Decisions Regarding College Funding
Don’t let the high cost of a college education prevent you from developing an effective strategy to deal with those costs. Before you can determine how much to save for your children’s college educations, there are several decisions to make: Does each child require the same level of support? While parents typically want to treat children equally, each child’s needs may differ. One child may excel in school and want to attend an expensive private college, while another child may feel more comfortable at a local public university. Thus, consider the best options for each child realizing the price tag may differ. What is your savings goal? Setting a savings goal can be difficult if your child is many years from college. With college costs increasing so significantly in recent years, assuming similar increases in the future may make your savings goal seem overwhelming. To keep your savings amount reasonable, you can estimate your savings target based on today’s college costs, increasing that amount every year to cover actual college cost increases. Also decide whether you are aiming for a public or private college, which have vastly different costs. If you’re not sure, start with private college costs. It’s easier to reduce savings than to increase them. Will your child contribute toward college costs? Most children would have difficulty paying for all college costs, but you may expect your children to help fund certain costs or a certain percentage of total costs. Will your family qualify for financial aid? Even if your child is several years from college, it is worthwhile to evaluate whether you would be eligible for financial aid. Don’t just assume that you will be precluded from aid if your income is high. Also, be aware that many scholarships are awarded based on merit, not need. Will you need loans to pay some college costs? By starting a savings program early, hopefully you won’t need to borrow money. Borrowing can put a significant strain on your finances, usually at a time when you should be concentrating on saving for retirement. However, there are a variety of loan options available, with some of the least costly available only to students. Even if you don’t want to burden your child with these loans, it may make sense for your child to obtain a loan. You can then give the funds to him/her at a later date to repay the loan. How much can you save on an annual basis for college? You don’t have to select a fixed amount to contribute annually. You may decide to increase savings in the early years or contribute an increasing amount every year. How will you save for college? There are a number of ways to save for college and reduce your after-tax costs. Look into Section 529 plans, Coverdell education savings accounts, education tax credits and deductions, savings accounts in your child’s name, and using IRA funds to pay college costs. Evaluate all options in light of your financial situation.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.