Financing a College Education
Do you ever wonder how you are going to pay for a college education as costs continue to go up, and up, and up again? As the saying goes, you can pay now or you can pay later.
Most of the time, it is better to pay now. Paying for a college education is no exception, but many parents and/or future college students find themselves unprepared for the finance piece of the puzzle when college arrives. When you are unprepared, your options are limited. Many students are forced to either borrow money, settle for a school that may not meet their educational needs, or put off going to school altogether.
There is nothing wrong with borrowing money to pay for a college education, but if that borrowing can be minimized or eliminated with a little planning and a strategy that is tailored to your own financial situation, it is worth your time to explore the option of paying for that education now instead of later.
The tall task of paying for a college education is daunting, especially if you think about the cost in its entirety. When facing such a challenge, it always helps to set your goals one step at a time. Doing this will help you think more clearly about what you intend to achieve and how you will reach the desired result. It also may help to know that, in many cases, paying for the entire cost of a college education on your own will not be necessary.
The first step in determining how you will reach your goal will be to understand all of the factors and preserve as many of your options as possible. Factors that will impact your education financing options start with your own individual situation and the answers to questions, such as…do you have a budget and, if so, do you stick to it?
If funding a college education is a priority to you then you will find a way to make some money available each week or each month and the sooner you get started the better. Other factors include what, if any, access you have to additional funding sources, such as family members and friends. If you make a college education a priority, you might be surprised at the extent to which others can help you reach your goal. Many grandparents, aunts, uncles, and neighbors would be delighted to purchase savings bonds or help you to contribute to a college savings investment for your son or daughter in lieu of giving gifts that will otherwise be grown out of or discarded. They can spend money they are comfortable spending and they will save time that they would’ve spent shopping and worrying about whether they were purchasing the right gift.
Additional sources of college funding include governmental or scholastic grants, and civic and local scholarships. Many schools and communities make tuition assistance available to individuals who belong to charitable or civic oriented organizations.
Other factors that will impact cost and your ultimate financial goal include whether or not the student plans to live at home while attending school, if they will be a full-time or part-time student, and whether or not income from a part-time job will factor into the equation. Most colleges reward good students with employment opportunities that help to offset tuition cost. As an example, many schools employ students as Residence Assistants in dorms for the purpose of monitoring dorm life and providing a guidance resource. Resident Assistants often receive a sizable reduction in their tuition and room and board costs while they serve in that capacity.
Clearly, there are many variables and options that are worth exploring and understanding before you determine more specific funding targets and your ultimate goal will be much easier to achieve when you are able to break the process down into smaller parts. The common thread in these options is an early start to saving as much money as you can.
While there are a seemingly endless number of investment choices, it is typically best to match your need to a corresponding plan. In other words, if you want to save for college, it is best to do so using an investment plan specifically designed to maximize your college savings and one that offers you all of the corresponding benefits. There are several legitimate investment options available, but it is important to identify the specific option that best works for you. It is also important to select an option that is specially designed for your goal and your time horizon.
Investment options will differ from state to state as will the benefits of each plan, but most plans offer a lot of flexibility that you can use to your advantage. Many plans allow for multiple contributors at varying times and, in many cases, tax credits are also available to the account holder as well as to any contributors to the plan. Additionally, many plans provide for a re-direction of funds if college plans change.
Investment plans can be set-up for a regularly scheduled direct deposit, which can be an excellent budgeting tool for people or households with steady incomes and manageable expenses. Most plans do not require you to select a specific school nor do they mandate attendance at a school in your state.
If college is right around the corner and you have not been able to save enough to cover the costs, borrowing may very well be a necessity. If this is the case, shop for the best programs and rates. Be sure to fully understand the repayment terms of any loan you obtain. They are often different than other loans because there is typically a deferment clause that allows the student a certain amount of time to complete their coursework before they have to begin making payments on the loan. Sometimes the deferment applies only to principle and other times no payment of any kind is required until studies are complete.
Student loan programs are obviously designed with students in mind and because of this, the terms are often beneficial to students with little or no income. This benefit can also be a curse, however, because the full amount of the loan is still going to come due at some point and that due date usually coincides with the arrival of a bunch of other bills, like the first month’s rent, auto expense, and other costs you incur when you enter the real world. It is hard enough to get started on your own these days without having to do so with thousands of dollars of debt already weighing you down.
All of these thoughts and considerations will help you to be better prepared when college arrives for you or your household and anything that you do to plan ahead for as long as possible will help you to not only achieve your educational goals, but to do so at the most reasonable cost possible. The more you account for and set aside now, the less you will have to pay later.
Don’t worry about figuring everything out today. The most important thing for you to do is to think about your goal and understand all of the ways that you can reach that goal…then, get started on achieving it.
Scott Arney
Chief Executive Officer
Chicago Patrolmen’s Federal Credit Union
Don’t forget, members of the Credit Union enjoy free and confidential Credit Counseling and Financial Planning through our Financial Planning and Education Center. We are here to assist you every step of the way.
