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    How to Pay for College

    If you’re the parent of a high school senior, we know that money is on your mind.  While your child has been busy for months applying to colleges, and those acceptance letters have now come in, you now face one of the biggest challenges of your parenting career: paying for it.  The cost of college can be astronomical, so correctly navigating the financial aid aspect of it is essential.   

    Most families aren’t able to cover the full cost of the children’s college experience, which means financial aid will play at least a part in college planning.  If you’re thinking of applying for financial aid, or thinking ahead for a child not yet ready for college, here are some things you should know.

    First, face the music.

    Most middle class families are shocked to learn the realities of financial aid eligibility. The percentage of take-home income that financial aid offices require parents to contribute is almost always considerably greater than parents anticipate.  The Free Application for Federal Student Aid, or FAFSA, is the form you’ll eventually use to apply for aid, and an online tool called FAFSA4caster can help determine what you can realistically expect in terms of an award package.   That’s useful information.  From here you can start to plan accordingly; for example, if your child will need to rely on merit aid, they can now begin to apply for those scholarships.

    Understand what’s out there.

    Grants, loans, subsidized, unsubsidized, federal, private...are you familiar with this language? Here’s a quick primer:

    The U.S. Department of Education (DOE) issues four types of direct federal loans: Direct Subsidized, Direct Unsubsidized, Direct PLUS and Direct Consolidation (the last one is a combination of the first three). The DOE also supports the Perkins Loan Program, targeted at students with “exceptional financial need”; colleges, rather than the DOE, issue those loans. You might hear about or remember the Federal Family Education Loan (FFEL) Program, but this program ended in 2010.

    Non-governmental lenders like banks, credit unions, and state agencies also provide private student loans. Private colleges and universities, boasting far greater endowments than their public school counterparts, often offer their own financial aid packages as well, with a large percentage of funds coming in the form of grants (which you don’t have to pay back).  For this reason, we encourage you to look closely at each individual school’s financial aid offer before discounting one as “too expensive”.

    A few years ago we detailed strategies for increasing your award chances and reducing your taxes.  Check that info out here.

    Seek alternate funding and scenarios first.

    Alternate funding -- scholarships (from colleges and private organizations),  work-study programs, and part-time jobs can all help your child pay for tuition and other expenses without having to take on any student loan debt. Maximize these opportunities first and foremost. Reputable federal websites like StudentAid.ed.gov can help you connect with lists of scholarships, which you can sort based on criteria such as GPA, community service history, athletic performance, major, city and state of residence, and demographics.

    When it comes to scholarship money, it’s important to remember that your child won’t likely receive “a scholarship”.  Solitary silver bullets that cover all costs are few and far between, reserved for the absolute best athletes and students in the country.  Most likely, your child will get many scholarships, each in small increments that, added together, will slowly make a dent in your overall costs.  Apply for everything you can, even if the award amount is small.

    Finally, don’t discount alternate scenarios for your child’s college experience. Attending a local college saves considerable money on room and board; attending a two-year community college first to take care of basic credits, then transferring to a university, also saves; Advanced Placement (AP) courses in high school can equate to college credit and decreased expenses.  Such alternate arrangements help to ease the burden when your financial assistance package falls short.

    Don’t give up.

    According to FinAid.org, your child should apply for financial aid each year, regardless of last year’s decision.  More than two-thirds of families qualify for financial aid each year, so don’t assume you won’t get any.  Surprises here can be a good thing!

    Start planning early for those younger siblings.

    Saving early, long before high school, is your best strategy for ensuring that the money will be there.  We encourage the use of 529 Plans as the safest, most traditional way to save that also provides a decent tax deduction; most states offer some form of state income tax or credit for contributions made to this type type of savings plan.  In North Carolina, for example, 529 earnings are free from federal and state income taxes (provided you are a NC taxpayer) so long as funds are used for qualified expenses like tuition. Funding of 529 Plans should continue through college.

    In general, we do not recommend that parents take out loans for their children, as this puts unnecessary financial pressure on parents and rarely makes sense in the long term.  If you have questions about that, be sure to reach out. Together with your financial advisor, we can devise a strategy that minimizes the sting of paying for college.

    Are you facing college tuition this year? How has your experience navigating financial aid been? We’d love to hear from you!

     

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