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How Parents Pay for College: Mortgaging Their Futures, or Robbing Peter to Pay Paul

Posted on Aug 08, 2011 - 09:00 AM | Financial Aid | Comments (0)

This pie chart show just how parents save for retirement, college, and everything else.A 2010 study revealed that saving for college is a parent’s second biggest savings investment. Saving for retirement is first. Of course, when you consider that many families dip into their retirement funds to pay for their student’s higher education, the balance tips a little more toward college.
 
That’s not necessarily the best approach.
 
Why Parents Are Borrowing From Retirement to Pay for College
 
Fortunately for their children, most parents intend to pay for some, if not all, of their child’s education. That’s when financial reality and a host of difficulties set in.
 
  • Parents haven’t saved enough. Those savings for college only cover an average of 18% of college expenses.
  • Pell Grants don’t add up. In 2011, Pell Grants only covered an average of 34% of college expenses.
  • The bill after financial aid. Families still owe an average of $12,000 after financial aid is awarded.
  • Credit Card Debt. Credit card debt exceeds student loan debt, but both of those come with interest payments. Pulling money out of your IRA or 401k may cost you interest, but you don’t add to your short-term debt.
  • Can Make Up the Money. Parents believe they can make up the money before they retire, if they work hard enough, save enough, and benefit from a stock market boom.
 
Maximize Your Financial Aid
           
“How can I get more financial aid?”
 
That’s a question students and parents seem to ask at almost the exact same time. Of course, the answer isn’t as simple as saying, “Do this and you’ll get more financial aid.” It requires more than financial planning – it requires a complete college prep plan.
 
  • Maximize Your Grant Money. Pell Grants and other grants are far better than scholarships and student loans for paying college tuition. Get more grant money by knowing the real details and minutiae of those financial aid forms, including the FAFSA and CSS Profile.
  • Find the Best College Savings Plans. A college saving plan’s effectiveness varies according to your income, assets, and a student’s age. RSC keeps a complete list of financial aid programs that help students from upper and lower income families as well as upper and lowerclassmen.
  • Be a good student. We always think of top students getting great scholarships to top schools. It’s because they do. But even good students not attending the Ivy League can get merit-based aid from plenty of less prestigious schools.
 
One of the best things a student can do to get more aid is to remember that money isn’t just given out based on financial need, it’s also based on merit. RSC’s college prep experts make sure families work toward both.
 
This way, parents won’t have to mortgage their futures to pay for their student’s present.

 
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