|
Getting the Kids Involved in Saving for
College
The World War II generation got a taste of higher education
through the G.I. Bill and made it a point to supplement or pay
their kids' tuition. It was a struggle, but a far more
manageable one than it is in this day and age. Figures from the
University of Texas in 2005 showed that since the 1960s, the
price of a public higher education has risen from about five
percent of median family income to more than 17 percent today.
Based on the current pace, that number could rise to 30
percent of median family income by 2020. Private universities
could approach 50 percent.
Scary numbers indeed. That's why it makes sense for families
to make college affordability a family effort — with both
parents and kids pitching in. That's a big change in 40 years,
where parents considered it a badge of honor to put their kids
through school with no debt.
But there's a bright side to involving your child in the
process of saving for college. They'll get an early education in
money decisions that will have a direct impact on their future.
Here are ways to make sure you're well informed about the
college savings process and how to involve your child:
Get advice as early as possible. Even if your child
has only a short time until high school graduation, get advice
tailored to your own situation from a trained expert such as a
financial planner. Parents often forget that their first
financial goal is retirement planning, not college saving, so
they need to start with the following points:
- What parents will need
to support their retirement;
- What they can
contribute to their child's college fund based on time to
retirement and to freshman year;
- The best savings
strategies for parent and child based on the tax situation
for both;
- A primer on college
financial aid in all its forms. Depending on the child's
need for financial aid, parents need to know what kind of
assets they should hold in their child's name and in what
types of accounts for the best chance of securing financial
aid if it's needed.
Involve your child in the discussion. Armed with
knowledge from the financial planning process or your own
research, start talking with your child about their financial
contribution through money from part-time jobs, savings or, as a
last resort, debt after college. Parents might decide to
schedule two advisory meetings with a planner — one for
themselves, and a second one with the child.
Lack of money isn't the only reason kids may be asked to
contribute or shoulder debt. Blended families with ex-spouses
who either don't want to make a contribution or haven't agreed
to pay tuition as part of a divorce settlement can be a sticking
point. Whatever the reason may be it needs to be presented
honestly to the child.
Tackle the FAFSA first. The dreaded Free Application
for Federal Student Aid (FAFSA) is a necessity for all parents
who believe there will be some shortfall in paying for college
after savings, grants and scholarships. It's a good idea to fill
it out even if your needs aren't immediate; family finances can
change for the worse. Your child won't qualify for federal
student loans until you fill out this form. To speed the
process, get your taxes done as early as possible in the year
your child will need the funds. Colleges typically dole out
money on a first-come, first-served basis, so you'll need your
income documentation in order.
Once the FAFSA is processed, the Department of Education
determines financial need and the parent's EFC, or the expected
financial contribution. If parents can't cover the EFC, the
student has to come up with a way to close the gap. There's a
way to rough out what your EFC might be — go
to http://finaid.org/calculators/quickefc.phtml.
Start looking for free money. On the community level,
you might find corporations, associations and other groups that
offer scholarships and grants for local students, particularly
those going off to state or local schools. Students can
generally find out about local opportunities through their high
school guidance counselor. If the student works for a company on
a part-time basis, there might be college support there. Also,
the College Board (www.collegeboard.com)
web site features a good online clearinghouse for scholarships,
grants, internships and loans, as well as www.fastweb.com.
April 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
|
