In this post we will be discussing College Planning which should not be confused with College Funding. We at College Funding Professionals consider College Planning to be a comprehensive overview of the entire process. It is a 30,00ft /360 degree view of how you will be paying for college with many moving parts. Conversely, we view College Funding as the investment strategies, including loans, that you would use to pay for college. Similar to the College Funding discussion, the conversation will be divided between early stage College Planning for “Pre-High School” Parents and late stage planning for ‘High School” Parents.
Pre-High School Parent
So let’s start with College Planning and how it pertains to Pre-High School parents. The biggest hurdle at this stage is simply just getting started. This might not seem like a major stumbling block but based on experience it’s the most daunting hurdle to overcome. You might be asking yourself how could this be? Well unfortunately as human beings procrastination affects the far majority of us and planning for college is no different. It seems overly simplistic but forcing yourself to learn about college planning, specifically early stage funding, is half the battle.
In our experience many families fall into the trap that is procrastination. Simply because the act of actually paying a college tuition bill is so far away. It’s hard to convince yourself that its something that should warrant your immediate attention. If you have a newborn or toddler, its easy to get into the mindset of saying “I know its important but hey we have so much time, lets look at college planning next month”. Before you know it next month turns into the end of the year which turns into lets wait to after tax day next April. Cycle repeats and your newborn or toddler is in middle school and you still haven’t started a plan. You will never get back the valuable time you lost where you could of been growing your college fund.
There is never a perfect time so you just need to be disciplined and force yourself to do it. We have spoke to literally thousands of high school parents over the years. A great majority of them have told us they wish they started planning for college much earlier. When it comes to investing, time is one of the most precious commodities. The below video is an excellent case study. Delaying starting your college planning and college fund just a couple years can wreak havoc on the growth potential.
The Financial Aid Mistake
The second most common regret from high school parents is wishing they considered college financial aid awards into their planning. There is really only going to be one resource besides yourself when it comes time to pay for college. That resource is the college financial aid system and giving you money to help you offset your college cost. So why would you fail to understand anything about how it works? In particular, how they determine a family’s eligibility for an award?
The answer is it’s actually not your fault but the “system”. No one takes the time to educate pre-high school parents on this topic until they become high school parents. They now have an 18yr old and are literally sitting down and filling out the financial aid applications. Then and usually only then will the discussion of financial aid eligibility be brought to the forefront. In our opinion this is about seventeen years too late!!!
It’s impossible to have an accurate understanding of your goal as far as how much money you need as a family to pay for college, if you do not factor in and ultimately learn how to forecast the potential amount of a future financial aid award. For example, lets imagine your goal is coming up with a college funding plan for your 6yr old son. You might just do a quick search and look at the cost of attendance at universities in your area. Lets say your state school costs $35,000 a year. Factoring in average inflation and then multiplying the cost over four years, you come up with a total of $160,000. This represents your investment goal for the money you need to save.
Now two things are going to happen next both of which are bad for you as a family. First off, a lot of families will stop right there and say to themselves “what’s the point”? We’re never going to be able to save that much money. So they just give up and resign themselves to borrowing for most or all of the $160,000. This mindset is one of the major contributing factors on why the student debt crisis exists today.
Now if the family doesn’t get discouraged and actually moves forward, good for them. They’re on the right path and following one of our golden rules of Do Something, Never Nothing! So they proceed with putting a college funding plan in place. They do so most likely without one extremely important piece of information, an accurate goal! Why is that? Well it’s simple, they failed to factor in a potential financial aid award. They’re under the impression that they need to save roughly $160,000. So their entire thought process as far as what investment is right for them is centered around this number.
This could literally affect every aspect of their funding plan. This includes the amount of risk they take in a particular investment strategy. For example, they might choose a more aggressive strategy than they are comfortable with cause their lofty goal of $160,000. They might also possibly reduce or even eliminate contributions to their own retirement plan such as a 401k. All in an effort to invest as much money as possible into the college fund to meet their goal.
The Right Approach
Now, imagine if they did factor in financial aid. They knew how to forecast what a potential award might look like. They would now know based on their families particular situation there is a very strong possibility that they would receive roughly $20,000 a year in financial aid money. Multiply this out over four years you’re looking at around $80,000 of financial aid. In turn, reducing their out of pocket cost in half to only $80,000 instead of $160,000. Now think about how much of a drastic difference this would have made in their planning. Everything from what college funding strategy was right for them to how much to contribute every year would possibly change.
Don’t forget about all those families that never even made it to this point and just threw their hands up in the air right after learning they needed to save $160,000 for just one child’s college education. They ultimately just resigned themselves to having to borrow the full amount. If these families knew the real number was much closer to half the amount they thought they needed to save, the far majority would not have felt so discouraged and would have moved forward with some type of strategy.
So as you can see, pre-high school parents need to desperately avoid the two most common pitfalls; procrastination and failing to factor financial aid into their goals when coming up with the right investment strategy for their family.
High School Parent
Now that we have discussed early stage college planning for pre-high school parents, it’s time to move the discussion to late stage college planning for high school parents. As we have discussed in earlier posts, the high school parent, particularly those of juniors and seniors, are right at the “finish line” when it comes to planning. This is due to the fact their child is so close to graduation. We at College Funding Professionals solely focus on the financial side of the conversation so we will not be addressing test taking, the common application or curriculum. We will focus on the only resources besides yourself that you have to offset the cost of college which is the college financial aid system.
What you first need to realize is that applying for college financial aid is a process and it will play out over anywhere from six to eighteen months depending on when you start. So as you can see, it’s not something that is going to happen quickly and there are a lot of moving parts. Because of this fact, it is extremely important that when you approach this from a mental standpoint you break down the entire process into stages. This will help you avoid feeling overwhelmed or possibly confused while also helping you be better organized. This includes setting goals, completing tasks and ultimately managing your progress in the most efficient and effective way.
The below video does a great job of describing the four stages when applying for college financial aid;