So, your son or daughter is in high school and you’re thinking to yourself,
“We’re behind the eight ball, now.
How are we going to pay for college?”
First, you’ve got a lot of company, as many families find themselves in the same situation. Second, even if you haven’t saved all that much towards college, there are things that you can do that may help you save on the cost of college. In fact, some of these strategies may help not only make college more affordable, but also help avoid putting your retirement plans in jeopardy. A college funding plan isn’t magic, but it does take some effort to maximize the potential financial benefits.
However, before we talk about what you should do, it’s important to briefly mention what you should not do. Time and time again, I talk to parents who follow this incorrect path:
- INVEST for college without any clue of how much they’ll need;
- SPEND money on tuition and other college costs because they either did not save enough or did not plan for ways to maximize their chances at financial aid;
- BORROW as much as they can to pay for college… student loans, parent loans, 401(k) loans without regard for how the student can pay back those loans without hurting their financial plan or how the parents will help pay them back without significantly impacting their retirement;
- TIGHTEN THE BELT and cut back on living expenses in an attempt to pay for college… living a worse lifestyle as they sacrifice tuition monies to the university gods.
To me, that doesn’t sound like a college plan. It’s more like paying a penalty for the privilege of providing a higher education and hope for a better life for your children!
Instead, I believe the best college plans take an understanding of the basic elements of not only financial planning, but how the college process works from both an academic and financial perspective. It involves choosing the right career that matches the student, the right college that gets the job done and a thorough knowledge of how the financial funding and financial aid process works.
So, here are the elements and steps that I believe are critical to maximizing a college financial plan. There may be others in addition, depending on your circumstances… but this is the core foundation of the plan:
- EVALUATE CURRENT CASH FLOW to understand how your income nets out against your expenses;
- DETERMINE HOW MUCH FINANCIAL AID FORMULAS EXPECT YOU TO PAY and make strategic adjustments to see if you can potentially lower that expected contribution;
- COMPARE CASH FLOW VS “OUT-OF-POCKET” costs you estimate you may be responsible for paying;
- DETERMINE TYPE(S) OF FINANCIAL AID you’ll need (loans, scholarships, etc);
- RESEARCH WHICH COLLEGES MAY BE A GOOD VALUE (evaluating things like: graduation rates, percentage of graduates employed out of school, how well they prepare students for specific majors, social factors and typical financial aid packages offered, etc.);
- APPLY strategically to colleges, REVIEW OFFERS and APPEAL (if appropriate);
- FIND OR CREATE EXTRA CASH FLOW, if necessary;
- CHOOSE SMART WAYS TO BORROW, if needed;
- TAP INTO INVESTMENTS OR SAVINGS… which should be minimalized by having gone through the steps above.
As you can see, this process is a bit longer and more complex than the first one. It’s also more determined to save you money on the cost of your child or children getting the degree they need, for the career they want. It’s also laser focused on helping you to keep the parents’ current lifestyle intact, as well as, their retirement plans. A great college plan is integrated into a family’s other financial plans. It should be designed to accomplish a primary goal (college)… without jeopardizing other ones (eg. current lifestyle, retirement, etc.) in the process.