Articles
Getting the Kids Involved in
Saving for College
The World War II generation got a taste of higher education through
the G.I. Bill and made it a point to supplement or pay their kids’
tuition. It was a struggle, but a far more manageable one than
it is in this day and age. Figures from the University of Texas
in 2005 showed that since the 1960s, the price of a public higher
education has risen from about five percent of median family income
to more than 17 percent today.
Based on the current pace, that number could rise to 30 percent
of median family income by 2020. Private universities could approach
50 percent.
Scary numbers indeed. That’s why it makes sense for families
to make college affordability a family effort - with both parents
and kids pitching in. That’s a big change in 40 years, where parents
considered it a badge of honor to put their kids through school
with no debt.
But there’s a bright side to involving your child in the process
of saving for college. They’ll get an early education in money
decisions that will have a direct impact on their future. Here
are ways to make sure you’re well informed about the college savings
process and how to involve your child:
Get advice as early as possible. Even if your child has
only a short time until high school graduation, get advice tailored
to your own situation from a trained expert such as a financial
planner professional. Parents often forget that their first financial
goal is retirement planning, not college saving, so they need
to start with the following points:
- What parents will need to support their retirement;
- What they can contribute to their child’s college fund based
on time to retirement and to freshman year;
- The best savings strategies for parent and child based on
the tax situation for both;
- A primer on college financial aid in all its forms. Depending
on the child’s need for financial aid, parents need to know
what kind of assets they should hold in their child’s name and
in what types of accounts for the best chance of securing financial
aid if it’s needed.
Involve your child in the discussion. Armed with knowledge
from the financial planning process or your own research, start
talking with your child about their financial contribution through
money from part-time jobs, savings or, as a last resort, debt
after college. Parents might decide to schedule two advisory meetings
with a planner - one for themselves, and a second one with the
child.
Lack of money isn’t the only reason kids may be asked to contribute
or shoulder debt. Blended families with ex-spouses who either
don’t want to make a contribution or haven’t agreed to pay tuition
as part of a divorce settlement can be a sticking point. Whatever
the reason may be it needs to be presented honestly to the child.
Tackle the FAFSA first. The dreaded Free Application for
Federal Student Aid (FAFSA) is a necessity for all parents who
believe there will be some shortfall in paying for college after
savings, grants and scholarships. It’s a good idea to fill it
out even if your needs aren’t immediate; family finances can change
for the worse. Your child won’t qualify for federal student loans
until you fill out this form. To speed the process, get your taxes
done as early as possible in the year your child will need the
funds. Colleges typically dole out money on a first-come, first-served
basis, so you’ll need your income documentation in order.
Once the FAFSA is processed, the Department of Education determines
financial need and the parent’s EFC, or the expected financial
contribution. If parents can’t cover the EFC, the student has
to come up with a way to close the gap. There’s a way to rough
out what your EFC might be - go to http://finaid.org/calculators/quickefc.phtml.
Start looking for free money. On the community level,
you might find corporations, associations and other groups that
offer scholarships and grants for local students, particularly
those going off to state or local schools. Students can generally
find out about local opportunities through their high school guidance
counselor. If the student works for a company on a part-time basis,
there might be college support there. Also, the College Board
(www.collegeboard.com)
Web site features a good online clearinghouse for scholarships,
grants, internships and loans, as well as www.fastweb.com.
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