Effective College Financing Strategies for Parents
The financial difficulties of going to college have long been a challenge for American families. Decades ago, it was feasible for a student to pay for college with the earnings from a summer job. However, those days are gone, as college costs today can rival those of a new car, or even exceed them, for just one year! A bachelor’s degree, which many students take longer than four years to complete, can easily cost over $100,000 at an in-state public university.
Importance of Early Preparation
Raising such a large sum of money poses a significant challenge for an 18-year-old. Therefore, it is crucial for parents to begin preparing for their child’s higher education early. Proper planning can alleviate years of crushing debt for both the student and their family.
The Student Loan Crisis
The student loan crisis currently impacting the nation indicates that existing strategies are failing. Many students face considerable financial challenges, compelling their families to assist financially. This often means parents are taking out student loans on behalf of their children, which can have long-lasting repercussions.
Long-Term Effects of Student Loans
As a parent, contributing to a child’s education via loans can feel like paying off a mortgage that results in no ownership. Some student loans have repayment windows extending up to 30 years. For example, if a parent assists their child with college costs and takes out loans, they could end up paying well into their retirement years. Consequently, this scenario highlights the risk of managing student debt far beyond the expected timeframe.
Consider the Job Market
Furthermore, challenges in the job market remain a significant concern for today’s college students. With automation and artificial intelligence increasingly capable of performing tasks traditionally requiring a college degree, students must acknowledge this reality. Pursuing degrees in high-demand fields can still result in financial burdens if they accumulate substantial debt.
Avoiding Financial Hardship Through Planning
Effective college planning is a gradual process. Ideally, it should start when your child is born. Consider savings vehicles like a 529 plan, which provides tax benefits and allows tax-free withdrawals for eligible education expenses.
Additionally, life insurance can serve as a viable alternative. Unlike a 529 plan, a properly structured life insurance policy with a cash-value component won’t negatively impact financial aid considerations.
The Importance of Scholarships
Encourage your child to pursue scholarships. The more “free” money they can secure through academic or athletic accomplishments, the better their financial position will be. Even if they aren’t high-achieving students, a wide variety of scholarships exist for diverse activities and interests.
Explore Alternative Education Options
Consider other educational paths as well. For students uncertain about their majors, starting at a community college to complete general education requirements can be a less expensive and sometimes free option. If your student is interested in technical careers, trade schools provide a cost-effective route that can lead to high-paying positions.
Engage Your Student in Financial Planning
Set expectations early. Discuss openly what financial support you can offer and ensure your child understands their responsibility in funding their education. This collaborative approach not only emphasizes accountability but also fosters a deeper appreciation for their academic journey.
It’s vital to explore different types of available loans. Some loans have more favorable repayment terms and should be discussed thoroughly with your student.
Long-Term Financial Responsibility
Many parents find themselves nearing retirement still repaying student loans taken out for their children. This situation can be burdensome, emphasizing the need to prioritize personal financial health. After all, jeopardizing your retirement to support a child’s education can lead to unforeseen future financial struggles.
This article reflects the views of the contributing adviser and is not endorsed by iBestTravel. For verification, check adviser records with the SEC or FINRA.
