Ten Steps to Funding a College Education
March 30, 2011So what does college planning look like in the real world? That’s an excellent question, and since I don’t have a child in college yet, let me share with you what I hope it looks like:
My daughter Rachel is 12-years old. She will be attending the University of North Carolina (she doesn’t know that yet, but she will—Go Tarheels!). This year the cost to attend was about $6,000, so her mother and I will plan on paying for her tuition; she’ll be on her own for books, fees, and other expenses. Her grandpa has already contributed $6,000 toward his granddaughter’s education, so we figure we’ll need to save another $280 a month to meet our goal.
My son David is 10. For some crazy reason he likes Duke. At $42,000 a year he better like it a lot because he is going to have to help pay for it. His mother and I are willing to pay 50% of the tuition for two years. That means David may have to go to the local community college for a few years before transferring. We’ll still need to save about $340 a month, but we suspect David will get some help from financial aid in the form of student loans, scholarships, and maybe some state and institutional grants.
Ethan is 8. Ethan likes video games. He doesn’t particularly like school, and even though he is only 8, I don’t see that changing anytime soon. We see our children as individuals, and Ethan is more of a free spirit. We believe there is a greater potential for success by NOT attending college (Steve Jobs, anyone?), so for now his mother and I are content fostering his creativity. Besides, if Rachel or David do not use all of their college savings, we can always use it for Ethan.
And then there is Jacob. Jacob, Jacob, Jacob. Jacob is 5. He is a ball full of energy, but we have no clue which direction he will take. At this point, we’ll simply plan on a public four-year education. That means Susan and I will have to set aside about $200 a month. Since Rachel will be done with school before Jacob enters school, we will put Jacob’s $200 a month into Rachel’s 529 account. Since I own the account, I will be able to decide how much of it is used to pay for Rachel’s education, and how much to leave for Jacob’s education.
So to bring March to a close, I can think of no better idea—especially since it was my bosses idea—than to offer a college planning checklist to help those of you with future scholars to make the grade (please, no comments about my puns).
College Planning Checklist
Step 1: Decide what your college planning will include
Do you want to fund a private or public education? Will your child attend a community college or head straight to a four-year university? Are you planning to pay only for tuition, or will you also plan on covering books, fees, and room and board? Do you hope to cover 100% of the cost, or will you plan on sharing the cost with your student?
Step 2: Explore the current cost of education
The average published tuition for a four-year public school is around $7,600 a year ($27,000 for private). When you add in room and board that number climbs to over $16,000 ($37,000 for private). If you have a specific school in mind, go to The College Board Web site and look up the current cost associated with your school of interest.
Step 3: Based on steps 1 and 2, determine how much you’ll need to save
Use the Education Savings Estimator to calculate how much you would need to save each month in order to attain your savings goals. Remember, college expenses are inflating at around 5.5% a year, but your school’s inflation rate may be different.
Step 4: Choose a savings vehicle
For a review of college savings vehicles, visit my March 9, 2011 blog post.
Step 5: Forecast your child’s eligibility for financial aid
Use the FAFSA4caster to estimate how much financial aid may be available for your child when he or she attends college. To learn more about the different forms of financial aid, see my March 16, 2011 blog post.
Step 6: Complete the FAFSA in your child’s senior year of high school
In January of your child’s senior year, go to http://www.fafsa.ed.gov/ and begin the process of applying for financial aid. Based on information you provide on this application, your child will receive a financial aid package from each school to which they apply.
Step 7: Apply for scholarships
In addition to completing the FAFSA, talk with the guidance counselor at your child’s high school about local and national scholarships he or she may be eligible to receive. Have your student complete scholarship applications based on the counselor’s suggestions.
Step 8: Choose a college
Whether it’s two years at the local JC, or straight off to the four-year university, choose a school that offers your student the best environment for success. Although yours truly made his decision sight unseen, a campus visit is probably a good idea.
Step 9: Consider nontraditional sources of funding to help pay for education
In addition to college savings accounts and financial aid, shortfalls can be covered by home equity loans, retirement savings accounts, cash values in life insurance policies, gifts from friends and family, or current income.
Step 10: Take advantage of tax benefits for education
Whether it’s tax-free distributions from college savings accounts, deducting interest paid on student loans, or claiming an American Opportunity or Lifetime Learning tax credit, you should take advantage of all tax benefits available to help offset the cost of education. To learn more, read IRS Publication 970, or see my March 23, 2011 blog post.
There you have it. Ten steps to funding a college education. All that’s left is watching your child walk across the stage to accept their diploma, just don’t forget the camera and tissues 🙂