VOL. 129 | NO. 85 | Thursday, May 1, 2014
Rays of Wisdom
Dana and Ray Brandon
Paying for the College Dream
By Ray and Dana Brandon
Ray’s Take: Education is one of the greatest gifts you can give, and the value is clearly calculable. It’s also something that deserves a serious conversation.
Per Sallie Mae’s article “How Americans Save for College 2014,” roughly 50 percent of families are saving for college. Of those not saving, 22 percent expect their children to obtain financial aid or scholarships to pay for college and 16 percent believe it is their children’s responsibility to pay. So should parents pay for college, or should the kids “have some skin in the game” and pay for part or all of it?
There are a number of financial vehicles for saving for college, such as 529 plans, custodial accounts, savings accounts and even checking accounts. All of these saving options can be funded by the parents, and some can be jointly funded by parents, grandparents and children depending on funding restrictions.
529 plans offer more tax advantages, but carry significantly more restrictions. Custodial accounts have more flexibility, but eventually that money belongs to your kids to spend as they wish, usually by age 21.
Then there are student loans. Starting life after college with a student loan can be a significant headwind for a young person beginning their career, but it can be a necessary tool in paying for college. And there are pros and cons to parents in setting aside money for college. It gives your children greater options in schools to attend, but it can be a detriment to obtaining financial aid.
All of these financial vehicles should be part of the college discussion, along with other avenues. For example, is it possible for the student to obtain an academic or athletic scholarship? What steps does the student need to take to create the best possibility of being awarded a scholarship?
Dana’s Take: As a parent, when it comes time for our kids to go to college, we want them to have the best of everything and don’t want them to start out life in debt.
We may have already put money aside and now realize it’s not going to be enough and start looking for other places from which to pull funds – sometimes even out of our retirement accounts. That’s perfectly understandable, but not a good idea. Your kids have the rest of their lives to pay off any debt they incur for college, but you are the only one who will be funding your retirement.
Let them have some responsibility for their education, and maybe it will have more meaning to them. If everything comes on a silver platter, how ready for life will they really be?
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.