Preparing to send your child to college is one of the most overwhelming times in a parent’s life. So many decisions to make, so much planning to do, so much you didn’t even know you didn’t know. FJY recently hosted an event to help educate our clients on some key strategies in both planning for and paying for college, and we got some great tips from speakers Laura Wessells from Sallie Mae, Adam Anthony from William & Mary, and our own CEO Jon Yankee.
CHOOSING THE SCHOOL
• With close to 7,000 public and private academic institutions for your child to choose from, picking a college can be overwhelming. It’s easy to be influenced by a high-profile reputation, your own alumni ties, or even fancy buildings. But, as Adam Anthony observed, “The most important measure of college quality is one that will best promote the happiness, mental health, and access to opportunity for your child.” Yes, it’s important to take into consideration things like research opportunities, professor/student ratio, study abroad programs, and departments with strong track records, but at the end of the day it needs to be the best fit for your future student, and, in Adam’s words, “you shouldn’t try and force someone who’s 6’5” into a Ford Fiesta.”
• The sticker price for a college is not necessarily what your family will pay. Some schools will discount their out-of-state tuition rate to match that of the highest priced public college closer to your home. These deals can be based on reciprocity programs between universities, scholastic achievement, and military or public service, among other factors. Consult a representative at your chosen institution to see what options are available before ruling them out on cost alone.
• Making a substantial donation to a particular college is HIGHLY unlikely to influence your child’s chances for admission. That money could be put to better use being saved for tuition or living expenses.
FUNDING THE SCHOOL
Laura Wessells explained that Sallie Mae’s recommended college funding strategy is three-fold:
• First, find free money that doesn’t have to be paid back: scholarships! Scholarships are awarded based upon a wide-ranging set of criteria. From athletic and academic accomplishments to community leadership, ethnic or religious background, even for being left-handed. Duck Tape actually runs an annual contest offering a $10,000 scholarship for the individual who makes the most creative prom outfit utilizing their signature product. salliemae.com/college-planning/tools/scholarship-search is an excellent resource to begin your search. Also, make sure you continue to apply for scholarships for EVERY year of higher education, not just the first one.
• Next, explore federal student loans. The FAFSA (Free Application for Federal Student Aid) is a useful and underutilized resource. Even if you think you won’t qualify, spend 45 minutes on their website (https://fafsa.ed.gov/) – you may be surprised at what you find out. If you do qualify, you are able to file now for the 2018-2019 school year using your 2016 tax return. Some states and schools have a limited amount of funds to distribute, so you should start investigating the options as soon as possible.
• Finally, fill in any remaining gaps by considering a home equity or private student/parent loans. Some student loans will offer the option to defer payments until post-graduation. Federal Parent PLUS loans allow parents to borrow the remainder of what is needed after all other aid is applied, provided the student remains enrolled at least half time. Amounts can usually be paid back over a 10-year period. Avoid tapping into your 401k savings if at all possible.
PREPARING FOR SCHOOL
Once your child has become a legal adult, and even more so once they are no longer living under your roof, your rights as a parent become increasingly restricted. Do what you can before they leave the nest to ensure you have the access you need in the event of an emergency.
• Powers of Attorney. If your child were to become injured or incapacitated, your ability to assist, or even be informed of the situation, would be difficult if not impossible without the aid of three simple forms. A signed HIPAA authorization ensures that medical providers will be able to communicate to you the full scope of your child’s diagnosis and treatment. A health care power of attorney allows you to make decisions regarding your child’s care, and a durable financial power of attorney will allow you to access and manage your child’s finances should they be unable to do so.
• Car insurance. If your over-18 child is still on your policy and is involved in a serious accident that results in a lawsuit-all of your assets are at risk. Conversely, if the child owns the car he drives and is paying for an individual insurance policy, typically the parents cannot be held liable. While the cost of an individual policy will likely be higher than what you are currently paying, the potential liability expense in the event of a significant accident is far greater.
• Homeowner’s insurance. Prior to sending your children to college, revisit your policy to be clear on what it covers and what it doesn’t. The most frequent claims insurance companies report seeing from college students include property damage, social media libel, and personal injury. Because your child is your dependent, you can be held responsible for their actions, and depending upon the seriousness of the claim, it may exceed the limits of your current policy. Based on what that review reveals, you should strongly consider purchasing an umbrella policy to bridge the gap. Additional coverage will mean additional premiums, but better to be overcautious than underprepared.