We all know that college costs have been soaring for years, but today’s numbers are still the stuff of sticker shock: Presently, a single year of college usually costs between $18,000 and $37,000.
Many baby boomers remember when that amount would pay for an entire college education. Given how much the financial landscape has changed, families need to approach college funding in a new way as well.
The traditional approach has been to save as much as possible for college costs, and then rely on financial aid and loans. Parents often assume that they can rely on high school guidance counselors and annual “financial aid nights” for guidance. But that’s a mistake: Guidance counselors are completely overloaded and lack the expertise to advise families on the complexities of college planning and funding strategies.
Financial aid nights, meanwhile, are primarily focused on how to fill out forms—rather than how to increase your financial aid eligibility or help you identify schools that can provide the best financial aid packages.
The fact is that there are actually two different prices for a college education: one for the informed and one for the uninformed. At Anderson Retirement Solutions, we educate families about how:
- A private college may cost you less than a public university. Regardless of the school your child attends, you’ll have to pay a set “family contribution” amount. But after that, a well-endowed private college will likely be able to provide far more financial aid. Even when the higher face cost of the private school is taken into account, the additional aid may make it effectively less expensive than the public school.
- Paying for college with after-tax income can double your costs. Think about it: If your total tax rate is close to 50%, then a $30,000 college bill equates to $60,000 of your earnings. Even when there may be no need-based financial aid opportunities available, there are a wide variety of little-known college planning and funding strategies that can yield great benefits. Planning for business owners, income planning strategies, asset planning strategies, gifting strategies, tax planning strategies, school based scholarship strategies, strategies for grandparents and funding strategies are just some of the approaches that can help.
- You shouldn’t assume financial aid is out of reach. Many middle- and upper-income parents pay less than colleges’ advertised prices because financial aid formulas take into account variables such as the cost of the school, the age of the parents and the number of children in college—not just the family’s income level. Do not assume you won’t be eligible.
- You need not reduce your retirement savings contributions to pay for college. Many parents feel they must choose between funding their retirement savings and putting their children through college at the same time. The fact is that with the right funding strategies, you can maintain your monthly retirement contributions or even increase them.
More than ever, smart, proactive planning is a necessity for families that want to send their kids to college. Making better, more informed college planning and funding decisions can have a profound impact on your long-term financial strength and that of your children. Please don’t hesitate to contact us if you’d like to learn more. I will also be hosting a webinar on this topic on Wednesday, October 28th at 4pm Pacific time. Register here: http://andersonadvisorsevents.com/register-paying-for-college/.
