Parents and their children should work together to create a plan to pay for college.
A balanced budget is as vital to fiscal well-being as a balanced diet is to physical health. But for many households, the balance is tipped by the cost of higher education.
According to EducationData.org, the price of attending college has tripled in the last 20 years. The average currently stands at $35,720 per student, per year, with the average undergraduate student loan debt at $36,635. The need for financial planning is crucial, and the first step toward any savings plan is determining how much should be put away.
According to Bruce Young, a Clermont-based financial adviser with Edward Jones, timing is everything.
“If you start saving at the birth of a child and you wanted to cover a full ride for Florida in-state tuition, books, and room and board, it’s about $400 a month,” he said. “If you start later, the amount goes up.”
But don’t be discouraged by the numbers — or even if your your child is out of diapers by the time you start saving. The most important thing is to start. However, as with any college assignment, research is key.
“With the college savings plans, there is more reciprocity between states than ever. But it is dependent on one state agreeing to honor another state’s plan. Also, there is a promise to cover the cost of college expenses based on the agreed price of the plan.”
Bruce Young, Edward Jones
“In Florida, there’s two ways to save,” Young said. “One is to purchase the college savings plan from the state. The other is to invest in a 529.”
A Florida Prepaid College Plan locks in prices and allows families to prepay future costs in a lump sum or on a monthly basis. Costs specified in the chosen plan will be covered at any Florida college or university. Funds also can be used at out-of-state schools and trade schools, but total coverage may depend on the state.
“With the college savings plans, there is more reciprocity between states than ever,” Young said. “But it is dependent on one state agreeing to honor another state’s plan. Also, there is a promise to cover the cost of college expenses based on the agreed price of the plan.”
A 529 is a savings plan with an investment portfolio that can be aggressive or conservative, based on the amount of time you have to save. Earnings growth and withdrawals are tax free, providing they are used for qualified education expenses. Funds can be used for any level of higher education, as well as for colleges out-of-state and abroad.
“Investments go in, and the outcome is based on how the markets perform and behave,” Young said of the 529 plan. “Just like with retirement accounts, the longer the time horizon you have the more predictable the outcomes become.”
ORDER OF OPERATIONS
Many parents also face somewhat of a tug-of-war between saving for college and retirement.
For that predicament, Young offers some familiar advice that may seem out of context: “If you’re on an airplane in a rough spot, and the oxygen masks drop down in front of you, and you’re next to a young child, do you remember what the staff would say at that point?”
Although the scenario is different, the rule is the same: If you are not taking care of yourself, you cannot help anyone else, including your child.
“You only get one shot at retirement; college kids have options,” said Young. “They can work, they can borrow money and have years to pay it off. So, I encourage people to focus on yourself first, because you don’t want your child to have to save you.”
Balancing the budget while saving for college may seem difficult, but balancing a budget with student loan debt is a growing burden that needs to be considered by the ones who will bear it. Students need to be as involved in the financial side of college as they are in the academics.
“A good rule of thumb is, the amount of debt you take on for school shouldn’t exceed one year of income of the job that you’re pursuing,” Young said.
However, regardless of academic success, the job market may not be as stable after graduation as it was during enrollment. And any opportunity to offset the need to borrow should be taken.
Access to grants and scholarships can make the difference between manageable debt and years of payments, and high school guidance offices are the best resources to start navigating the options. But the most obvious financial solution also will provide the greatest preparation for life after college.
“What I find is a lot of kids don’t work at all,” Young said. “They’re focused on their academics, they’re focused on after school activities, and all that is great. I just think they’re missing out on, not only the earnings, but the work experiences will help guide them in terms of what they want to do with their life.”
Even if financial pitfalls occur during college, the option to work is always there. And avoiding debt by earning experience is financial, and professional advice worth taking.
“There’s no hurry to get through school,” Young said. “You just want to get through it and, hopefully, come out and say, ‘This is the career I want to have.’”
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