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QuickTips: Smart College Planning Chart your course. After you've estimated how much your child's college education will cost, decide how much you want to contribute and how much your child will be responsible for. For example, some parents commit to paying for tuition, fees, and room and board, giving the child the responsibility for the rest of the tab. Once you've made that decision, figure out how much both you and your child will need to save.
If you haven't already, now's also the time to evaluate your safety net. So review your disability and life insurance coverage to ensure you'll be able to adequately provide for your child's college education should you or your spouse become ill or die prematurely. Don’t neglect your retirement savings. If money's tight and you're tempted to abandon saving for retirement in favor of building your child’s college fund, don't. Though this may sound selfish, there's good reason for building your nest egg first. For starters, retirement accounts offer tax advantages that allow your money to grow more quickly than other accounts. And if your employer kicks in money in matching contributions, these deals are too good not to take full advantage of. Second, some retirement accounts aren’t counted among your assets under the current formula that determines your eligibility for needs-based federal financial aid (though some colleges do take retirement assets into account when doling out their own aid). Besides, you can borrow for your child's college education if necessary but you can't take out a loan to fund your retirement. Invest regularly and wisely. If you can't save as much as you need to, save as much as you can - even small amounts add up over time. The best way to do this: Sign up for credit union direct deposit and payroll deduction services, and automatic mutual fund investment and reinvestment plans.
Equally important, brush up on investment basics and school yourself in all the college funding options. For example, get all the facts before you invest in the new education IRAs or your state's prepaid tuition plan, or before you put any money your child’s name in a custodial account. Get the facts on financial aid. According to the College Board, half of all college students receive some type of financial aid, and 57% of that total aid is awarded in the form of loans. Some of this aid is based on financial need, some is available to all families. The federal government is the largest single source of student financial aid, providing about 75% of all aid dollars.
While it's true that the more assets you have, the less of this needs-based federal financial aid you'll qualify for, the current aid formula bases a family's eligibility mostly on income -- a much smaller weight is given to assets. Therefore, contrary to
what many believe, building a college fund won't necessarily hurt your
chances of qualifying for needs-based aid. What's more, even if you calculate that your family would be eligible for aid today, the rules, as well as your personal financial situation, may change yearly. Plus, whatever needs-based aid you'll qualify for will likely be in the form of loans. So the more you save, the less likely you and your child will have to borrow. Teach your child about money. Before you send your child off to college, help him or her become a regular saver, responsible borrower, and wise consumer. Start building these skills at a young age by giving weekly allowances, helping open a saving account, and providing opportunities to earn extra money by doing household chores beyond regular responsibilities. When your child reaches the teen years, consider a share draft/checking account, debit card, and perhaps a low-limit credit card. High school is also the time to begin discussing college plans. Specifically, talk about what costs will be the child's responsibility, and the options for coming up with this money. Borrow wisely. U.S. Census Bureau data shows that college grads earn an average of 64% more than high school graduates, so a college degree is generally worth the expense. Nonetheless, since the federal government made loans more widely available beginning in 1992, graduating students have been burdened with excessive amounts of debt. So help your child carefully evaluate his or her borrowing plans and future ability to repay. If you're the one doing the borrowing, take a close look
at your repayment ability , especially if you're closing in on retirement. Also, check your credit report to make sure it's accurate
before you put in your loan application.
When you're ready to
borrow, do your homework and choose your loan carefully. Loan terms vary widely, even for those loans the federal government sets the
interest rates for. So ask about origination fees, flexible repayment schedules, and available interest-rate discounts. For example, some lenders cut interest rates for borrowers who make on-time payments, or
for borrowers who agree to make loan payments directly from their checking account. Some
lenders also offer special discounts to in-state students. |
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