Fifteen million students attend an institution of higher education in the U.S. every year. It’s not a secret that the cost of attending college has increased dramatically. As a result, students and families have had to change how to think about financing their education and be more proactive and involved in figuring out how to pay for it. There are options, and the earlier you start, the better off you’ll be in the long run.
Start with Your Budget
The budgeting process starts with a realistic assessment of each family’s situation. The education budget includes earning power, the number of children, anticipated cost increases, and any outside sources of assistance.
The goal of the assessment is to determine a minimum and maximum price range for schools, including tuition, books, fees, and living expenses. Once you have this range defined, you can build a list of schools within the price range. Knowing your price range also makes it easier to compare schools and packages, since they will all be relatively similar in total cost. By setting realistic goals from the outset, it will simplify the process of selecting the right school.
Reverse-Engineer Your Savings Plan
Your college savings plan is composed of the relationship between savings, investment returns, and scholarships or awards and loans; knowing your price range lets you save and invest with intention. You’ll be clear on what your annual goal is and create an investment plan that gets you to where you need to be.
529 Plans: Tax & Investment Advantages
529 plans are tax-advantaged savings plans specifically designed to help parents pay for their child’s education.
Although contributions are not deductible at the federal level, earnings grow federal tax-free and there is no federal tax on qualified withdrawals. Depending on your state, you may be able to deduct contributions from your state taxes.
All 529 plans have a plan manager, usually a financial services firm, that manages the portfolio of investments. You create a portfolio from an offering, and tailor it to your time horizon and investment preferences. Both you and your spouse (and anyone else that wants to – it’s not limited to parents) can contribute up to $16,000 per year each in 2022 and still fall under the gift tax exemption. You can contribute up to a total of five years’ worth of your annual exclusion gifts, so your child’s 529 can begin with a balance of $80,000.
The key to saving is to do it consistently, and have it automatically deducted from each paycheck.
Negotiate College Tuition
Did you know that you can (and should!) negotiate tuition costs? It used to be a well-kept secret, but more colleges are upfront about the fact that they are often willing to reduce costs to secure a promising candidate or just generally boost enrollment.
Begin with the admissions office or the financial aid office. Treat it the way you would an application for a scholarship – or a job interview. Make a strong case for what the student will bring to the school, why you need a reduction of tuition and negotiate with confidence.
If the tuition reduction doesn’t work you can also appeal your financial aid award. You’ll need to file the FAFSA to get an award from the school in the first place, but this should be standard procedure even if you don’t think you qualify for any type of federal aid. School financial aid packages vary and filing the FAFSA is the first step to qualifying.
Want help planning for future college tuiition expenses? We'd love to hear from you at amber@invariantinvestments.com.