College is CRAZY expensive. As a parent, where do you start planning for your child’s Higher Ed? There is so much competing for money. How much should you be saving? Should you prioritize college savings over retirement or paying off debt? How much should I take out in college loans to pay for college? What are ways that can plan for the cost of college other than loans?The U.S. Department of Agriculture estimates the cost of raising a child to the age of 17 for a middle-income family will be about $285,000.1 That’s roughly equivalent to the median value of a new home in the U.S.2And if you’ve already traded that supercharged convertible dream for a minivan, you can expect your little one’s college education to cost nearly $527,000.3But before you throw your hands up in the air and send junior out looking for a job, you might consider a few strategies to help you prepare for the cost of higher education.
First, take advantage of time.
The time value of money is the concept that the money in your pocket today is worth more than the same amount will be worth tomorrow because it has more earning potential. If you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5-percent annual rate of return.4 The bottom line is: the earlier you start, the more time you give your money the potential to grow.
“There’s a myth out there that if you save too much, you’re going to be hurt in the financial aid process and there’s a myth out there because it’s a myth.” – John Hupalo
Second, don’t panic.
Every parent knows the feeling – one minute you’re holding a little miracle in your arms, the next you’re trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it’s difficult to forecast how much help your student may get in aid and scholarships, these tools can provide a valuable supplement to what you have already saved.
Finally, weigh your choices.
There are a number of federally and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans, and others offer tax-deferred savings.5 Many such plans are state sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you.
Not sure where to start saving for college? Check out out Erik’s conversation with John Huplao, founder of My College Corner and Invite Education.
Preparing for college means setting goals, staying focused, and tackling a few key milestones along the way — starting in the first year of high school.
Freshman Year
Before the school year begins, you and your child should have at least a handful of colleges picked out. A lot can change during high school, so remaining flexible, but focused on your shared goals, is crucial. It may be helpful to meet with your child’s guidance counselor or homeroom teacher for any advice they may have. You may want to encourage your child to choose challenging classes as they navigate high school. Many universities look for students who push themselves when it comes to learning. However, a balance between difficult coursework and excellent grades is important. Keeping an eye on grades should be a priority for you and your child as well.
“No matter how old your kid is, I don’t care if they’re like six months from graduating from high school or they’re six months old, just open a savings plan and start saving. So I say, it’s never too early, never too late to start saving.” – John Hupalo
Sophomore Year
During their sophomore year, some students may have the opportunity to take a practice SAT. Even though they won’t be required to take the actual SAT for roughly a year, a practice exam is a good way to get a feel for what the test entails.
Sophomore year is also a good time to explore extracurricular activities. Colleges are looking for the well-rounded student, so encouraging your child to explore their passions now may help their application later. Summer may also be a good time for sophomores to get a part-time job, secure an internship, or travel abroad to help bolster their experiences.
Junior Year
Your child’s junior year is all about standardized testing. Every October, third-year high-school students are able to take the Preliminary SAT (PSAT), also known as the National Merit Scholarship Qualifying Test (NMSQT). Even if they won’t need to take the SAT for college, taking the PSAT/NMSQT is required for many scholarships, such as the National Merit Scholarship.6
Top colleges look for applicants who are future leaders. Encourage your child to take a leadership role in an extracurricular activity. This doesn’t mean they have to be a drum major or captain of the football team. Leading may involve helping an organization with fundraising, marketing, or community outreach.
In the spring of their junior year, your child will want to take the SAT or ACT. An early test date may allow time for repeating tests their senior year, if necessary. No matter how many times your child takes the test, most colleges will only look at the best score.
How much should I take out in college loans to pay for college? What are ways that can plan for the cost of college other than loans? Erik and John wrestle with these tough college planning and college funding questions.
Senior Year
For many students, senior year is the most exciting time of high school. Seniors will finally begin to reap the benefits of their efforts during the last three years. Once you and your child have firmly decided on which schools to apply, make sure you keep on top of deadlines. Applying early can increase your student’s chance of acceptance.
Now is also the time to apply for scholarships. Consulting your child’s guidance counselor can help you continue to identify scholarships within reach. Billions in free federal grant money goes unclaimed each year, simply because students fail to fill out the free application. Make sure your child has submitted their FAFSA (Free Application for Federal Student Aid) to avoid missing out on any financial assistance available.7
“I think there has to be student loan debt because when properly used, you can apply that to get the leverage of the investment and get a return on that…I say though, student loans should be the last resort, not the first option to pay for college.” – John Hupalo
Finally, talk to your child about living away from home. Help make sure they know how to manage money wisely and pay bills on time. You may also want to talk to them about social pressures some college freshmen face for the first time when they move away from home.
For many people, college sets the stage for life. Making sure your children have options when it comes to choosing a university can help shape their future. Work with them today to make goals and develop habits that will help ensure their success.
As a parent, you teach your children to dream big and believe in their ability to overcome any obstacle. By investing wisely, you can help tackle the financial obstacles of funding their higher education – and smooth the way for them to pursue their dreams.
1. U.S. Department of Agriculture, 2020 (Most-recent data available)2. The Washington Post, 2020
3. Wealth Management Systems, Inc., 2021 (Based on average tuition and fees for a 4-year degree at a private university, starting in 2039, and assuming a 5% annual increase)
4. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for higher returns also carry a higher degree of risk. Actual results will fluctuate. Past performance does not guarantee future results.
5. The tax implications of education savings programs can vary significantly from state to state, and some plans may provide advantages and benefits exclusively for their residents. Please consult legal or tax professionals for specific information regarding your individual situation. Withdrawals from tax-advantaged education savings programs that are not used for education are subject to ordinary income taxes and may be subject to penalties. 6. PrincetonReview.com, 2021
7. SavingForCollege.com, 2020
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.
About Erica
Erica has a B.A. in Communication from the University of South Alabama, where she focused her studies on Public Relations and Business Management.
Erica is a gifted communicator and administrator with a deep understanding of her clients' needs. She is committed to providing our clients with the best possible experience and helping them achieve their financial goals.
In her role at Plan Wisely, she began working with us in a marketing director capacity for several years. Now, as a Client Relationship Representative, she assists with client services, account maintenance, scheduling, and other financial planning tasks.
Erica is a valuable asset to the Plan Wisely Wealth Advisors team and is passionate about helping you achieve your financial goals. She is willing to go the extra mile for her clients and is dedicated to providing them with the best possible service.
