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Last-minute Tips for Paying for College – a Critique and Alternative

Are these “TIPS from the Pros” all they have to offer?

The root cause of the struggles of funding college is exemplified In the article “Last-minute tips for paying for college” by Jessica Dickler. Her article is based on tips from two financial advisors – Richard Polimeni from Merrill Lynch and Liz Miller of Summit Place Financial Advisors, along with Joe DePaulo of College Ave Student Loans and Eric Greenberg of Greenberg Educational Group. From these so-called “Pros” she put together five tips on how to put together a successful college funding strategy – even at the 11th hour.  One would think that these “tips” are provided as “it’s not too late to come up with a few last-minute strategies to ease the burden of the sky-high cost of college.”  Let’s look briefly at each one and provide a bit of context respectively. (Click to view the article.)

1) Fill out a FAFSA – “Cobbling together”

Her point of filling out the FAFSA as a gateway to aid and scholarships for the next semester is absolutely true. Federal student loan funding will be available next semester for your student. There is the interesting phrase “you can cobble together a bunch of these”; this seems to indicate that there is no need to have an over-arching college funding strategy. This “cobbling together” often leads parents and students signing their name on any accessible funding source without understanding the consequences.  In my experience, “cobbling together” is not a valid way towards creating a successful college funding strategy.

2) Take out a Loan – Really?

The first rule of thumb, which seems to be missed in this article, is that loans MUST be paid back. The second rule is that is missed: you sign it, it is yours.  The thought process to this paragraph seems to center on the phrase: “weigh this option carefully”. Fine, but how to you really weigh this? Think about all your friends and family members who contribute in part to the $1.4 trillion-dollar student loan debt and the impact it has on their lives.

The amount of the student loan is not to be based on the amount of retirement savings as suggested in the article.  The two are NOT interconnected. The article fails to point out that a loan is simply a financial tool for obtaining capital to finance a present undertaking.  The use of this tool is to be weighed much more on a present and future cash-flow analysis, not the amount of savings going into retirement.

3) Maximize your Payments

I’m not too sure what the point was to this “tip”. Is it to spread out tuition payments or to do estate planning? I’m not sure how this will help families in the “11th hour”. The headline doesn’t correlate to the content.

4) It’s not too late for a 529 plan – Yes it is!

Having been a financial advisor, it is a misconception to think that a 529 plan is a way to pay for immediate upcoming college expenses. 529 plans are investment tools are required time to make the market risk involved worth the fees and lack of liquidity. Over the years I have had to explain to many parents that “they were sold something” by their financial advisor – and ended up taking out less than what they invested. I fail to see the “tax-advantage” part to that scenario.
Just imagine: As concerned parents you set aside $10,000 a year for two years thinking that you will use the growth of the funds in the third-year tax-free. Isn’t that a great plan? Financial advisors will say “absolutely” and make their commission.  But let say the rate of return is -5% for those two years? How wise was their advice? This is not very prudent for households putting together a successful college funding strategy – at the 11th hour.

5) Consider a part-time Job

This is by far the best tip of the five. Most parents want their kids to have some “skin-in-the-game”.  It is a valuable experience to spend time flipping burgers or selling clothes. Having a part-time job can have a real grounding effect for the student.  Often students can come up with their spending money doing this.

A missed opportunity to give quality tips for paying for college

The target audience of the article are families with immediate, upcoming college expenses.  The root cause of the struggles of funding college is that it is not affordable for each respective family. None of Ms. Dickler’s sources were wise enough or grounded enough to say: Sit down, take a moment, develop a realistic college funding plan according to your needs, financial capability and values. These “financial pros” miss the core point.  These tips will not lead you to have a successful college funding strategy. In fact, “cobbling together” or investing for short term gains or simple taking out a loan because it is available is a recipe for disaster.

One additional root cause of the struggles of funding college is that the people who should be given quality advice are simply selling products. Granted, most “financial pros” simply don’t know any better – that is what they have been taught to do since entering the industry.

Parent Planning 4 College’s Four Last-Minute Tips for Paying for College

1) Creating A Realistic College Funding Plan

The main goal for every family is to make college affordable. The first MUST-DO tip is to develop a comprehensive, realistic college funding game plan. Spend the time together as a family and work it out.  A reasonable, accurate, college funding plan covers all two, four or however years their student will need to finish with a degree. If this point is missed, parents, you will always be looking for last-minute tips, and ways to make ends meet, living semester by semester, often living by “hope”. (Hope is not a very good financial strategy.) Here, briefly are four points to your creation of your college funding plan:

  • Start with the End in Mind: This phrase, made famous by the late Stephen Covey, applies to the college path as well. What career does your child want to be in. What major / degree is needed to have a good start in the career field. And how many years will it take for your child to get this degree. If this is not clear, make sure your student is only taking transferable classes. (See our course: How to Guide your Children towards College Success)
  • Estimate your COA for each year. The cost-of-attendance will vary depending on what type of post-high school education is desired and which institution your child will attend.
  • Estimate your EFC and with this your family’s estimated amount for out-of-pocket / scholarships / grants / loans for each year. This step is often totally missed and as a result, the expectations of loans, grants and scholarships do not correspond to your student’s and family’s financial and college situation.
  • Have realistic expectation on your future graduate’s earning potential. Many students believe they will earn what their parents make the day they graduate from college. This figure is necessary to help make a quality decision on the amount of loan funding one should accept.
How to Make College Affordable

2) Establish a “Cash-flow” for the first semester.

To this belongs the tip from the article – consider getting a part-time job. We all know that college is expense – parents and students just don’t realize HOW expensive it is.  The goal here is to get through the first semester and use this time to get a successful college funding strategy in place by the start of the second semester.

3) Ask Grandparents and Uncles/Aunts for support.

Most of us know that our parents love us. We also know our parents love their grandchildren even more! Don’t overlook this possible funding source. Have the courage to ask. (Caution: a financial gift from the grandparent / friends will impact the aid-eligibility of your student for next year if it used for college COA expenses.)

4) Don’t follow financial gimmicks.

As parents, we want to help our kids. We understand that. Yet our desire to help our kids must not override our financial groundedness.

Making college affordable requires a bit of thought and discipline. In our course, “How to Make College Affordable”, we guide you as parents through the process of developing a realistic college funding plan. This needs to be done for each of your children, regardless of your financial means. Your kids deserve this from you, their parents.

About the Author Dija and Robert

Hi and Welcome to the Parents Planning 4 College Family! For years we have been helping families tackle their unique college preparation challenges. We can help reduce your stress and make better quality decisions - and save you a lot of money!

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