Finance and Investing

Getting a good college education is one of the most important things in a young person’s life. Making sure that college education gets paid for is one of the most important responsibilities of a parent’s life, yet most of us do an absolutely horrible job saving for our children’s college education.

Today I’d like to share a foolproof plan that every parent can follow to make sure there is money set aside when the time comes for your child to go away to college.

It’s hard to calculate an exact amount of how much money you’ll need because college education costs keep rising, seemingly higher than the rate of inflation. For instance, today Harvard cost about $60,000 a year, but how much will it cost 18 years from now? That’s anybody’s guess.

Plus, not everybody can go to Harvard or other elite private universities. State colleges cost substantially less money and community colleges don’t cost hardly anything at all. So there’s quite a range of options you need to be prepared for.

The first thing you should do is open a 529 college savings account with your state, that is, the state in which you live. These are free accounts to open that allow you to invest money that your children can use for college expenses tax-free when the time comes. They’re also very easy to open, just fill out a form that you can get online.

These plans are administered by the state and an investment adviser that the state has chosen themselves, usually a mutual fund company. You only have a few investment options but be sure to choose the one the most closely mimics a broad stock market index fund like an S&P 500 index fund because that way you will get to take advantage of the historic 7% to 8% returns that the stock market usually throw off as a whole.

Next, determine how much money you can afford to set aside each month into the 529 college savings account. Set it up to direct deposit that money directly into the account either from your paycheck at your job or through your checking account. The key is to set this up so that it does it automatically so that you can set it and forget about it.

It doesn’t matter how much money you set aside each month, five dollars, $20, $50, $100, whatever you can afford. The key is that you continue to make monthly contributions, month after month, automatically.

Finally, every year on your child’s birthday commit yourself to adding an additional $100 to the 529 college savings account. Also, especially when your child is very young and doesn’t know the difference, ask relatives to contribute money to the account on your child’s birthday as well instead of getting them a birthday present.

When your kid is two years old, they don’t know what a gift is so why give them one? Instead have people take the money they would’ve spent on a silly baby gift and put it in a college savings account. You’d be amazed how much money you can accumulate this way before your kid is even five years old!

Besides buying a house, college is the most expensive thing most of us will ever pay for in our lives. With this simple plan, now you can be sure that there will be a nice chunk of money waiting when your kid needs it.

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Permanent life insurance, either universal life or whole life, written on one of the parents is excellent as either a primary or alternate funding vehicle to pay for a child’s college education. There are several good reasons.

1. Life insurance is a “self-completing” plan. If a parent dies while the child is still young, life insurance would pay an income tax-free death benefit to the beneficiary (presumably the surviving spouse) who can use that money for the child’s college education.
2. Cash value in a life policy will not only grow tax-deferred, but can be removed tax-free (within limits) for college expenses, through policy loans.
3. After borrowing from the policy, it will still have cash value that can grow for years to come. When the parent is in retirement, he or she can access that cash through withdrawals and policy loans. This is using your policy to its greatest potential.
4. Also, money in a permanent policy is not a countable asset when a child applies for college financial aid.

Self-completion, locked-in investment gains, tax-favored access to cash throughout the owner’s life, and exemption from countable assets are significant values to the client.

Furthermore, the client may choose to have his children take out student loans to pay for college knowing that the interest rate is very low and that the money in the life policy will grow at a better rate. This provides leverage and options for the parent, and the ability to give more money to the child tax-free later on, to pay off the student loans and then some.

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One of the best ways to save for your child’s future college expenses is by setting up a plan for savings through New York State’s 529 College Savings Program.

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By now, most students have made up their minds about where they are going to college in the fall, although a few are still on waitlists. In recent years, some interesting trends have become apparent in college planning and college admissions. Here are some observations that may affect your student:

1. High school counselors are being cut at many public schools causing the counseling loads to increase. The average high school counselor works with 450 students and spends 28% of his or her time on college planning. More families are turning to educational consultants and college planners because of the individual attention they can provide.

2. Public universities have become more expensive due to budget cuts and rising tuition. In addition to rising tuition, many state universities are saving money by limiting classes. Some feel this is why students are taking an average of 6.2 years to graduate. For parents, this means an additional 2 years of college expenses. Many students are including some private schools that are committed to seeing their students graduate in 4 years on their college lists.

