College Funding

For many parents, a college education is an important part of a child’s journey into adulthood.  Funding this part of the journey often presents a challenge, though – and potentially long-lasting financial consequences to both the parents and the child.  As we enter back-to-school season, I offer these top 3 observations to consider when contemplating the higher education universe.

1. Is college the best choice for this child?

Many parents (and grandparents) believe that college is the only route for success.  While I am a huge supporter of education, I know that education comes in many forms.  It’s important to have a conversation with your child about what they ultimately want to do as a career.  What ways can they prepare for their vocation?  Maybe it’s college, maybe it’s another route.  Many rewarding careers do not require a traditional four-year education. 

For example, one of my cousins had a talent for working with his hands.  His parents encouraged him to get a trade certification.  Now he enjoys working (and making good money) as a mechanic. I believe if his parents had forced him to attend a traditional four-year college, he would not have been as successful in life.  He probably would not have enjoyed the experience, either, and they all would probably be in a lot of debt right now.  So, just be sure to check in and ask the question: “why college?” – before you start writing checks.

The US Bureau of Labor Statistics publishes an annual Occupational Outlook Handbook with a wealth of information regarding hundreds of occupations, their required training, pay range, and projected growth rate: https://www.bls.gov/ooh/

2. If your child is close to graduating from high school, it’s time to get serious about finding the free stuff.

Sure, finding and applying for scholarships and grants can be an arduous process.  But the additional time and effort can be quite worthwhile.  Here’s a useful example from scholarships.com:

“What if you spent a total of 50 hours searching and applying for scholarships? And, after all that time and effort, you win two or three scholarships, totaling about $2,000. That’s $40 per hour, which is at least 4 to 5 times more than you can expect to get paid for doing pretty much any other activity or “job.”

Could that help motivate a young adult to put in the work for scholarships?  For the student, the payoff can be more than financial; it can also provide a useful life lesson.

There are several resources out there to help streamline the work.  The website mentioned above is one place to start.  Here’s another: https://www.fastweb.com/

3. If your child is younger (I suggest under age 10), consider opening a 529 savings account.

This investment vehicle has been called an “Educational Roth IRA” because it allows you to save after-tax money and invest it in a variety of mutual funds or ETF’s.  A 529 account can be a great savings tool if you have time to allow it to grow.  The money may be taken out tax-free as long as it’s spent on “qualified education expenses.”  This broad definition includes tuition, fees, books, computers, and even room and board at an “eligible education institution” – which can be not only colleges and universities, but also potentially vocational and trade schools.  More detail can be found here.

There are several reasons that parents like 529’s.  In addition to tax free growth, parents like that the account owner (ie, mom/dad) can maintain control of the investments and distributions, no matter the age of the beneficiary (child).  The account owner may also change the designated beneficiary at any time (helpful if, for example, child #1 ends up not going to college – you could rename child #2 as the new beneficiary).  

Lastly, just about anyone may put money into a 529 on the beneficiary’s behalf.  In other words, you can get the family involved, inviting them to contribute to the 529 account instead of buying birthday or holiday gifts.  Many parents appreciate this, not only for college funding, but also for the amount of clutter it eliminates on the floor of the living room. 

Learn more about 529’s here.

I hope this information is helpful to you and your family.  As statesman Kofi Annan has said: “Information is liberating. Education is the premise of progress, in every society, in every family.”  May you and your family navigate the education universe with confidence.