Financial Planning

Paying For College

You sent your kid(s) off to college, now how are you going to pay for it? While you are paying your rent or a home mortgage, paying your household bills and trying to save for retirement, the additional cost to send your kids to college seems unsurmountable.

The College Board, a non-profit that helps students prepare for college, estimates that an in-state, four year public college student living on campus should expect to pay an average of $24,610 per year and a private college student should expect to pay $49,320 for the 2016/2017 school year.1 Western Washington University estimates an in-state on campus cost of $23,236 per year.2 Multiply that by 4 and add in inflation and you are close to $100,000 per student! And, what if they go on to a graduate degree?

Fortunately, higher education institutions provide significant financial aid for low-middle income families and there are many scholarship and grant opportunities for high achieving students. But, for those who don’t qualify or fail to pursue financial aid, plugging the expense gap is challenging. According to the consumer finance resource ValuePenguin, student loan debt outstanding is about $1.23 trillion as of 2015, and is even higher today.3 In Washington State, the average debt per student is $24,600. Compounding the problem, some students may be using their student loans to pay for lifestyle expenses instead of college. LendEDU conducts polls on student spending habits and a 2017 report found of 500 polled college students, 30.6% planned on spending student loan proceeds on Spring Break expenses. Close to 24% said they have used student loans to pay for alcohol.4 What can you do? Students often enter college with little financial education and may have had no job experience, but parents can change that. First and foremost, financial responsibility is modelled by the parents at home. Your kids should be involved in household financial decisions, making the connection between hard work, budgeting and spending decisions. Also, students need a clear explanation of the importance of education and their investment in themselves and future income potential. It is also helpful if your kids have skin in the game. They can work during the year, earning enough to cover part of their room and board, but also to pay for fun money. When their hard-earned money is at stake, kids are more apt to be mindful of how their funds are spent, or at least they can make an informed choice.

Beyond student loans, you can use 529 college savings accounts to help pay for college. These come in two forms:

  1. Prepaid Tuition Plans: You pay for future tuition today and lock in today’s prices. Washington had previously closed their prepaid tuition plan, called GET, because tuition prices were frozen by Congress and the GET program wasn’t benefiting students, but it is reopening on November 1st of this year. Find out more at www.get.wa.gov.
  2. College Savings Accounts: You put money into an investment account after-tax, which grows tax deferred and then can be spent in the future with tax free withdrawals on education expenses. The parent, or grandparent, is the owner of the account, so these play a smaller role in financial aid calculations. College Savings Accounts are subject to investment risk (and rewards).

These plans can have different tax advantages depending on which state you reside in. In Washington, we don’t have an income tax, so residents can use a College Savings Account from any state and the tax effect is the same. These can be opened through a financial advisor, or directly from a sponsor. If you have further interest in College Savings Accounts, you should talk to your Advisor and understand the costs, investment options and have an understanding of the tax implications, contribution limits and plan features. There are a lot of online resources to consult: savingforcollege.com has 529 info and calculators. Collegescorecard.ed.gov has great information regarding financial aid and comparing schools. Also, talk to the colleges about their financial aid packages.

1 CollegeBoard, 2016 Trends in College Pricing. Trends.collegeboard.org/college-pricing
2 wwu.edu/about/costs
3 Valuepenguin; valuepenguin.com/average-student-loan-debt
4 Lendedu, March 8, 2017. Spring Break Student Loan Study.

Mark Wallace CFP® AIF® CRPC® is a financial advisor at Skyline Advisors, a locally owned and operated Registered Investment Advisor providing money management and financial planning services. Skyline Advisors is located at 405 32nd St., Ste 201 in Bellingham and at www.myskylineadvisor.com
Mark can be reached at 360-671-1621 or at moc.r1544694454osivd1544694454aenil1544694454yksym1544694454@wkra1544694454m1544694454

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