Zombie Economics: College Costs

Rick Emerson, Author of Zombie Economics, joined us today with important information about decoding college costs and how to pay for higher education.

For more financial tips from Rick Emerson, check out his Zombie Economics website.

1) My kids are fairly young – how do I make sure that what I’m saving now can cover their college costs in the future?

One of the best ways to do this is something called a 529 Plan; this is an investment option –similar to a mutual fund– administered by the state. Money put into a 529 Plan grows tax-free and can be spent tax-free (on education costs). When you set up your 529 Plan, look for something called an “age-based portfolio”; this kind of plan is automatically adjusted over time to meet a specific goal by a specific year. It also means you’ve got a fund manager tracking the investment for you, which means less stress in your life.

Parents should set up the 529 account in their own name, listing the child as the beneficiary of the plan – this ensures little or no effect on eligibility for financial aid. (It also means that any unused money can be transferred to another child or withdrawn.)

You can set up a 529 Plan either through a financial advisor or on your own; you can see more about all of this at Oregon529Network.com.

2) College expenses can be incredibly confusing, with a ton of fine print and “extra fees”. How do I know what the real cost is?

Assessing college costs is like buying a car: a page of numbers, none of which seem to be the bottom line. It’s important to pay attention to the language: when you see “tuition”, that’s the cost of the actual education – what you’re getting in the classroom. When you see something called a “fee”, or an “indirect cost”, that’s an extra charge...but it’s still a mandatory expense.

The number you want to know is the “cost of attendance”. This is the total, final, bottom-line amount it takes to get you out the door with your diploma.

The good news: Federal law requires colleges to make the “cost of attendance” readily available to students or prospective students. They don’t go out of their way to tell you, though, so you need to ask...and be sure to specifically request the “cost of attendance” figure.

3) When it comes to financial aid or grants, where’s the best place to begin?

Seven words: The Free Application for Federal Student Aid, or FAFSA. The FAFSA is used by all kinds of groups and organizations as a basis for awarding scholarships and loans; it’s also used to determine things like Pell Grants and grants from many states. If you’ll need financial aid, you need to fill out the FAFSA, period. You can do it yourself for free, or you can hire a consultant to walk you through it, but it all starts by going to: fafsa.ed.gov.

4) Many parents face the difficult question of whether to co-sign a college loan. What do parents need to consider when making this decision?

This is a tricky area. Parents want to help their kids in every way they possibly can...but, at the same time, parents need to make sure that they’re not endangering their own financial stability in the process...beginning with retirement. Remember: there are college grants and college loans....but there’s no such thing as a retirement grant. When that money’s gone, it’s gone.

Parents need to take an honest look at their own finances, as well as what their son or daughter can reasonably expect to receive in aid or grants...and what the child can be asked to contribute on their own. These are awkward conversations to have, but also remember this: the parental instinct to help your children never goes away, and if you jeopardize your own financial situation in the short term, you may not be able to save your children down the line....perhaps from a true, life-and-death situation.
 

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