Are you making these 6 college planning mistakes?
Many students prepare to attend college each year, but how many are ready to handle the cost? Here are some tips to help you and your student avoid the financial crunch.
This post comes from Allison Martin at partner site Money Talks News.
It's a common piece of advice students hear year after year: Study hard so you can go to college and land your dream job. But how many discussions transpire in the home about the high cost of attending college?
Just like almost everything else in life, college comes with a price tag. While parents may not want to burden their children with figuring out how the expenses will be covered, the issue must be addressed at some point. And you must have a plan.
Here are six costly college planning mistakes you want to avoid:
1. Not discussing who is responsible
Have you determined who will foot the bill for postsecondary expenditures? Instead of playing the guessing game with your children, prevent conflicts that are bound to erupt from a lack of disclosure.
Your child's expectations about your contributions may not match reality. In a recent survey, T. Rowe Price found (.pdf file), "Twenty-nine percent of parents say they expect to pay for most or all of their kids' college costs, while 53 percent of kids who were surveyed said they expect their parents to pay for most or all of their schooling."
It's completely understandable for spouses from varying backgrounds to have different viewpoints on who should foot the bill, but what matters is that the two of you get on the same page and then discuss it with the children.
2. Stashing funds in a traditional savings account
Have you been stashing away funds in a savings account with a measly interest rate of, at best, 1 percent? If so, now's the time to consult with a reputable financial adviser to evaluate and enroll in a college savings plan that will best suit your needs.
Stuart Ritter, senior financial planner at T. Rowe Price, told Forbes:
The idea that parents think a savings account is better for college than a 529 plan is akin to a retiree believing a savings plan is better than a 401k or IRA. They are missing out on financial opportunity.
Going the extra mile to set up a college savings plan may seem like a headache, but it's definitely worth the hassle and will make your money work even harder for you.
3. Ignoring inflation
Because the cost of college has been increasing at a pace far higher than the rate of inflation, you must ensure that whatever plan you choose will generate a large enough return to keep up with those inflating costs.
Unfortunately, I witnessed the looks of despair on students' faces each semester during my stint as a governmental accountant, because they couldn't understand why, even after their parents had saved up for many years, their stash still wasn’t sufficient to cover their expenses.
4. Compromising your nest egg
The power of compounding interest works well in both college savings and retirement plans, so it may be tempting to stash away any residual funds while your children are young in order to fully fund their college education.
However, you can always borrow for college, but you can’t borrow for retirement.
If you want to be working well past retirement age, put the kids' education first. (And if you happen to stumble across a scholarship program that covers the cost of living during retirement years, let me know.)
5. Delaying the process
If you're waiting on that one big break -- an inheritance, a risky investment, or a child who's a brilliant scholar or has NFL-level athletic ability -- to cover the costs of college, you may find yourself out of luck when your children reach the age of majority, and wishing that you'd used better judgment.
Remember, the power of compounding interest will be in your favor if you invest your funds wisely.
6. Not understanding how 529s work
Because 529s are among the most popular college savings plans, let's take a closer look at some of the most common mistakes that savers make, according to LearnVest:
- Failing to read the fine print. The types of 529 plans vary by state.
- Spending the money on expenses that aren't allowed. The money can't be used for some college-related expenses.
- Using the plan as a piggy bank. Withdrawing funds early for emergencies will trigger taxes and a penalty.
- Missing out on free rewards. Credit card programs like Upromise offer perks to 529 account holders in the form of cash-back deposits on select purchases.
Whether you decide to establish a 529 account or some other college savings plan, it's important that you get started sooner than later to give that investment time to grow.
More from Money Talks News
VIDEO ON MSN MONEY
1) Choosing a major that is not in demand at a compensation level you are not willing to live with
2) Choosing a college that you can not afford without debt
3) Choosing a college who does not have a positive reputation in your area of study
4) Choosing a social life over an academic life while in school
5) Leaving high school without being prepared for the major you wish to pursue
6) Leaving college without a skill that is in demand, debt, and non-competitive academic record
The article's financial concerns are valid. But they're only part of the story.
Don't go to college to "find yourself". A lot of kids in the 1960s and 1970s found that didn't work very well. Today it's much too expensive. "Find yourself" while you're in high school, or get a menial job after high school and "find yourself" then.
Don't believe the school's hype about job opportunities after graduating from their programs. Spend time to research those job markets to verify real job opportunities first. And consider that if too many people flock to that same career then it will saturate and those jobs / pay won't materialize.
If you'll pursue a technical degree, first research what skills and tools the industry expects you to know before they hire. Then make prospective schools show you that they can provide appropriate training. For example, if you want electrical engineering / chip design find if industry expects you to be able to use certain CAD programs - then check that the school has and gives you experience with those programs. All schools can teach the basics, but today industry expects more.
If your degree will not be in business, use your electives to take business courses. Companies expect you to be fluent in business-speak even if your job duties will not include management. And you may be thrust into management some day anyway, and will fare better if you understand at least the basics of business.
certain majors can pay back pretty well. others, not so much.
but we need writers, artists and historians just as much as scientists and doctors.
in the end all you can do is what you're good at.
it may not pay off financially, but hopefully the student loan debt load will be managable.
my only other advice to young people is you can never get out of a federal student loan under our current laws, to tread with care. tread with care. there's little political traction right now to cut students with unreasonable student loan debt any slack. 'you signed, you pay' is the general consensus.
Most of the graduates I know got their sheepskin and went right back to the jobs they already had: waiters/waitresses, shop mechanics, salespeople, phone mill slaves.
That's because they can't get a job in their chosen field, degree or not. Many would-be jobs are filled with H-1B visa foreign workers paid half the old 'going rate'.
So what's the point of an education? If it wasn't for those pesky, expensive classes, it's a lot of fun on the parent's tab I guess.
If you borrow money for liberal arts you might as well flush that money down the toilet.
Oh yeah, and if you want to "work with whales and dolphins" you are pipe dreaming.
White LA Cop beats black woman senseless on video--
On paid leave.
Wheres big Al Sharptounge and Jisim Jackson?
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