Determining your best strategy to pay for college and stay up to speed for retirement can be a confusing and complex task. The media, friends, family, co-workers and financial advisors are all common sources of information on college funding. However, the problem facing parents today is not a lack of information. If anything, there’s so much content available today that many parents find themselves overwhelmed and end up procrastinating or avoiding planning all together. You don’t need more information. You need good advice. But, the problem with mass content is that it is unable to speak to your own unique situation, which means that taking blanket advice could end up costing rather than saving you money. To illustrate, let’s look at the flaws of some well-intentioned college advice:
“It’s all about the FAFSA”
Parents of high school seniors are bombarded with information regarding the FAFSA (Free Application for Federal Student Aid) and are told to go online and complete it without delay as soon as October rolls around. This isn’t necessarily bad information and will likely be good advice for many parents. But, what if your child is most interested in attending one of 260+ colleges that also utilizes the CSS Profile (aid form) to determine your student’s eligibility for an institution’s own lucrative grants and scholarships? Families looking at these types of schools would benefit more from placing a higher priority on completing the much more involved CSS Profile rather than the FAFSA. This is simply due to the fact that large grants and scholarships are likely to lower the overall cost of college more significantly than a federal loan, Pell grant or work-study.
“Never Save in Your Child’s Name”
It is often recommended to avoid saving assets in your child’s name. This is because student-owned assets typically count more towards your expected family contribution (EFC) than parent-owned assets. Therefore, your aid eligibility will drop more significantly if you save in the child’s name rather than the parent’s name. But, this isn’t always true! For example, on the FAFSA, assets saved in a 529 or Education Savings Account actually count as a parent asset regardless of who owns the account. In addition, some of the most prestigious colleges in the nation will count parent and student assets equally. Finally, what if your income alone disqualifies you for need-based aid? In this situation, saving in the child’s name could be a great strategy to pay for college due to the tax benefits.
In short, the answer to every financial planning question is always, “It depends.” There are so many variables and moving parts associated with paying for college. What is true for one family may not be true for another. You need to plan ahead of time to know how the financial aid formulas will apply to your own family. This will allow you to determine which colleges offer your family the highest affordability and what tactics you can implement to maximize savings. You can borrow to pay for college, but you can’t borrow your way through retirement. Therefore, you also need to understand how your plan for college funding will impact your retirement goals. You don’t need more information. You need sound advice that speaks to your unique situation so that you can pay the college tolls as wisely as possible, cruise through the EZ Pass Lane and stay up to speed for retirement.
Source: Stratagee/T. Onink