We've saved for college tuition for our children, but not enough. I don't want them to begin their careers in debt, what should we do?

Asked by Zanna

3 Answers

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Answered by Gregg Himfar, Financial Adviser in Carlsbad, CA
How old are your children? Are you utilizing 529 plans? You may still have time to fund a 529 plan if they're a few years from turning age 18, whereby funding the plans will allow for some deferral, and tax-free distributions on those earnings. Prior to graduation, you might have a few years to fund a 529 plan - 4 to 5 years in college, and possible a few years till they need to begin accessing the funds. They can always attend a junior college for the fist two years, which are very low cost.

Additional options would be to take out a loan in your name through the Federal Parent PLUS program; have the child take out a Stafford loan (subsidized); or have your kids work while in school to help pay for tuition and/or room/board. Grants and sholarships are possibilities too. If you've built-up some equity in your home, a home equity loan might work as well. Hope this helps...Gregg | 09.03.15 @ 16:32
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Charlie Donaldson, MBA in Newark, DE — For every $100 in a 529 plan you'll lose $5.64 in need based financial aid. If you buy a 529 plan, which commission structure will you choose? A shares - 5% up front PLUS 0.5% every year C shares - 1% to 2.5% every year. How confident are you that the stock market won't lose your money for you? If you want to risk losing your money in the stock market, pay commissions, and reduce your financial aid then go right ahead, but I'm not sure why anyone would want to do that. Bottom line is that a 529 plan is a 'tax savings' strategy. If your income is above $200,000 per year then you should use a 529 plan because you wont get need based financial aid anyway. If your estate value is above $5,500,000 then you should use a 529 plan to remove assets from your estate and save on estate taxes. Otherwise, there is NO REASON to ever use a 529 plan! | 09.08.15 @ 21:24
Gregg Himfar, Financial Adviser in Carlsbad, CA — The above post lists several statements that are either not true, or fail in specifics. Each point can be refuted, as its an exercise in limited understanding of a topic and a sales tactic to induce the people in this forum to contact him. For example, the statement about A or C shares does not mention that hundreds of 529 plan are sold with upfront or deferred fee's. If a parent needs financial advice, they can then buy a broker sold 529 plan. I've not seen A shares with 5% upfront commission and a 50 basis point trail, neither have I see C shares with a 2.50% upfront commission either. Go to Charles Schwab and you'll find a 529 plan with no upfront fee's and extremely low management fee's. Next, "How confident are you that the stock market wont lose your money?" Another scare tactic, as advisors diversify student portfolios in asset classes that reduce volatility - and these assets include fixed income (not just the stock market. In fact, as the student approaches age 18, most states have implements risk controls that diversify assets held in 529 plans according to age brackets - getting more and more conservative as the student approaches college - much the same way one approaches retirement and does not have the same investment time horizon. The last statement is so absurd, I'm going to let other professionals have at it | 09.08.15 @ 23:55
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 14:03
Answered by Charlie Donaldson, MBA in Newark, DE
Zanna,

Great question. You’ve saved for your children’s college education. Congratulations! Now, you need to figure out how to pay for it.

The key to being able to afford college is understanding the financial aid system and doing everything you can to maximize that system. Keep in mind that financial aid is a system just like the legal system or the tax system. You can’t just assume you’ll get what you deserve.

I’ll try to simplify this as much as I can:

Financial aid is based on your income & assets and your student’s income & assets. The schools use your information as submitted on the financial aid forms (FAFSA, CSS Profile, &/or institutional forms) to determine your NEED.

1. You need to make sure your children go to schools that meet 100% of need. If the formula says you’re required to pay $10,000 per year and the school costs $50,000 then your need is $40,000. If they give you 100% of the $40,000 then you only have to pay $10,000. Some schools won’t give you 100% and will leave you short. Thus you could end up paying $20,000 or $30,000 per year. This is a HUGE difference.

2. You can increase your NEED (thus increase your financial aid) by legally protecting your assets from the financial aid formula. You need to find a College Funding Advisor for this. Any financial planner, financial advisor, stock broker, etc. is going to try to sell you a 529 plan. A 529 plan will hurt you more than helping you.

3. Look for ways to keep your out of pocket costs as low as possible. Take basic classes at a community college to transfer to the big state school or private school. Make sure the colleges under consideration will accept AP credits. Look for scholarships. (Just know that private scholarships will often reduce need based financial aid)

4. Lastly, know your limits. Don’t go broke in order to pay for your children to go to an expensive school that they really shouldn’t go to. Once you’ve worked with a College Funding Advisor to make sure you’re not set up to overpay, have a plan for paying, and have located the ideal schools that will meet your need… draw your line. Make sure your children know that you have X dollars to spend toward college. If they go somewhere that cost more then X, then they are on the hook.

Please let me know if you have any questions.

Charlie
| 09.08.15 @ 21:11
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 14:03
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Answered by Kevin
I really like Charlie's 4th point. Be smart consumers just like with anything else you buy. Your in-state public junior colleges and universities are partially subsidized by your tax dollars, focus on those schools as they will be the best value in almost every case!

Stay away from expensive private schools that tell you about all the great loans they can help you get. Studies show they just aren't worth the debt burden you'll take on. | 09.09.15 @ 10:35
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 14:03
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