Families and College Costs

Planning to afford increasingly costly higher education should be a family affair. Together, parents and their high school-age youngsters must figure out ahead of time how to find the money and spend it. This can be a tricky proposition.

Now is a good point to start thinking about this. Summer is passing by and once again, students are headed back to class. Some teens change buildings, some finish their high school careers and all face big questions about their future.

Planning is essential regardless of the situation, but no plan is perfect. There will be flat tires and snow days, but also dances and great memories. Let’s plan for what we can, even if we know it won’t be perfect.

My youngest is a high school senior this fall. We had to make assumptions planning for her schooling years ago, chiefly in forecasting higher education expenses. One critical part we missed was the college-cost inflation rate. That rate, over the last 20 years, is more than four times the Consumer Price Index, measuring total inflation. This has left parents and students alike with the harsh reality that they need to take on some debt to get through college.

When dealing with debt or leverage, I encourage a four-step process. The first step is to know how much financing you need. Second, find out how to get the financing. Third, carefully consider when to actually spend the borrowed money. Last, but certainly not least, is determining a debt payback strategy. Any missteps in the process can have huge repercussions.

Determining the price tag involves more than just tuition, room and board. Textbooks, lab fees and expenses specific to a particular major are the core of this calculation. You don’t want to assume that you need $5,000, only to find out you later that $10,000 was a more accurate number. Don’t neglect to factor in the extra expenses (lab fees, special computer software), so you truly know what you need.

There are sources on every campus to assist you with loans. You may also need to use some outside sources. Be careful where you borrow and pay attention to the interest rate. While a difference of a few percentage points may not sound like a lot, it is a bunch over time.

Universities will tell you when your payments are due, but make sure you stick to a budget, assuring that you don’t overspend or spend too early. Too many adults find they have more months left than money to pay for it in their everyday lives, and that dilemma can happen to students, as well. Run a tight ship now and your future experience brightens.

Plug a loan payback strategy into the equation with a clear understanding of who is responsible for what and when. What is your student on the hook for, what are the parents’ areas? Poor communication here can damage future family get-togethers. Hope is not a strategy. Simply hoping a degree and job pan out are not enough by themselves. Be clear, put it in writing and agree on who is responsible for what and how much.

Now, young folks, go learn and improve our great country.

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Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He teaches financial planning at Purdue University and is the host of Consider This with Big Joe Clark, found on WQME and iTunes. He is a Registered Principal offering Securities and Registered Investment Advisory Services through World Equity Group, Inc, member FINRA/SIPC. Big Joe can be reached at bigjoe@yourlifeafterwork.com, or (765) 640-1524. Follow him on Twitter at @Big Joe Clark and on Facebook at http://www.facebook.com/FinancialEnhancementGroup.

Securities offered through and by World Equity Group Inc. Member FINRA/SIPC. Advisory services can be offered by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

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