A couple of ground rules for your consideration:
1.
Be involved in the selection process with your
child. Getting “more bang for your buck”
is becoming an important criterion in the selection process. Colleges and universities are coming under more
pressure to disclose cost/benefit relationships for their schools. Outcomes in terms of starting salaries for
recent graduates as well as other metrics to make comparisons across schools
easier for parents are becoming more widespread.
2.
File for financial aid even if you think your
family may not be eligible. You may be
leaving money on the table by not filing.
It is not unusual for families with six-figure income to receive some
form of financial aid for a variety of reasons (e.g., multiple kids in school
at the same time, dependent parents, and special needs children, etc.). Private schools tend to be more generous with
their aid packages making them somewhat competitive with public schools. Also, file each year the student is in
school.
3.
Your child’s major or chosen field of study
should have some relationship to an occupation where they can earn sufficient
income after graduation, and no longer be dependent upon you.
4.
Have your son or daughter buy into sharing in
the cost of their education. They can do
this by working part-time while in school, or through student loans or a
combination of both. This rule may be
the most important, and parents should be receptive to it and be able to
explain the benefits to their children. Care
should be taken to insure that they will not amass more debt than they can
reasonably expect to handle after graduation.
Having skin in the game is not a guarantee, but it can go a long way in
achieving successful college outcomes.
Two excellent web sites for helping to finance college are www.finaid.org., and www.savingforcollege.com. These sites provide detailed information for
applying for financial aid, scholarship availability and Sec. 529 plan
information for tax-free college saving.
I am often asked by parents, if they should borrow from
their 401(k) to help pay for college. This
is not a good idea for several reasons. There
are many options available for borrowing for college, but borrowing to pay for
retirement is not an option, Also, a
401(k) loan can turn into a taxable distribution if your employment is
terminated, and subject to a 10 percent tax penalty if you are under age 59
½. I once worked at the same company where
a father of three borrowed from his 401(k) to help pay for the kids’ college education. The last I heard the kids all made it through
college and were doing fine, but dad was still working. He expects to continue working indefinitely,
or until all three children begin supporting him if he lives long enough.
