August means back to school for all ages. This marks another year closer to college tuition, or perhaps a hike in tuition for returning college …
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August means back to school for all ages. This marks another
year closer to college tuition, or perhaps a hike in tuition for
returning college students. Either way, it is time to review the
cost of college.
Families struggle with meeting tuition bills with dwindling
account balances. Even for high schoolers, there might not be
enough time to wait for a recovery before the funds are needed.
Aggregate costs for four-year colleges rose more than 5 percent
last year on tuition, fees, room and board, according to this
month’s “Financial Planning.” This did not include books,
transportation or pizza money.
Schools are also working on reduced funds with state budget
problems and endowments down, resources are shrinking.
College is no different than any goal that requires adequate
advanced planning. Starting early and helping your teen to
determine what colleges are within range will go a long way when
things get tight. Helping them understand what their personal
financial commitment will be for the school of their choice will
also help them make good decisions.
Families should work with financial aid counselors and college
advisers to help determine what options are available. Most forms
of financial aid are a combination of loans, work-study and grants.
Very few receive actual handouts. Learning the differences early on
will prepare the student and the parent for what to expect.
When kids can’t meet the tuition bill due this month, due to
reduced 529 or investment account balances, it is time to discuss
alternatives. Perhaps there are other family resources that can
work as a bridge loan until other assets can be moved around,
liquidated or compounded. Consider if there is still enough money
for the remaining years and determine if it makes sense to activate
a loan now instead of senior year.
Some advisers may advocate borrowing money on a home equity line
of credit while interest rates remain very low if that helps
stretch the money. Current bank rates may be as low as 3.99 percent
while standard education loans are running 6.8 percent.
A recent study on college grads showed the earnings potential
topping at an additional $1 million for those with a four-year
degree. There is little doubt higher education is very valuable
from many aspects which are all important to consider. The
financial reward may be helpful motivation when considering going
into debt or attending a less expensive school.
Parents may think about paying out of pocket and then reimburse
themselves in later years from the 529 plan if they believe it will
grow. There are also tax considerations families should be aware of
that may help rebate some of the bill. Some credits are only
available on funds not withdrawn from a 529 plan such as the
American Opportunity credit. Therefore, repaying yourself later may
still allow for the credit to take place.
There may also be tax benefits only the students are eligible to
take if the parent’s tax bracket is too high. Therefore proper
planning is essential to tie everything together for attaining that
college degree with the least amount of hardship to the family
Patricia Kummer has been an independent certified financial
planner for 22 years and is president of Kummer Financial
Strategies Inc., a registered investment advisor in Highlands
Ranch. She welcomes your questions at www.kummerfinancial.com or
call the economic hotline at 303-683-5800. Any material discussed
is meant for informational purposes only and not a substitute for
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