Make a Plan for College
College financial planning requires foresight, research, vigilance, timing, and an understanding of strategies, options and applicable laws. While that may sound complex, much of the detail can be categorized and simplified into these 8 simple college financial planning strategies.
1. Start Early If You Can
Parents should start early by working college financial planning into their monthly budgets early, even in small amounts. This is important because it:
- Establishes good routines for the long run
- Is less disruptive of your budget and lifestyle, and
- Reduces the impacts of external factors such as tuition hikes and increasing loan rates
2. Know What College Costs
Monitor college costs, including tuition, fees, books, room and board, transportation and other ancillary expenses. Keep in mind that college expenses are greater than just the cost of tuition. Bear in mind, as well, that expenses differ between community colleges, private colleges and universities, and public colleges and universities.
3. Look Into 529 Savings Plans as an Investment Option
The 529 college savings plan is named for Section 529 of the federal tax code. The plans were introduced in 1996 as a way for taxpayers to have their college tuition savings exempted from taxes at the state level for colleges to be attended in the state where the taxpayer lives. This applies to states that have an income tax, such as Illinois.
There are two types of 529 plans: college savings investment plans and prepaid tuition plans. Prepaid tuition plans lock in tuition costs at current levels but can only be spent on fees and tuition at public universities and colleges in the state where you pay income tax. If that does not work for you, the college savings investment plans offer other ways to benefit from tax exempt savings.
The 529 plans can be a great way to pay less for a college education, but there are some caveats and work-arounds for taxpayers residing in states with budget problems, such as Illinois. Check with your financial advisor to walk you through those details as well as how the new tax law affects 529 plans and overall college financial planning.
4. Invite Your Child to Contribute
Whether by saving some now, working while taking courses, or applying for financial aid and loans, it is always a good idea to get your student to understand and “buy in” to the college financial planning process. A child who understands and appreciates the discipline and awareness required of college financial planning will also better appreciate and value the education they receive.
5. Understand Financial Aid
Talk to the financial aid office of the colleges or universities your student anticipates applying to. Each offers or has access to different loan plans, grants and scholarships. As well, they offer tools and handy calculators that help you determine the costs of attending.
6. Look into Scholarships
Businesses and organizations provide funds locally and nationally for students looking to get into a particular line of work, or students having particular backgrounds, interests, talents and abilities. A little research on what scholarships are available to you and your student can generate results which will help defray college costs. It is worth looking into because the availability of these funds to your child may surprise you.
7. Ask Other Family Members to Contribute
For those lucky enough to have other family members who are looking for ways to support your investment in your children, consider allowing them to contribute to the costs of their education. This can be done in many ways with regular gifts, such as birthday and graduation gifts, or a one-time contribution.
8. Seek College Financial Planning Advice from Professionals
There are other considerations, such as how a life insurance policy may work into college financial planning strategies, as well as others. Speak to your financial advisor about all of the your best options for college financial planning.
College Financial Planning at Tranel
At the Tranel Financial Group, we seek to increase our clients’ clarity and confidence about their financial future by sharing financial strategies through The Life Enjoyment Experience™. To start the college financial planning process, call us at (847) 665-1862 or connect with us using our Contact Form.