TulsaKids asked Catherine Sandetin, a local investment advisor with Utica Capital Management to answer a few common questions about college financing.
TK: What financial advice would you give to parents who have a child who is a freshman, sophomore or junior who is planning to go to college?
CS: Many parents get frightened at the prospect of having one or more children in college. They think they cannot afford the tuition and they are not poor enough to qualify for financial aid. The first place they consider getting the money is by raiding their retirement account. STOP! I tell my clients that with proper planning they can finance just about any expense EXCEPT for their retirement. But don’t despair. There are options available if you haven’t been saving in a 529 College Savings Plan for the past 17 years. Also, most loan requests do not consider the parents’ values within their retirement accounts or the value of their home.
Option 1:
Grants and scholarships. A recent poll by Mathew Greenwald & Associates Inc. for investment management firm Alliance Bernstein LP indicates that out of 1,358 parents polled, 87 percent are counting on their children receiving grants or scholarships. In that same poll, 200 college financial aid administrators told a different story – 92 percent think parents overestimate the amount of grant and scholarship money. My point in bringing this up is to say - absolutely check as many sources as you can for “free money;” however, make sure you follow through with other types of student loans. There are a number of scholarship search services on-line. Check out FastWeb, www.fastweb.com or the College Board’s scholarship search service, www.collegebard.com, to match student profiles to scholarship opportunities.
Option 2:
Federal Student Loans. First complete the Free Applicant for Federal Student Aid (FAFSA form) - even if you think you do not qualify. The Stafford Loan is not need based, has a current capped interest rate of 6.8 percent. These loans offer more flexible repayment options. The drawback is the annual limits, ranging from $3,500 for freshmen to $5,500 for seniors.
Option 3:
If student loans are not enough to cover all expenses, PLUS loans are federal loans to the parent (Option 2 is a loan that is repaid by the student). This type of loan does not have annual limits other than the loan cannot exceed the cost of the education less any other forms of aid.
Option 4:
Many colleges have their own financial aid - it should be listed on their respective websites.
Option 5:
Loan forgiveness programs. Search the web for these types of loans if you know what your major will be. Nothing is free - these programs will forgive loans in exchange for service of some kind. Consider math, science and special ed teachers who agree to work in low income schools for a period of time. The American Federation of Teachers maintains a list of state-by-state offerings at http://aft.org/teachers/jft/loanforgiveness.htm. In addition, there are public service organizations such as AmeriCorps.
Option 6:
Be creative. Look everywhere you can. Spend some time in the library to address your specific child’s needs, goals, interests and talents.
TK: Many grandparents are helping grandchildren pay for college. What are the best ways to help?
CS: Grandparents are awesome when it comes to helping with college expenses. Consider at your child’s first birthday that you have established a 529 College Savings Plan. Show all grandparents how easy it is to give (have envelopes ready with account information attached). Every time a holiday rolls around - remind the grandparents that, while current gifts are wonderful and thoughtful, a gift towards their grandchild’s college education can have a profound impact on that child’s ability to earn a good living.
If it is too late to establish a 529 Plan and now grandparents are offering to help, ask them to make their checks payable to college - not you or the grandchild. If the check is payable to you or your child, it is considered a gift and subject to gift tax rules. If the check is payable to the college, it is not considered a gift.
TK: Are there tax-advantaged vehicles or savings plans that grandparents can use? How can grandparents contribute without impacting the student’s financial aid package?
CS: Most parents need all of the help they can get when it comes to assistance with college. Different financial aid packages consider different assets - by all means, if you have a grandparent who is willing to put money into a 529 College Savings Plan - do it! If it is too late for 529s, see above and have the grandparent write the check directly to the college.
529 Plans do not offer a current year tax deduction for dollars contributed. The dollars contributed can be used for qualified college expenses without being taxed on the growth. For this reason they are good funding vehicles if you have a number of years before college. They are not appropriate to initiate in the year your child is going to college. Please consult your financial advisor for specifics regarding maximum funding, ownership, and other options. |
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