Back to school brings college costs into focus

Posted 8/21/09

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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Back to school brings college costs into focus


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 resources.

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 or call the economic hotline at 303-683-5800. Any material discussed is meant for informational purposes only and not a substitute for individual advice.


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