APPROACHING COLLEGE ISSUES THE WRONG WAY
During the 60’s and 70’s most families did not really have a problem paying or financing a college education. However, this trend changed in the late 80’s and continues today. Today most individuals approach college financing in the wrong way.
The major reason for this is because most families are planning on paying for college the only way they know how and that is the old fashioned way.
Paying and going to college today is totally different than the way it was a generation ago.
A generation ago, most college students graduated with little or no debt. If there was debt, the interest on the debt was totally tax deductible regardless of the family’s income.
Many parents and students feel the higher the cost of a college or university, the better the education the student will receive. A study conducted by the Bureau of Economic Research found “People who succeed in life socially or financially do so because of who they are, not because of what college they attended.”
The study also found that receiving an undergraduate degree from a top college or university provided no difference in career or economic success. The report said a top student who attends an average college or university will fare better in life than an average student who attends a high profile college or university.
Below are some of the main reasons why families have problems of pay for college.
► Waiting To The Last Minute
Most parents consolidate 4 to 18 years of college planning into 6 months. Families spend more time in planning their vacation or buying a car than they do in paying their children’s college education.
► Families Don’t Understand How The Financial Aid System Works
They do not understand the terminology used in the financial aid arena. Families truly do not know what is available to them in financial aid and even if they did know, most families don’t know how to apply for the aid.
► Families That Earn A High Income Or Have High Asset values Do Not Apply For Financial Aid
By not applying for financial aid; families are throwing away almost $23,000 of Federal Financial Assistance over a five-year period. This money is available to the student regards of the family’s income or assets.
► Parent Don’t Understand How Their Income Tax Returns Affect Their Family’s Financial Aid Eligibility
The financial aid formulas are run based on parents’ and student’s income tax returns. Income is the largest factor when it comes to qualifying for financial aid, NOT ASSETS. Most middle and high income taxpayers will NOT qualify for NEED-BASED financial aid at most state supported colleges and universities.
Therefore, proper tax planning is a MUST. How you complete your income tax returns could create what we call TAX SCHOLARSHIPS, which could be more valuable than financial aid.
► Saving College Assets In The Student’s Name
Most parents have been told that saving college assets in the student’s name will disqualify the student from receiving financial aid. This is not completely true. Middle and high-income earners that will have a student attend a state-supported college or university will not qualify for NEED-BASED aid. Therefore, by saving money in the student’s name could be a benefit.
► Not Knowing How To Compare Financial Aid Offers From Colleges
State supported colleges and universities do not have a lot of institutional aid available to give to students. But private colleges do!
Private colleges must compete with state supported colleges and universities.
Therefore, many private colleges attract quality students by offering them what is called “College Enrollment Incentives”.
These incentives come in the form of need-based scholarships and grants or non-need based scholarships and grants. These incentives are given to low and high-income families. Therefore, students should not disqualify themselves from applying to private colleges and universities because of the advertised cost of attending. In some instances, a private college or university COULD cost the same amount or less than a state-supported college or university.
► Most Parents and Students Do Not Understand How Scholarships Work
There are two types of scholarships – First – Qualified Scholarships and Second – Nonqualified Scholarships.
Qualified Scholarships are Tax-Free when used to pay for qualified educational | expenses while Nonqualified Scholarships are Taxable to the student. Knowing how to treat these two forms of scholarships could increase or decrease the ability of the family to receive up to $9,300 of benefits directly from the IRS.
► Most Families Do Not Understand How To Use Their Assets To Their Advantage
Families that will not qualify for need-based aid do not know how to use their income and assets to their advantage. Therefore, forcing the parents, as well as the student into higher debt. By knowing how to use what you have to work with could increase cash flow during college years. After the student graduates, these monies could be used to help supplement the parents’ retirement.
► Most Parents Do Not Know How To Borrow Correctly
Knowing how to borrow correctly could reduce college costs, create additional monthly cash flow, reduce taxes, and increase retirement savings. This could be accomplished by understanding the right way to borrow money for college.
Most families do not have any money left over at the end of the month. Knowing how to arrange your finances through borrowing and proper money management could help pay for college without changing your lifestyle or increasing your debt.
► College Expenses Are Paid With After Tax Dollars
The dollar amount spent on college expenses can dramatically affect the parents’ ability to fund retirement.
For example:
The $50,000 price of a public university (over four years), will cost a 50 year-old parent over $158,000 (assuming an 8% savings rate) towards his retirement at age 65.
If the parent is 20 years away form retirement, the same $50,000 price of a public university will cost over $233,000 (assuming an 8% savings rate) towards their retirement at age 65.