College Affordability -- the sooner you know, the better

Do you understand affordability? How much money, per year, can you lay out on college costs for your children?  What factors must you consider?  What can you do to bridge the gap?

  1. How much money per year can you lay out on college costs for your children?
    1. Know the actual costs per year.
    2. Colleges publish "Cost of Attendance" estimates.
    3. Cost of Attendance includes tuition, mandatory fees, dormitory rent, on-campus meals, books and supplies, travel costs to and from home, miscellaneous out-of-pocket expenses
    4. Without borrowing any money, how much of that total can you pull from your monthly cash flow?
  2. What factors must you consider?
    1. What is the anticipated college-costs inflation rate? The prices do tend to go up every couple of years.
    2. Never, never, never touch retirement funds to pay for college. That includes money already set aside, and monthly contributions from current income.
    3. There are four questions about retirement to consider, all determined by your current retirement funding plans.  Based on what you are doing now (err on the side of caution), for your money to last throughout your spouse's and your life expectancy:
      1. What Rate of Return must your accounts average?
      2. How many more years will retirement needs require you to work?
      3. How much more do you need to be saving monthly?
      4. By how much will you be forced to reduce your lifestyle in retirement?**
**if you think you can do that, why not start now and put those extra dollars into your retirement account?
 
3. What can you do to bridge the gap?
a. Every student is eligible for the Federal Student Aid program (college loans to the student for which the parents have no obligation).  The loan amounts top out at around $27,000 over four years (with some additional possible up to about $31,000 total).
b. Federal Pell Grants may be offered for students from lower income families.  Those are need-based grants-in-aid, not loans.
c. Draw on resources that present the lowest, possible risk. Some people go to home equity.  The risk is, should something happen to your income down the road, you could lose your home to foreclosure. Obviously, reducing current lifestyle expenses during the college years is the safest option (although not the most pleasant) to free-up extra cash.

Sometimes families are transferring wealth away unknowingly and unnecessarily.  We offer a no-obligation/no-charge audit to help you know.

Posted in College Planning, College Planning Strategies, Retirement Planning. Tagged as Cost of College; College Affordability;.