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College Planning: What You Need to Know


Ask most parents what they think about when you mention college planning, they will probably start talking about how much they are saving (or not) and what 529 plan they have. That's the problem. They are thinking about SAVING for college, when I'm talking about PLANNING for it. Don't get me wrong, saving is part of planning, but only part of it. I hope this post helps you start thinking about the big picture and getting started on your plan - even if your savings aren't on track.

It's Never Too Early to Start

This is true with saving as well as planning. If you only start thinking about the college planning and admissions/financial aid process when your child starts high school, you might be behind the eight-ball. 

In middle school or earlier, have honest conversations with your kids about money, savings, finances, and careers. Help them understand your family financial situation. Have conversations with your spouse about how much and how you are willing/able to contribute to your children's education.

Educate your children about how their choice of college and major can impact their financial options. Set appropriate expectations about how much they should contribute to paying for college either through their own savings, summer jobs, or scholarships they earn.

Teach them financial literacy. They should understand how debt works, how students loans can be a part of the picture, and how to manage their own finances. Since college is routinely a $200,000 investment, prepare your child to manage that investment wisely.

Think Long and Hard About College Choice

It's possible your child is one of those who will get into any college they choose to apply to (but not likely). It's possible they only want to go one place and can't imagine life if they can't get in there (they will survive).

Choosing a college is very important. Whether it's finding a fit for a particular interest, feeling comfortable in a class of 20 v. 200, or wanting to be close (or far) from home, there's a million variables that go into it. Please add finances to that list of considerations.

It is not worth it to bankrupt yourself or your child to go to a particular school. It's not a smart financial move to put your retirement at risk to pay for college. Although going to a good school is important, getting a good education is even more so. It might be that the school that is second choice, is really the better value.

Educate Yourself

There are basics you have to know to be an informed college consumer.

  • Understand how your family finances and assets will be viewed by potential colleges. There may be moves you can make to improve your situation, but there's even more you can do to screw it up if you're not careful (read this about home equity).
  • Fill out the FAFSA (correctly). Mistakes on this form can cost you thousands in aid. Fill out the CSS if the schools you are interested in need that data. (check out Financial Aid 101)
  • Understand your potential EFC. It's not just one number, but a combination of Parent Income & Assets, and Student Income & Assets. This is a good place to start.

Last but not least, please don't fall for insurance salesmen selling you life insurance or annuities as a way to pay for college. This article does a great job explaining why. If you need help, work with a fee-only financial planner who has only your best interests at heart.