Financing College

    Saving And Paying For Higher Education

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    There’s no magic formula to secure funds for your children’s college education, so be proactive, start early, and explore all the opportunities. Typical funding options are loans, savings plans, and scholarships.

    Countless loans are available, including both federal and private programs, but Stafford loans are perhaps the most recognizable.Don’t assume that you don’t qualify for assistance—ask and see. College financing is a major purchase, so shop around just as you would for a car or home loan. Know what is available and perhaps mix products to lower overall costs. If your children will be responsible for loan repayment, the debt load should be no greater than what could be paid based on their anticipated starting salary once they graduate and secure a job. Having the debt paid within a ten-year window is another solid guideline.

    Savings plans run from investment-driven 529 savings plans to prepaid 529 plans.A prepaid 529 plan may be administered by a state or higher education institution.It allows you to purchase tuition credits at today’s rates to be used in the future. An investment-driven 529 savings plan may only be administered by states with many of the functions delegated to a mutual fund company or other financial services company.Deciding on prepaid savings could save tons of money, but there’s risk in not knowing where your children will study. Investment driven plans carry the caveat of an underlying asset allocation and all the risks associated with investing. While most plans allow investors from out of state, there can be significant state tax advantage for taxpayers who invest in 529 plans in their state of residence. Beyond the potential state income tax benefit, a prime benefit of the 529 plan is that the principal grows tax-deferred, and distributions for the beneficiary’s college costs are exempt from federal income tax.Whenever tax savings are involved, there also are guidelines that affect the liquidity of using the money for anything other than secondary education, so understand the rules.

    How can you minimize the borrowing? Scholarships. Thousands of dollars go unclaimed each year in the form of scholarships.Though they typically require more up-front time and effort, scholarships can greatly change the financial landscape of the college journey. More common scholarships are tied to academics and sports. Google is a great tool for searching where these and other opportunities exist. Inquire about scholarships at your workplace, nonprofits where you and your kids volunteer, lower and middle schools your child attended, as well as organizations where your child participates. Numerous family-created charities offer scholarships; the trick is finding them. Some require essays or volunteer hours in return, but consider it character development for your children with the potential for financial reward.

    Explore with an open mind, attend seminars, and fully understand the fine print. Don’t depend on one counselor to know everything, because there’s too much information for any one person to become an authority. Get busy searching what is available now to minimize burdens in the future. The more prepared you are, the better experience this vitally important time will be in the life of you and your children.

    One more note: The biggest gift you can give your kids is to never have to live with them at any stage due to a lack of financial resources. That said, college finances should never be at the expense of your own retirement plans. Secure your future first, or at least have a strategy in place, then tackle your children’s education needs.

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    Angie Shay
    Angie Z. Shay has worked in the financial services industry for more than 22 years. She is president of THE PATH Financial Strategies, LLC. Angie Shay is a financial adviser with Eagle Strategies LLC, a Registered Investment Adviser and an indirect wholly owned subsidiary of New York Life Insurance Company. THE PATH Financial Strategies, LLC is not owned or operated by Eagle Strategies or its affiliates. Neither THE PATH Financial Strategies, LLC or Angie Z. Shay provide tax or legal advice.