College Financial Planning From Birth to Graduation
Family Scholarship Plan
In today’s college cost environment, a family must be willing to explore all alternatives to traditional college savings plans. I realize the “price tag” of college frightens you and at first glance you think, “why bother! I will never be able to save that amount!” For families with young children, saving for college shouldn't be an option. It is a must if you want to avoid large college debt that will eat into your retirement. As I have said numerous times, every dollar you spend on college, it's a dollar plus interest you lose for retirement or whatever you want.
Currently, using the assumptions that a 4-year private college costs $70k and a 4 year in-state public college cost $38k, a 5% college inflation rate and your investments grow at 7%, a 4-year private education, a newborn's family would need to save $`1,564 every month. A 4 year in-state college would be $849 every month. As the table below shows, the longer you wait the monthly payment increases to an amount that is virtually unaffordable. If you extrapolate it out to when the student is 13 years old, a monthly payment for a 4-year private would be $9412. A monthly payment for a 4 year in-state public would be $5109
As the table above shows, it is imperative that you start your planning as early as possible. The earlier you start the less you have to save each month. I have set up plans for couples that not only do not have kids yet but are just engaged!!
With the cost of college growing larger and larger each year, parents need to build a savings plan that can keep pace with these costs. One of the ways to do this is to make their money work harder, not only in terms of return but also in terms of taxes. Taxes will eat into your account faster than any return can build it! Another way is to avoid the market ups and downs that cost families not only money but valuable time as well.
Choosing the best savings tool or tools, as well as the most competent advisor will allow you not only to keep your college costs to a minimum but will also not interfere but perhaps even enhance your retirement savings.
How can a family know what is the best tool? The first step is to understand that each tool provides certain benefits, but no one tool provides all benefits. Therefore, all college savings tools are not suitable for every family. The key, then, is to identify which benefits will best meet a particular family’s needs.
For example, everybody would like tax deferred or better yet tax free growth and distributions, it’s one way to make the savings account grow faster. By the same token, who wouldn’t want financial aid? Most parents hold a secret hope that their child will qualify for a scholarship for some sort of financial aid. But what happens if they don’t?
Some of the features you might wish to build into your savings plan include:
Tax-free or Tax-Deferred growth
Good Rate of Return
Safety (no market risk)
The money does not have to be used for college
Does not count against financial aid
Liquid (can access the money easily and quickly)
Private elementary and high school options
Students with special needs
Matching Funds (similar to company matches in a 401k)
You may be thinking, it's impossible to find a plan that accomplishes all of the above. And it may be true, but I have designed plans for families exactly like the above, or very close to it.
Problems arise because some benefits may interfere or work in opposition to other benefits, or other financial planning goals. For example, your savings plans, and potential future financial aid may work in opposition. Saving for college may impact Retirement planning or Estate Planning etc… Additionally, you must make sure that the savings plan is exempt from financial aid.
This is where you really need an advisor who is an expert in college financial planning. Most advisors will just talk to you about “saving” for college yet have no idea about how any savings vehicle interacts with financial aid, taxes or the other. When you plan for college, you have to plan for all aspects or “prongs”, or as we refer to it as “The Full Spectrum of College Financial Planning.” This is because College Financial Planning is a multi-pronged process and approach. Planning on just one prong may not only interfere with the other prongs but may cause you to inadvertently leave money on the table or even worse, lose money. This includes: Saving for College, Financial Aid and Scholarships, Positioning the Student, Student Loans (picking the right loans and best repayment plans for you), Education Tax Incentives, Savings Plan Distributions and Paying for College. If ALL of these factors are not taken into consideration you are not planning effectively and will undoubtedly leave money on the table. You need an advisor who is an expert in “The Full Spectrum of College Financial Planning.”
By implementing a plan using the features and strategies above you will essentially be creating a Family Scholarship plan.
You will receive a professionally designed plan for college savings that also helps preserve your retirement and other goals. It will identify the types of funding vehicles that will provide your family’s desired benefits.
We will also have annual updates and, if necessary, make adjustments for changing family needs and performance evaluation.