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Financial Planning for College

by Lindsey Getz

If you have kids, then you already know that time flies. It feels like one day you’re bringing your baby home from the hospital and the next they’re off to kindergarten. As much as college planning may be the last thing on your mind right now, the truth is that time will also come quicker than you may expect and the earlier you can start planning, the better.

Start now
Saving for college is undoubtedly daunting. Education costs have soared in recent years. In fact, according to the most recent data from Bloomberg Business, college tuition and fees have increased a whopping 1,120 percent since records began in 1978. It’s easy to get overwhelmed by the numbers, but the financial advisors we spoke with say that starting small is better than not starting at all.

“You have to start somewhere,” says Rick Udine, managing director of Morgan Stanley Wealth Management in Mount Laurel. “A lot of people get intimidated by even the idea of saving for college and don’t start at all—and that’s a costly mistake. Start an account off with $500 or $1,000 and then try to put money away monthly—or even just quarterly if you are starting small. The idea is to start rather than to continually put it off.”

All of the experts we spoke with echoed the same words of advice—“start early.” It may sound like common sense but it’s something that parents do tend to put off.

“It’s important to remember that time is your ally when it comes to saving for college—or anything else for that matter,” says David Tobin of Tobin Investment Planning in Voorhees. “The longer you have, the better you’re able to use the market to your advantage, and the more you can save.”

Udine adds that getting into the habit of putting money away regularly is also important. Most parents are establishing 529 accounts, which are tax-free, as long as they’re used exclusively for schooling. He advises making regularly scheduled deposits to such an account.

“A lot of people use direct deposit these days and find that a lot less painful,” Udine says. “If you can set up a direct deposit from your paycheck to your 529 plan, you are more likely to set yourself up for success. And in time, those small deposits will really add up.”

Develop a plan
Tobin says that saving for college is really no different than saving for anything else in life—whether that is a big vacation, retirement or when to take Social Security. The first thing to do is to create a budget that includes an estimate of what your costs are, what your time frame is, and how much money you already have on hand toward that fund.

The advisors we spoke with suggested utilizing an online resource to calculate the estimated expense. There are many free college tuition calculators available for this very purpose.

“You have to recognize that the numbers are estimates, but it’s still very helpful to have some sense of an overall budget,” Tobin says. “When planning ahead for young children, you have no sense of how much you might receive in financial aid or scholarships and you must plan for the worst case scenario—that you have to pay it all.”

In other words, hope for the best, prepare for the worst. It’s practical advice for many aspects of life. Fortunately, in the case of college financial planning, there is some hope. Theodore R. Massaro, a financial consultant with M Financial Planning Services in Marlton, points out that financial aid is available to a large number of college-bound children.

“High-income individuals may not qualify but my advice is to always pursue it,” Massaro says. “It doesn’t cost anything to find out if you’re eligible.”

Massaro adds that smart college planning also means knowing what program might be best for your child.

“Once they have any sense of the kind of career they want to pursue, it’s beneficial to start researching the program that will suit them best,” Massaro says. “There is something to be said for finding an institution where you are going to succeed. It has become somewhat of a trend for students to start off at a community college while they’re exploring their career options and then transferring to another school only after they have a strong direction of what they want to do in life. It is a hard financial hit to have to add one or more semesters because of being unsure what career to pursue.”

Tobin echoes a similar sentiment.

“It’s so important to find the right fit,” Tobin says. “And it’s more important to do well where you go than to go to a top name school just for the name recognition.”

Don’t break the bank
While saving for college is important, our experts all stressed that parents need to keep their own financial future in mind while planning for their children’s education.

“Don’t sacrifice your own long-term financial savings because there’s no retirement financial aid out there,” Massaro says. “Students can find money through financial aid and even by earning some of their own income during the summer.”

“I encourage my clients not to go into debt to pay for their children to go to college,” Tobin agrees. “Their retirement has to take priority.”

Tobin says that students need to be wary of the future debt they may be generating if they choose a school that is completely out of their family’s budget.

“Students do not want to graduate with a ton of debt,” Tobin warns. “If you look at the interest rates on student loans these days, they’re higher than a mortgage. That’s a tough way to start off as a young professional. It is best to be realistic in your college selection and to do well where you go. And once you do graduate, you need to start planning how to pay back your debt before it will totally cramp your future savings.”

Published (and copyrighted) in South Jersey Magazine, Volume 13, Issue 1 (April, 2016).
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