College Planning

Written by: Ryan Bouchey

A common question we see clients face when we discuss financial planning is should they be spending money on their children’s education costs or saving for their own retirement. Although it may be a difficult decision for a parent to make, our advice generally centers around the premise that you only have one chance at retirement. If you dip too much into your retirement savings it has the potential to adversely affect your retirement plans. College students not only have many different ways to plan and pay for college, but they also have the rest of their lives to cover the cost. Below are several strategies parents should consider to help their children with the cost of college without interrupting their retirement plans:

•  529 Plans – This strategy works best if you are proactive about saving and begin while your child is still young. Growth and income from the contributions are not taxed as long as distributions from the account are used to pay qualified education expenses.  For NY state residents, contributions up to $10,000 per couple to NY’s 529 plan receive a state tax deduction.

• Student Aid – make sure you do your homework and understand the types of financial aid available to you. It’s important to compare the types of aid (whether Federal or through the University) and determine the cost of that aid. Most universities offer work study opportunities that can help offset annual expenses.

• Internships – stress the importance that an internship has on any student’s future job prospects. A great article was in the Wall Street Journal last week breaking down a recent study which documented the correlation between a graduate’s internship experience and the chances of them landing a job interview. What the study showed was that it didn’t matter what they studied in college – the most important variable for getting an interview was their internship experience. The job market is tough for recent college graduates and if they come out of school with substantial school loans, the loan obligation may fall on the parent until the child lands his or her first job.

• Utilize Community Colleges – whether it’s for the first two years of undergrad or to take summer and winter classes, community colleges are a great way to obtain credits at an affordable price. It’s important to do your homework to determine which classes will be accepted by a four-year university if that’s the long-term plan. While I was in college at Bentley University I took winter classes at Hudson Valley to fill my elective requirements so that I could begin taking graduate classes during my senior year in college. By taking this approach, I was able to lighten the workload during my year in graduate school while also maintaining a full-time job.

• Realistic Expectations – have a conversation with your child regarding what they want to study and what they want to do for a career.  Put together a financial analysis breaking down what they expect to have in student loans compared to what they expect to make for a salary when they get their first full-time job. It may not make sense for them to have large school loans if the career they are choosing won’t allow them to reasonably afford paying off their loans. In many cases, the parents take on the responsibility of paying off the loan which may negatively impact their ability to retire on time.