3. The Ivy League schools are now accepting less than 10% of their applicants. This means that students who aim for these schools cannot expect to get in with only top grades and test scores. A niche is almost always a necessity. Guiding students in their extracurricular activities can make a difference.

4. International students are being sought after by colleges in the U.S, This is increasing the competition in college admissions for all students. Many colleges are actively recruiting international students who come from wealthy families who can pay the full tuition.

5. Students whose families can pay the full amount are having more success with college admissions than those who require financial aid. Some schools are no longer able to be need-blind in accepting students. Paying for college has become a problem for a much larger segment of the population. Many parents, however, are turning to college planners who are providing some very valuable guidance to help make college more affordable.

6. Applications have continued to rise at almost every school in the U.S. It has become quite common for students to apply to a large number of schools. Applying to as many as 15 or 20 schools is not out of the question for some. Many students feel they need the additional colleges because of the competition.

7. More students are applying Early Decision even though they are not always sure it is the school they want to attend. Since Early Decision is binding, this is a problem for both students and colleges. Early Decision and Early Action continue to be debated as to whom they benefit the most.

8. More students are considering a gap year to give the economy a chance to rebound before they enter college. A gap year can be beneficial to students who may not be quite ready for college. It is also an opportunity for students to participate in a unique experience that they might not have otherwise.

9. Women continue to have a bigger struggle in college admissions than men. Many schools today have a ratio of 60:40 women to men. Therefore, more men seem to be accepted at schools with lower grades and test scores than women.

While these are observations from the 2010 college admissions period, it is important for parents to know about these trends in order to guide their children as they begin to think about college.

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Parents who have a child going to college in the next year or so are paying particular attention to cost due to the current economic uncertainties. Many are feeling stressed, confused and intimidated about applying for financial aid. While this can sometimes be a daunting task, it may be easier than you think. Getting the facts and understanding what financial aid is all about will relieve some of your anxiety.

Financial aid is an essential component of any college education. Most people would not even be able to attend college without financial assistance. Financial aid does not only cover tuition, room and board, but can be used for other college expenses as well. Financial aid is provided by federal, state, institutional, or private sources and may consist of grants, loans, work-study, or scholarships. Financial aid is awarded based on demonstrated financial need and availability of funds.

Financial aid is available for students in a variety of circumstances so parents should always complete an FAFSA application. Many families with an income in the six digits receive financial aid. In addition, if your family has experienced a significant financial change, you should contact a financial officer at the school your child is planning to attend and explain the situation. Most colleges want to work with you and make attending their school possible.

Loans are financial assistance that must be repaid. However, unlike other kinds of loans, need-based student loans do not have to be repaid until your student graduates from college. Loans for college are available at low interest rates to students and parents. Loans must be paid back. You do not pay back grants. Some loans are based on financial need and others are available regardless of your financial circumstances.

College scholarships are available to students who have demonstrated considerable merit or financial need. Some are awarded to students with special circumstances. For example, college scholarships are awarded to qualified students with moderate to profound hearing loss to continue their education at undergraduate and graduate levels. Any student who feels that he or she cannot afford a college education should seek out college scholarships, because the funds are available for those who look for them. Students must demonstrate a serious commitment to academic excellence.

Merit-based aid does not require a FAFSA but it is strongly encouraged, as these scholarships rarely pay the entire cost of attendance. Most scholarships do not require a separate application. Merit programs, including scholarship programs, help students who have special abilities. Often, you do not have to show financial need to receive money through merit-based programs.

College scholarships are out there waiting for you to find them. So take the time to look for yours. College scholarships are available as a result of taxes and donations given by corporations, private companies as well as many religious and educational associations. A lot of companies like to donate money because this way they can get their taxes reduced. College Scholarships are a form of financial aid and large colleges and universities can become more of a possibility just by applying for a college scholarship in many different areas, subjects, and interests.

Too often families only encourage their children to apply to state universities because they feel that everything else is unaffordable. White private schools are usually more expensive, they often provide financial aid and scholarships that can sometimes make attending them cost less than public schools. Educational consultants are a great resource for helping you find schools that are generous with their financial aid and non-need based aid. You can find a qualified educational consultant in your state by going to http://www.hecaonline.org.

Paying for a college education with loans and scholarships is well worth the investment. Experts say that college graduates will earn over twice as much money in their lifetime as high school graduates. Search for college scholarships that are right for you, apply for financial aid, and look into low interest loans so that going to college will not just be a dream, but a reality.

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