The question we are most often asked is, “How should we save for our children’s education?” The answer to this question is just not that simple and involves much more understanding of a family’s financial circumstances. When you ask Wall Street this question, the answer you’ll get hear is that the 529 Plan is the best tool to save for your children’s education. Depending on your family’s specific situation, that may not be the best approach at all. In fact, for some families that may be the worst decision.
Here is a list of the different ways to save and pay for college:
- Cash Flow
- Home Equity
- Life Insurance
- IRA Assets
- Roth IRA Assets
- Non-qualified Accounts
- Taxable Accounts
- Traditional Investments
- Real Estate
- Custodial Accounts
- 529 Plans
- Employer Benefit Plans
- Work Study
There are two things to consider when looking at how to pay for a college equation. The obvious is the financial aspect. The other is the student’s positioning or merit.
To start, a family needs to gain some perspective as to how the financial aid process works and what colleges expect them to pay. Having a basic understanding of how this process will impact your family specifically, can shed some insight as to what steps your family should take.
The student’s positioning
Take a simple example of a “Tuba” player. If your student has the interest and capability to play the tuba and knows that his highest priority college has a band that needs tuba players. Knowing these facts about the college of your choice increases the chances of getting accepted and of increasing the financial aid. The student has made themselves more attractive to the college than the other students that they are competing with. This exemplifies the strategy that takes research on the student’s part. The student must know their value proposition to the college as well as the value proposition of the college to them. The financial aid decision can be influenced by the student positioning themselves properly with the college.
The financial side
“The Expected Family Contribution (EFC) is a measure of your family’s financial strength and is calculated according to a formula established by law.” This statement is taken directly from the FAFSA government site. This calculation gives the financial aid departments a uniform look at all students that are applying for aid. Our experience can help with the parent’s gathering and entering the proper information to follow the guidelines without overstating the important values. Along with the form, we can assist in looking at the other cash flows that the family will see during the years that the student is enrolled in college.
From the family’s perspective, the college funding process has to coexist with the retirement funding needs of the parents. Taken in clear perspective, a banker is willing to loan money for college tuition but is not usually willing to loan money to fund retirement! That statement focuses the requirement to balance the family retirement plan with the college payment options.
Our goal is always to find that delicate balance of the best college for the student where they will be perceived highly enough to receive their full complement of aid. This part of the goal is also balanced with the knowledge of what the family can sustain as a cost structure for the student. The outcome will be the best fit of family, student and college.