How Do You Save For College? There Is No Wrong Answer!
Many of us cringe at the thought of paying for college. How do we even begin to think about that process? It's an incredibly expensive pursuit. The costs are forever rising when it comes to college expenses and that goes for private, public or trade schools. It seems harder and harder to arrange for college from a financial planning standpoint but it's extremely important to account for it because of the impact it has on everything else. If you are focused on putting a significant amount of funding or resources into college, those are resources you can't use for things like retirement funding.
One thing that we tell all clients in this space at North Main Financial is that there is no wrong answer. It's not wrong to not plan to cover all college expenses up front. You may be inclined to cover all college expenses for kids or grandkids and that's fine. What we emphasize is that it's not wrong not to do that. For many people, it is impossible to be able to save enough to cover all college expenses, especially if you have more than one child. There are other avenues you can pursue to help with college funding.
To that end, we've got another three-point sermon to give some thought to how the college funding process goes. This is not intended to be an all-encompassing plan, but rather food for thought.
Don't neglect retirement savings…
Sometimes folks want to be aggressive with how they save for college. They are wanting to set aside a huge chunk of money because they know how expensive books, room and board, transportation, etc. are for college. There's nothing inherently wrong with that but what we encourage clients to do is to not think about it in just a binary way. Don't think of it as only having money and saving for college. Look at it instead in a multi-variable style of thought. What can happen, especially as you make college savings a focus, is you may pull away from investing in your 401K, saving for retirement, or other types of savings. What can happen is, especially as your children are at the end of their time in college, you may be in a space where it can become very, very difficult to save for your retirement.
For example, we had a client who had children a little later in life. By the time their kids went to college, they were going to be near their retirement time. As we discussed the situation, their children were quite young still, saving for college was a new idea. Something they had to think about was that if they chose to pull away from saving for retirement in their 40s, 50s, 60s, things would begin to look very different. There is nothing wrong with doing that but there are ramifications. We worked through several different options with this client and determined how they could save simultaneously for college and retirement.
Covering all college expenses doesn't have to be a primary goal…
For some people, it is structurally impossible to be able to save enough for college. There is no way they can prepare enough, because of the means that are available to them, to be able to save for college in advance. Many people know they will have to work through college, or they have to look at other funding possibilities such as grants, scholarships or loans. Knowing that you can set your goals accordingly.
Covering college in its entirety doesn't have to be the goal. Set a goal that's achievable for you. You are probably saving for retirement and other things. Most of us have competing things for which we are saving. Don't get discouraged in this process. The enormity of college expenses coupled with saving for retirement can be overwhelming. While there are hard choices that need to be made, it is doable so don't be disheartened.
For example, you could determine a dollar amount you would like to put towards your child's college. Then you give the remainder of the financial responsibility to them which could come in the form of work programs, scholarships, grants, student loans, etc.
Exhaust all of your grant, scholarship and loan opportunities…
And go in that order! With grants and scholarships, there is not a requirement to pay the money back, it's simply something that is earned. With student loans, it's still a good option but you obviously have to pay them back.
We had a client whose child was accepted to a very expensive private school. Beyond what the family had the means to pay for. The client went through the process of filling out an application for Federal student aid which gives some indication about the amount of responsibility that each family has for college expenses. Even after they went through the process and got that number, it was still very overwhelming and challenging for them financially.
This client didn't get discouraged. They went through an exhaustive process of finding every grant and scholarship available to the child. There are some amazing opportunities out there that are specific to geographic location, academic scholarships, children of veterans, too many categories to list here. There is some work involved with identifying these opportunities, but if you do the work you can obtain these scholarships. The client eventually came up with nearly 20 scholarship opportunities that very nearly covered off their portion of their child's college expenses.
There are so many options out there and now with the Internet, it's much easier to vet the various opportunities. Even if it's $500 or a $1,000, no number is too small because it's that much more you don't have to take out in student loans or out of your pocket.
First, don't neglect your retirement savings. There are ways you can save for college and retirement simultaneously. Second, covering all of your child's college expenses doesn't have to be your goal, especially if you have multiple children. Set attainable goals that fit within your financial space. Finally, exhaust all grant, scholarship and loan opportunities…and in that order. Take the time to research and apply for everything because you never know what those possibilities might be.
While the thought of saving for college can be daunting, there is help. Don't be afraid to consult with your tax advisor or financial planner to make sure you are getting a holistic look at your financial space and what the future looks like for you.
Interested in hearing more about this topic? You can listen to the full episode of the North Main Financial radio show on WSIC by clicking here: College Expenses (3/16/19)
If you have questions about your financial goals, or would like to talk with us further about our services, give us a call at (704) 987-1425 or visit us at www.northmainfinancial.com. If you wish to schedule an introductory meeting, we would be happy to meet with you at no cost or obligation to you.
These Blogs are provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of SagePoint Financial.