For many, these last few weeks have been filled with hope and celebration as graduating seniors look toward the future and think about what it will be like to attend college. What will higher education look like in the fall? Parents mirror similar feelings of anticipation, wondering how in the world do they pay for all of this? It’s a huge milestone in life—for both parties involved. No matter who foots the bill, we have some tried-and-true philosophies in mind that may help to ease the stress, maximize the return on investment, and keep the focus on what’s really important: a once in a lifetime learning experience.
Invest in a 529 Plan
You can never start saving for college too early, but there is a too late. In your next meeting with your advisor, make sure to reference a 529 plan to get the ball rolling. To give you a baseline, there are two types of plans to consider: college savings plans and prepaid tuition plans.
A 529 college savings plan is a type of tax-free investment into mutual funds or stocks that can be used to pay for tuition (and other related expenses) at an in-state, out-of-state, public and private colleges, universities, or other eligible post-secondary educational institution. Note: only the qualified expenses can be withdrawn tax free. Any earnings from the investment are subject to income tax. These plans operate similarly to a traditional retirement plan and can be manipulated by market performance. You can either purchase a plan through the state and manage your own investments, or you may choose to purchase a plan through an investment firm, where the advisor will manage the investments for you.
A prepaid tuition plan is a type of state-led college savings option that allows families to secure today’s tuition rate at a state school and pay in advance. Commonly, you must be a resident of the state, and the cost of the plan will vary depending on the age and grade level of the student at the time of plan purchase. Each state has various rules and payment plan structures, so it’s important to research your options ahead of time.
For estate planning purposes, these college savings plans are not considered part of your estate and will not be subject to estate tax.
Make it a Monthly Habit
This is one of my favorite strategies. Have you ever switched your utility bills over to weekly withdrawals to help ease the lump sum payments of, say, a gas bill in the winter in New England? It really helps! This method can be used to reduce feeling overwhelmed at the cost of college. Save a little bit at a time and have it transferred automatically so you don’t even have to think about it. Talk with your advisor on the best ways to invest these savings to reach your goal.
When the Real Planning Begins
When your child reaches a sophomore in high school, there’s going to be much talk about college prep. You’ll want to make sure that your investment strategy is in line with your needs; make sure that your advisor is fluid in understanding the whole college process—preferably one that is familiar with specific schools—and make sure that you direct your child in high school to leverage opportunities for college credit.
In some states, your child may be able to take concurrent classes in high school that will count towards college credit. Each state and each college and university have their own unique rules surrounding earned credits. Research the school requirements in advance. Similarly, if your child takes Advanced Placement (AP) courses in high school, he or she could test out of a college course, receive credits for the course, and not have to pay the tuition associated with those credits. You may end up saving a few thousand dollars!
Don’t Miss Out on Free Money
Scholarships and grants come in all shapes and sizes…and for everything imaginable! The best part about them is they do not have to be paid back!
A great platform to search out scholarships is Scholly (think Shark Tank!), and the College Grants Database is a good one for access to grants. There are thousands of options out there for everyone to qualify for one or more free money opportunities. Saving money takes research, so plan ahead and find options to help you save.
Federal Aid
If the abovementioned options don’t fund the whole tab, fill out a FASFA form. Here, you may be eligible to receive a government grant or federal work study to aid even more in money toward college tuition. If you do take out loans, remember, talk to your advisor about the best strategies for repayment so you don’t end up overwhelmed with debt and interest.
Most Importantly, Enjoy Yourselves
Searching for colleges with your child can be a fun adventure for the whole family! Attend a college football game in a new city; tour campuses and stock up on some sweet swag; and spend time enjoying the process together without any pressure. Big changes are coming for everyone, so now is the time to make the best of what you have and show your child how proud you are of their accomplishments. Good luck on your journey.
Call our office line at (978) 864-9581, or email me at stu@eaglerockfinancial.net with any questions.
Stuart Steinberg, CFP, CPA, MBA has been working closely with families and their money situations since 1988. He can be reached at 61 Water Street, #2, Newburyport, MA 01950 and at (978)864-9581 and stu@eaglerockfinancial.net
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Securities and Financial planning offered through LPL Financial, a registered investment advisor. Member FINRA www.finra.org / SIPC www.sipc.org.