Top 10 College Planning Mistakes that Can Cost You Big Time!
Here are some very common mistakes that can cost you big time financially if you don’t prepare properly in advance. If you discover that you are making these mistakes right now, please contact me so that we can create a college financial plan designed to give you the least amount of out-of-pocket expense.
- No Overall Game Plan
You know your child is going to college, but you don’t have a clear picture of what it will cost and where you will get the money from.
Are you looking at private school? Public school? In state? Out of state? All of these are just a sampling of questions to help you figure out how much it is going to cost for college education, how much you need to save today, and what after-tax rate of return your money is going to need to earn to help you reach the goals you plan to achieve to give your children financial support.
Working with a college financial planner like myself can help you create a realistic plan and projection of the real cost of your child’s education.
- Assuming that FAFSA doesn’t apply to You.
Many people assume that the FAFSA doesn’t apply to them. But filling out this one (free) form can determine your child’s eligibility for myriad types of student aid for students of all income levels–some of which don’t require repayment, like grants and scholarships. In addition, the information you report on the FAFSA determines your eligibility for federal subsidized and unsubsidized loans, which can be very affordable alternatives to other types of loans.
Additionally, if your family financial situation changes during the 4 years (or more) of college, having your past information filed via FAFSA can be vital.
- Assuming you earn too much to qualify for aid.
According to a Morningstar report*, the federal government has said that over 2 million students passed up thousands of dollars of free money from the government in the form of Pell Grants because they didn’t fill out the FAFSA. While it is true that the higher your family’s income is, the lower your chances of receiving federal grants. However, filling out the FAFSA opens up the door to possible non federal grants–from state governments, private entities, and colleges themselves–that are available to students from higher-income households as well.
Some families that earn over $200,000 can still receive aid, because if the school that the child wants to attend is very expensive then there is a greater chance for aid. Knowing what each school costs and what amount each school is willing to contribute, is also an important criteria for choosing the best solution for your family.
- Putting assets or savings in the student’s name.
While sometimes it makes sense for tax purposes to have assets in the student’s name, it is not a good idea for financial aid. Families are better off saving in mom or dad’s name because it is assessed at a lower rate and therefore will have a lesser impact.
- Missing financial aid deadlines.
The worst case scenario is missing a deadline and then losing the opportunity to have $5,000 or more in free money. Typically, colleges require that financial aid forms be submitted in February. It is important that you meet their deadlines even if you have to estimate your taxes. If you use estimates, you have the opportunity to amend things if your estimates were not accurate
- Neglecting your debts.
Generally speaking, consumer debts (credit cards, car loans…) are not reported for financial aid. Your bank accounts and saving accounts on the other hand will be counted against you. It often makes sense to reduce your assets by paying down your debts.
- Using Your Retirement Account To Pay For College
Many parents regret having tapped into their retirement funds to pay for their child’s college education. It is also not a good idea to take loans from your 401 k plan or other types of retirement plans. This can cause a major hiccup in the time value of money in your own retirement account, and can be very difficult to recover in the later years of your life.
- Not Researching Grants, Scholarships, and Loans
Scholarships are based on a variety of criteria and can be found on the Internet, in scholarship guides, and through sponsoring groups. Many can be quite obscure. I partner with an organization that has access to thousands of scholarships in one database, and can help you with the entire application process. Otherwise you can try online sites or your local schools and libraries as a resource.
- Not Setting Realistic Expectations With Your Children.
Be sure to talk to your child openly and honestly a year or two before he or she starts to think about which college he or she wants to attend. Be realistic about what kind of contribution you as parents can make to the cost of the education. Together you can work out potential options. If your child is dead set on a school that is outside your budget, you can encourage him or her to get a job and start saving. There is a big difference in price for private vs. public school, 4-year vs. 2-year community college, and in-state and out of state rates. Keep in mind though, that a more expensive school might offer more in terms of scholarships, so having a short list of schools to research would be a good start a year before your child applies. I have access to data about American universities and colleges and what level of contribution the school makes to its students.
- Raising The Expected Family Contribution
The Expected Family Contribution (EFC) is about how much of your income and savings you’ll need to spend before financial aid will kick in. Some people naturally step up their income the year before their child goes to college to prepare for the extra costs, but keep in mind that this increase in income also increases your EFC. Furthermore, if you sell an asset (home) or stocks in the year prior to filling out the FAFSA, then these are also considered into the equation. It is important to be fully clear as to what counts for your name and your kid’s name when it comes to how EFC is calculated.
Do you want personal attention and guidance throughout the entire college planning process?
I can help provide services for the entire college planning process that could potentially save you thousands of dollars. This includes helping your child produce a winning application to the right schools, helping you organize your finances, provide invaluable support for the FAFSA application process, and help you appeal for more financial aid support.
Please set a time in my calendar by clicking the button below to start the college planning process.