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Some sound advice on affording college costs
DAVE CARPENTER; The Associated Press
Last updated: November 8th, 2008 01:42 AM (PST)
CHICAGO – The stock market swoon that has shrunk retirement savings by double digits this fall also has put a big dent in Section 529 savings plans, the state-sponsored programs for college costs that offer significant tax breaks, as well as other accounts earmarked for college savings.
Parents should make the college selection process a purchase decision that’s akin to buying a car – or more precisely, a new car every year for four years – said Tim Higgins, a certified college planning specialist.
“People who get wrapped up in the decal that’s going to be on the back of their car are probably going to make a bad, emotional buying decision,” Higgins said. “They should be looking for a good education that fits the student at a reasonable cost that their family can afford.”
Here are excerpts of his comments in an interview with The Associated Press:
How can parents of college-bound students limit their expenses?
There are two good options that people were less enthusiastic about five or seven years ago: looking at in-state public schools or at private schools that may be safety schools (fallback choices) for your student.
Whenever you’re looking at state schools outside your own state, the costs almost double.
Wealthy private colleges where your student is going to be one of the better students coming in may be willing to give you merit-based money or be much more lenient in their need-based formulas to lure the students they want.
What’s a cost-cutting option that’s often overlooked?
SAT (or ACT) test prep. This is huge, because it not only helps you get into schools where the door wouldn’t have been open but also can bring thousands of dollars in merit-based aid. I think it’s one of the best investments parents can make in the process.
It might cost you $200 for an online program, $500 or so for classroom prep or up to $2,000 or more for personal tutoring.
What’s an appropriate amount of debt to take on?
One question I often get from parents is what is the right amount for the student to borrow. It depends on the family’s finances and what field they’re going to go into and how much they’re going to be making. I like to cap the student borrowing at the (federal) Stafford loan rates, which works out to $27,000 over four years. That would be somewhat equivalent to a car payment for the student when they get out. Once you start getting up into the $40,000 range, the $60,000 range, that’s a ton of pressure on the student to be able to make those payments.
For parents, I’d say do a financial plan. Maybe the answer as to how much they contribute is zero, depending on what they want to do. And that’s fine – that just makes them focus on different colleges, … such as spending the first two years in community college.
Originally published: November 8th, 2008 12:42 AM (PST)
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