The word conjures up different thoughts and images depending on your age and stage in life. For graduating high school seniors, it’s nervous excitement sprinkled with visions of freedom and parties dancing in their heads. The parents of those seniors may have fond memories of their own experiences which are likely being overpowered by the college price tag stress.
Our last column spoke to evaluating your child’s options but once that’s done and a decision is made to go the four-year college route – how does one pay for this?
First, think back to the political climate of early 1900s Chicago where the unofficial motto was “vote early and often.” Modify it slightly and we have our theme for college savings – “save early and often.”
The second your beloved child makes his/her appearance in this world and a social security number is issued – get an account opened and start saving. A diaper genie is nice. The Jeep-like baby joggers are super cool. College savings and lack of student loan debt – far better.
A popular and powerful investment vehicle for college savings is the 529 plan.
There are other options as well but for simplicity’s sake, we will focus on the 529. The earnings grow tax deferred and qualified withdrawals (those used for eligible education expenses like tuition) are tax free as well.
In New York, you can contribute up to $520,000 for one beneficiary. There are no fees to open an account in New York’s plan and there is no minimum contribution limit to get started. There is no age limit on using the money, which means that if your child finishes their undergraduate studies with some funds left over and they return to school ten years later for graduate work, the money can still be utilized.
It’s impossible to over-emphasize how valuable these accounts can be, especially if you start a regular and systematic deposit system. If set up with your bank or payroll to happen like clockwork from the cradle onward, you will be amazed at what you can amass for your child. Over time, with a modest rate of return on the investments, it adds up.
What happens if you’ve done all that and you still can’t keep up with the rising college costs?
You’ve done your best but can only cover part of bill. First, you’re not alone so take solace there. Second, there are many borrowing options as you might expect. There are federal subsidized and unsubsidized loans. There are loans known as Federal Direct PLUS loans, also known as parent PLUS loans. There are private loan options such as SallieMae, College Ave. and more.
The important thing to remember is to put in the time and do your due diligence. It’s painful and there is nothing fun about it, but do shop the rates and the terms. All loans are not created equal. Also, borrow the absolute bare minimum. Shaving $10,000 off the amount borrowed, when speaking to a 15-year repayment period at 6% interest, amounts to over $5,000 saved in interest payments.
Finally, parents often ask about whether it’s smart to raid their retirement funds to help with their child’s education. Many things could factor into that answer, but the general rule is you can’t borrow for retirement, you can borrow for education. It will likely be preferable to keep your retirement intact.
You can always choose to help your child with their loans as time and budget allows. And then hopefully, one day, this investment pays off and when these young captains of industry are killing it in the real world, they remember all this blood and sacrifice and pay back their benefactors with interest.
Or perhaps, just maybe, we get a sincere, heartfelt thank you? We can all dare to dream. Live well and live with love; until next time.
Original content provided by Gregory Mattacola, Esq., Financial Advisor at Strategic Financial Services.
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