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Education Planning

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  • Welcome to The Parent Trap!
    Today’s parents and future parents are facing a serious dilemma: Should they focus on saving for their retirement or for their children’s education? The answer is; they must save for both! There is a saying that “you can get a loan for your kids’ education, but you can’t get a loan for your retirement.” So, how does one go about savings for college, a comfortable retirement and all of the other expenses that come up along the way? Actually, there are more ways than ever to save money for college and provide great flexibility should plans change in the future.

    Before considering any investment option, parents should consider two important facts:
    1. The number of years until their child enters college, and
    2. How much risk they are willing to accept.
    Given sharp market drops in recent years that have devastated many 529 college savings plans and other types of savings, parents are wise to begin saving early—as soon as or even before a child is born—and invest conservatively. BCG financial planning experts can assist you in looking at various scenarios to determine how much you should save to help meet future college needs.

    Ideally, everyone would have a rich uncle or grandparents that would gift the amount required for your kids’ college education but that’s probably not the reality for most people. Still, gifts of any amount given over time can really help out. (A BCG financial planning expert can help you learn how a structured gift plan can add up and may even be tax advantaged.) For most parents, however, there are typically six basic sources they can turn to for college funding:
    • Current assets (savings) and income
    • Any funds that the student may have saved
    • Loans
    • Lines of credit (home equity)
    • Financial aid
    • Scholarships
    Scholarships are the least predictable source of funding since they rely on the unknown future talents and academic standing of your child, as well as on the availability of scholarships at the college or your student’s choice. Still, it is surprising how many scholarships are available. To learn more about college scholarships and what scholarships might be available to you, visit www.collegeboard.com. The College Board’s database lists more than 2,300 sources of college funding, totaling nearly $3 billion in available aid. The greatest advantage of your student obtaining a scholarship is that unlike loans, scholarships never need to be paid back!

    Financial aid in the form of low interest loans and grants is available to all college-bound students. Each year, the U.S. Department of Education processes nearly 14 million Free Application for Federal Student Aid (FAFSA) loan forms. A wonderful advantage of federal student loans is that no payment is required as long as the student is enrolled. Grants are a form of financial aid for undergraduates that don’t have to be repaid. For information about financial aid and grants, visit the U.S. Department of Education web site at http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp

    A home equity line of credit (HELOC)is an excellent way to help finance a college education. If you have substantial equity in your home, you many qualify to borrow against your equity at affordable rates. One advantage of using a HELOC versus a private loan is that you borrow from the equity as you need it so you only have to pay interest on money you actually use. Another valuable advantage is that the interest you pay is usually tax deductible.

    Loans in the form of personal bank loans and private student loans typically carry the highest interest rate and should be considered after all other sources have been exhausted. A parent loan for undergraduate students (PLUS) is another government-provided alternative which may have reduced interest expense but requires that the parent immediately begin repaying the loan.

    Current assets and income, including that of the student, should be the most important source for college funding. This means that parents should begin a savings program very early in their child’s life if not before he or she is born. The longer you have to save, the less you will have to sock away each month to meet your goal. For example, if you anticipate that your college cost will be $60,000 and you wait until four years before your son or daughter starts college to begin saving, you will have to save $1,250 each month (not counting any compounded interest you earn). On the other hand, if you begin saving when your son or daughter is born, you will have about 17 years to save and will need to set aside just $294 each month (again, not counting earned interest).

    Parents and grandparents can choose from an array of investment options to fund college tuition including:
    • Gifts
    • 529 Plans
    • Bonds
    • Stocks
    • Mutual Funds
    • Stable Value Funds
    • Money Market Funds
    • Custodial Accounts
    • Life Insurance
    • Student Aid
    • Student Loans
    • Coverdell Education Savings Account (ESA)
    Try the college savings calculator, or contact a BCG financial planning professional. We can help you sort through the many options and work closely with you to create a college savings plan that will help you meet both your college and retirement savings goals.


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    Grace Ghezzi
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    gghezzi@bcgcny.com

    (315) 474-1707

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