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College Planning

It is never too early to begin thinking of financing your child’s college education.  As of September 2021, the United States has $1.73 trillion in student loan debt.  According to a study by U.S. News conducted in 2021, the average total student debt is close to $30,000.  While these numbers are staggering, there is a bright spot as 42% of college graduates, graduate with little to no debt.  How can you be part of that 42%?  While there are no guarantees, there are things you can do to improve your chances of minimizing the amount of student loans your child will require to further their education.  Throughout this series, I will guide you through when to start the planning process, the different types of loans and sources of those loans, and options for saving for college.    

When to Start Planning

It is never to early to begin thinking of your child’s future.  While your child may not know what they want to do or which college they want to attend, you can get a jump on the financial side by understanding how the process works.  The starting point for each family should begin with what the family can afford vs. where the student dreams of attending.  This very statement is why the earlier you begin, the higher your chances are of having your student graduate with little to no debt. 

So, when to start, from a saving point of view I would propose the day your child is born.  If you are able to do this and contribute on a regular basis, your funds will have an opportunity to grow over a longer period of time.  I will talk more about the vehicles you can use for saving in a future article. 

When it comes to planning, I would target the day your child enters high school.  This approach allows you to gain an understanding of what a family should be able to pay for one year of college.  I will discuss this further and provide an example of how this works in a future article.

Speaking from personal experience, starting earlier would have made the college search much easier for my first student.  Luckily, I learned and gained the expertise so when my second child entered high school I used a different approach which helped me be more in control of the process. 

Sources of College Financing

Besides self-funding college, there are four sources of scholarships and grants:

  • Colleges
  • Federal government
  • State government
  • Private scholarships

What is interesting, the federal government and the colleges themselves are the biggest providers of scholarships and grants.  An item to note, your child doesn’t need to be a stellar student to receive a scholarship from a college.  In reality, most families do not pay full price for college.  The key is to understand what is available and how to qualify for those scholarships. 

Saving for College

When it comes to saving for college, starting early is important but what tool to use is also important.  There isn’t one specific tool that everyone should use, instead the best tool is dependent on your situation.  Whether you utilize a 529 savings plan, a Roth IRA or your savings and investment accounts, the important thing is that you understand how each of the tools works and what tool would be best for your situation.  This is something you can review with your financial professional. 

Over the coming weeks, I will be explaining each of the above areas further which will give you a starting point for your child’s college planning.  If you would like to schedule some time to discuss your unique situation, please feel free to contact me at mike.rebischke@lpl.com so that we can set up a 15-minute call to discuss your situation. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investment in such state’s qualified tuition program.  Withdrawals used for qualified expenses are federally tax free.  Tax treatment at the state level may vary.  Please consult with your tax advisor before investing.

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