Is it time for your child to go to college? Are you worried about how you’re going to pay for it? Well, DON’T do these things!
Letting your kid cruise through high school
Encourage your child to take AP (advanced placement) classes. If they take enough AP classes and pass the tests, they can get 20 or more college credits before they even graduate high school – that’s like free money!
Not applying for financial aid
Not all financial aid is need-based, so don’t avoid applying because you think you have too much money. Grants, scholarships, and unsubsidized student loans aren’t need-based, and some colleges even offer no-loan financial aid packages.
Not negotiating your offer letter
If your child got an offer letter, it means the school already invested time in them and won’t want to waste time finding another student – so ask for 40% off. What’s the worst they can do? Say no? (P.S. – this is especially true at private universities.)
Funding UTMAs/UTGAs for higher education
UTMAs and UTGAs are considered student assets and have a negative impact on financial aid eligibility (20% on the FASFA). In addition, your child gets full control of the account at age 18 or 21 and doesn’t have to use the money for school. (So if you want your kid to come home with a shiny new Camaro and not a college degree …)
Believing it’s too late to start funding a 529 plan
529 plans are one of the most popular ways to fund college. They accumulate tax free, don’t count as income for you or your child, are deductible, and offer free withdrawals (if they use the funds for approved educational expenses, that is).
Underfunding retirement to save for college
Take care of yourself now so they don’t have to take care of you later. (And if you feel guilty, you can always help them pay back the loans.)
Using your 401(k)/other retirement account to pay for college
Most retirement account withdrawals have mandatory penalties, so it’s a lose-lose situation. (Also, see above.)
Co-signing their student loans
This puts your assets on the line just as you can see retirement on the horizon. There’s no reason they can’t have student loans in their own name – it gives them more “skin” in the game AND helps them build good credit (as long as they pay on time, of course).
Taking on credit card debt to pay for college
Only do this if you want to see Dave Ramsey’s head explode.
Taking out another home loan
For most people, equity in their home is one of the biggest assets for them in retirement – don’t endanger your biggest nest egg. (Interest rates keep going up anyway.)
Buying insurance to ‘hide’ parental assets
If your child is still a dependent, some colleges will base their financial aid offers on your assets – and life insurance isn’t required to be reported as an asset. Therefore, some “college planners” may try to convince you to shift assets to life insurance policies. Not only does this come with a fat commission check for them and very low returns for you, it’s borderline unethical. Pay off credit card debt, put more into retirement accounts, pay down your mortgage – ANYTHING BUT THIS.
Unfortunately, college tuition rates have risen yearly since 1976, and, if the trend continues, parents will have to start planning for college tuition at their child’s birth. If you didn’t start planning back then, however, (don’t worry, not many people do!), use our tips above to get started as soon as possible.
And, for further questions or tips, please contact Holdfast Wealth.