By The Trust Company on March 11, 2016
Get schooled on financing college and paying off student loans
It’s no secret that the cost of college is escalating, which is a major concern for many families. While financing a post-secondary education can seem daunting, planning for the future sooner rather than later is the best way to start.
Mark and Ann Knackendoffel developed a clear vision for how they wanted to handle financing their children’s educations. The couple would pay for half of each child’s college expenses — tuition, room and board, books — and each child would be responsible for the other half. Any scholarships earned would be entirely credited to the child’s half.
They discussed the plan with their children early on, so that there wouldn’t be any surprises come high school graduation. Not only did this help inform the children’s decisions on where they went to school, it also taught them financial responsibility.
Mark and Ann’s strategy is one of many approaches families can take to cover the cost of a postsecondary education.
“There’s no one-size-fits-all solution for financing college,” said Katie Seay, CFP®, Director of Financial Planning at The Trust Company. “Planning is — and should be — specific to each family’s situation.”
When you come out of school and you’re not worried about a large student loan payment, it makes it easier to start out on good financial footing. Katie Seay, cfp®, Director of Financial Planning
Funding an education can include any — or all — of these strategies:
High school guidance counselors and college financial aid personnel can be a wealth of information. These specialists, trained and familiar with helpful resources, can steer students in the right direction.
An education roadmap
Two years at a vocational, technical, or community college? Four years at a private college? Attend a public university? Setting goals for a course of study or future career will help students find a good fit for their postsecondary school — and anticipate cost.
Students can set aside personal income for college — the earlier, the better. Extra money from summer jobs, babysitting, allowance, and holiday gifts can add up in a savings account.
Not every scholarship equals a free ride, but those $300 and $500 scholarships can go a long way. Doing the research to find opportunities big and small is worth the effort.
Part-time student positions are offered on many campuses, but students should strike a good balance between earning extra cash and focusing on their studies. If students are working so hard to make ends meet that they can’t handle their course loads, the income may not be worth it.
The generosity of parents, grandparents, and other family members can help ease the burden on students. Money for college can be given outright or through a tax-advantaged 529 plan.
And, of course, there are loans. Federal loans can be subsidized, meaning they don’t accrue interest until the repayment period, or unsubsidized, which accumulate interest from inception. Students should do their research here, too, and be aware of what they are signing on for.
Paying Off Debt
For those students who take out student loans, it’s important to pay them off as quickly as possible.
Strategies for paying off debt — whether student loans or other types of debt — include:
Tackle higher-interest loans first. Student loans may not be the first priority. For example, if a student has a car payment with 5% interest, credit card debt with 12% interest, and a student loan with 6% interest, paying off the credit card debt first is the best course of action.
Make more than the minimum payment. Whenever possible, students should bump up their loan payments. By paying even a little extra, they can really make a dent in reducing the principal, life of the loan, and overall amount paid.
Consider consolidating loans. While not always the best option, loan consolidation can be a helpful strategy depending on the terms and interest rates of the current loans compared with those of the consolidation.
Take the big picture into account. Because each person’s situation is different, factors such as income and cash flow, projected payments, and upcoming purchases should figure into the plan. Financial planning professionals can help families work through these questions and develop an all-encompassing plan for debt repayment, budgeting, and savings.
Also keep in mind that students don’t have to take the full amount offered by lending companies. By only taking what they truly need, they can spare themselves the added principal, interest, and longer repayment timelines.
That holds true for parents as well as children.
Just as flight attendants tell passengers to put on their own oxygen masks before helping others, parents should put their own financial needs first.
“You can finance college, but you can’t finance retirement,” Seay said. “Set priorities. Make sure you’re taking care of yourself.”
Involve Kids Early
Parents should also include their children in planning by starting an age-appropriate dialogue early on. Helping children open a checking account and showing them how to balance it will teach them how to handle money responsibly.
“We made our children make all the payments for their college expenses themselves,” Knackendoffel said. “It seems more real and personal when they write the check. Each of our kids have worked hard, and signing the checks themselves adds to their sense of accomplishment.”
As children get older, parents should discuss expectations — theirs and their children’s — for the future. Involving a financial advisor in the discussion can be beneficial.
“High school is a great time for families to come in and learn about expectations,” Chase said. “Expectations of what post-secondary education looks like, how much parents are willing to set aside for their children’s education versus their own retirement, expenses five to ten to fifteen years down the road — talk about all of these expectations with a financial planner who can help your family create a realistic plan.”
The landscape of education may be changing, but establishing a plan now will help families navigate successfully into the future.
Take Action! Call 800.285.7878 or stop by one of our offices today to learn how The Trust Company can help you form an A+ plan to match your family’s educational goals and dreams. TheTrustCo.com