By Paul Stanley, CFP®, CPM®, CFF®, Managing Partner, at Granite Bay Wealth Management
Nelson Mandela once said “Education is the most powerful weapon which you can use to change the world.” However, the cost of changing the world has increasingly become a barrier to many. If your child attends one of the most expensive colleges in the nation, tuition costs could be more than $70,000 per year. Across the board, college costs have risen dramatically over the past two decades, with tuition at private universities increasing 126%, and in-state tuition at public universities rising by 133%.
Not surprisingly, as tuition costs increase, so do student loans, with recent college graduates carrying an average of $30,000 in student loan debt.
There’s no denying that a college degree is a huge investment, but there are strategies families can take to lessen the financial burden. For instance, families can:
Leverage tax-advantaged savings plans. College 529 plans allow families to grow their tax-free savings, with the intention of spending that money on qualified educational expenses. Also, thanks to recent tax law changes, they now offer flexibility to convert some unused funds to a ROTH, or change the beneficiary when that firstborn gets a full scholarship to their dream school.
Do the math. Don’t automatically assume that a lower priced school is the best option. Many schools offer need based and merit based aid that can significantly lessen the out-of-pocket costs. Even if you assume you make too much money or your student won’t get merit aid, be sure to explore all opportunities. You just might find a school you never considered who is looking for a C student from a nice family and willing to help. Choosing the right school for your students’ unique circumstance is key to maximizing aid. Use the net price calculators on colleges’ websites to determine estimated out-of-pocket costs, then compare the bottom line between all your child’s options.
Revisit financial aid. Securing financial aid isn’t just a “one and done” effort – it’s an ongoing process. Each fall, revisit your student’s financial assistance, including scholarships, grants, and student loans. Note that the Free Application for Federal Student Aid (FAFSA) must be completed annually to ensure continued support throughout college.
Understand various loan options. Learn about the different types of student loans, repayment obligations, and interest rates before you commit. Also, recognize that, sometimes, Federal loans may be a better option, offering benefits like loan forgiveness programs. Regardless of the type of loan your student chooses, help them develop a plan for post-graduation loan repayment. Explain the differences between income-driven repayment plans, loan consolidation, and strategies for accelerating debt repayment. Teach them to pay down their debt responsibly.
Pursue local scholarships. Investigate local scholarship opportunities offered by your community organizations, nonprofits, and places of worship. While the amounts of these local scholarships may not be huge on their own, securing multiple scholarships can really add up. Check with your high school guidance counselor for a list of local scholarship opportunities, or use a free scholarship search site like the College Board’s Big Future.
Encourage part-time work. Encourage your student to work part-time to supplement their income and gain valuable work experience. Some companies – including Starbucks, Target, Best Buy, and Chipotle – offer tuition assistance, which can help offset college expenses.
Be strategic with high school classes. Dual-enrollment programs – and/or taking college-level courses – allow high school students to earn college credits. This can help them take a semester (or a year!) off, for significant savings on their college tuition.
Look into employer benefits. Some employers offer education benefits, like tuition reimbursement and scholarships for employees’ children attending accredited schools. If your employer (or your spouse’s) offers this benefit, take advantage of it!
Utilize student discounts and resources. This comprehensive list can help your child learn about valuable opportunities. Additionally, urge your student to utilize campus resources, like career services and financial literacy programs.
Teach budgeting basics. Help your student create a budget, outlining their expenses (i.e., tuition, books, housing, food), as well as their income, scholarships, financial aid, grants, etc. Adjust the budget each year, as necessary.
Investigate “no loan” schools. Some universities accommodate students’ financial needs without loans, offering scholarships, grants and work-study opportunities. Note: these options may be limited to students from lower-income households.
Recognize the impact of college on your family’s overall financial plan. College tuition is a major expense – but it’s just one piece of your family’s overall finances. Have a comprehensive financial plan in place that considers the cash flow implication of college tuition payments on your budget and overall financial goals.
Paying for college may feel overwhelming, but there are actionable steps your family can take to reduce the financial burden. Investigate financial aid, scholarships, tuition reimbursement, and other possible solutions that will lower the overall cost. And talk to your child(ren) about responsible financial habits to help set them up for a lifetime of financial health and successes.
Paul S. Stanley, CFP®, CPM®, CFF®, Managing Partner at Portsmouth, NH-based Granite Bay Wealth Management, was recently named Best-in-State Wealth Advisor by Forbes. His team of smart, experienced financial professionals work hard to help clients maximize successes with their investments and financial plans. For more information, visit https://granitebaywm.com.
