Doing your homework best way to limit the cost of college
Two of the most expensive life challenges are paying for college and financing a retirement. Some people experience both of these things at the same time. Decisions must be made about how to approach this situation.
College costs have been rising at a much faster rate than inflation for decades. Student loan debt has become a huge national problem. It is relativity easy to get college loans, but it is much harder to pay them off. The first step to solving this problem is to try to hold down the amount that is borrowed.
Many people make an emotional choice about which educational institution to attend. State schools generally have lower tuitions than private colleges. This does not mean private schools are always more expensive to attend. Private schools often give more merit aid to students.
The first step to controlling educational expense is to carefully select a major. You must work 30 to 40 years in your chosen profession, so hopefully it will be in a career you enjoy. There are tests you can take to find out where you have natural ability and interest.
You want to make certain there are employment opportunities in whatever field you choose and have an understanding of the income you can expect. The goal should be to borrow no more than what you will earn in one year of employment. This will enable you to pay off your loans in a reasonable time.
After you know the area you will study, you have to determine the best school to attend. Lower-income families can get Pell grants and other aid from the government. Higher-income families will not qualify for this aid. They will need to determine what schools will offer the best merit aid, considering factors such as grade point average, SAT score and class rank. There are ways to search for this information.
Attending the right school can reduce the total cost of an education.
It also is important to plan to graduate in four years. About half of all students do not accomplish this goal. Some said they want a lighter course load to improve their grades. This can increase the cost tremendously. It also takes longer to start earning what is hopefully a higher income.
It may be a cost savings to do the first two years at a community college. They usually have lower costs and you may be able to live at home at a lower cost than in an apartment or dormitory. There may be some tax breaks you can take advantage of to get the government to help pay for higher education. Some of these benefits phase out at higher incomes.
Parents need to make sure that helping their children finance an education does not ruin their retirement. You may be able to reposition some assets to reduce your expected family contribution.
It is important to have a college outflow plan and a retirement plan. You can do both. Make sure you are taking advantage of any company matches for contributions to a 401(k) plan. It is hard to beat free money.
In a future column, we will discuss how to make both of these important goals achievable. Start by keeping your borrowing needs as low as possible.
Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.