College Funding

STEP 5: Building a Balanced Funding Plan

Building a Balanced Funding Plan
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Building a Balanced Funding Plan

Now that we've covered cost of attendance, understanding financial aid, it's time to get started on building a solid and confident as well as efficient funding plan.  Families always come in and ask me what do other families do to help fund their children's education?  I wanted to go over some of the most common mistakes that other families have made first.

First is liquidating or using the majority of their life savings.  As an example, if you've taken your entire life to save up $200,000, how long would it take you to resave that amount?  Now, think about that.  That would be the same number of years that you're closer to retirement.

Second is using all their money on their first child.  If you have more than one child, what about the second child or what about the third child?  You have to consider them too, right?

Third is assuming that they'll be able to qualify for financial aid to pay for their entire children's education. Many families just don't look into this in advance and then end up using last minute resources or borrowing to pay for college which isn't optimal.

Fourth is either borrowing student loans or parent loans to fund college.  Well, I'm not completely opposed to this.  There are still two things to consider.  First is that you're not making compound interest.  You're paying it.  And then second is, the loan payments.  A lot of times, people don't look at what the loan payments will look like after the accumulative amount that you would take out.  Most people would just think year by year or for the first year, excuse me, and then from there let's say your payment is $200 but then you have to take out maybe the same amount your second year.  So, now your payment would be $400 then the third year, then the fourth year.  Can you sustain the payments beyond the college years?

And last is failing to consider their future lifestyle or retirement needs.  You have to ask yourself, will you need to also help your child financially maybe after college for anything?

Remember that you cannot take out loans to fund your retirement and of course you're going to need an income for the rest of your life.  If you don't consider these things now or simultaneously while you're creating a college funding plan, you could be forced to make some major lifestyle changes in your future.

Now, here are some initial questions you need to ask yourself.

What investments or resources do we currently have?

You want to take an inventory.  Take a look at the list on your left and think about all the account balances that you have for each one of these items.  We actually have a little worksheet for you in the resource section for you to complete as well. After you've taken an inventory of your resources, you want to ask these questions before building your college funding plan.

In what order are you willing to use these investments to pay for college? 

What's the rate of return that you're currently receiving on these investments?

What would the tax implications be to take withdrawals from these accounts?

These would help you see what you're take home would be after the distribution.

How much does this resource count in the financial aid formula?

If it does, could you possibly reallocate the funds so they don't count the financial aid formula?  See a professional about this option and also check into what the tax implications would be as well.

And last, what's the mix of the resources that you should use to pay each year?

By that I mean how much of each resource should you use to pay each year.

Building the college funding plan:

-          First map out your net out of pocket cost for your family's college funding plan by year.

-          Decide on what strategies you’ll use to help maximize your rate of return, financial aid, and peace of mind to reduce your net out of pocket cost.  If you should redirect funds into any other type of investment or start saving into an investment vehicle for college, be sure to check out our information sheet on the pros and cons of college savings accounts.

-          Look into how much you're going to take distributions from each of your investments per year.

-          Ask yourself, what's your best guess for the balances and all the investments after you fund each year of college?

-          What will your financial picture look like after you fund college?

-          How does this change my future lifestyle and/or retirement picture?

What to do next?  Always educate yourself like you are right now and build what you believe is your best college funding plan, then you have three options.

One: you could implement to yourself and pray that it goes the right way.

Two: get a second opinion from a friend or a family member, caution with this though.  You might want to be careful because they might not be an expert, number one.  And then number two is that they might not have the right plan for your family.

Three: seek a professional's advice.  There are professionals out there that understand these strategies and can assist you through this process.  Just be sure to choose a well-qualified and experienced professional to ensure your financial serenity.


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