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Important Facts About Paying For College

5 Things You Always Wanted to Know About Paying For College

Paying for college is such a complex issue. LearnVest helps simplify it by answering some key questions in regard to paying tuition.

If you believe everything you read, then you might think you need to be a Rockefeller to have kids.

That, of course, isn't the case.

Yes, kids are expensive, and thinking about paying for a college education can be scary and frustrating . . . but that's where we come in.

RELATED: Life After College: 4 Rules for the Real World

As with everything else in life, figuring out what to do about your kid's college savings is all about the planning, says Stephany Kirkpatrick, CFP, LearnVest's director of financial planning. Depending on where you are in life right now and how old your kids are, you may have questions about how to set up a 529 plan (which is an education savings plan designed to help families set aside funds for future college costs), what to look for, and when to start saving.

  • If you're pregnant or have a newborn and are starting to think about this, then good for you! The earlier you get started socking away cash for their college, the easier it will be. You'll learn a lot in this article, but you should also check out our Baby on Board Bootcamp, which will tell you everything you need to know — financially — to be ready for a baby. It includes 529 advice, as well as financial tips on everything from putting together a will and picking out a life insurance policy to buying nursery basics.
  • If your kid is slightly older and you’ve done your research but haven’t yet started saving in a 529 plan, then first read the four mistakes to avoid when choosing a 529 plan, and then check out the different college savings plans available to you.
  • If this is the first you’re thinking about it, no matter your kid's ageI, then don't worry about it. You have to start somewhere!
  • Read on for more.

    No matter what your stage is, we'll take you through the five most common questions parents have when they first start thinking, "How are we going to do this?"

    Ready? Here we go . . .

    1. "Should I save for college before I save for retirement?"

    The simple answer? No. If possible, you should never forgo retirement savings to save for college exclusively.

    That said, it would be ideal to balance your financial plan so that you can work on both goals at once. In other words, put a little money toward each. Here's why: "Since there are no retirement loans available and getting older is a certainty, ideally you don't want to be a financial burden on your kids later in life," says Kirkpatrick. "It might make sense to consider student loans or even a home equity line of credit to help manage tuition costs while still saving for retirement at the same time.”

    2. "When is the best time to start saving for college for my kid?"

    Honestly? The best time to start saving is when kids are born (or even before . . . you can open 529 accounts in your own name and then change the beneficiary of the account to your child at a later date). If that isn't a possibility, then just know that the sooner you get started, the better. Most likely, you will save for your child's college in a tax-deferred money account like a 529, which allows your cash to grow over time. The longer it's in there, the more time it has to grow.

    The site SavingForCollege.com has an entire section dedicated to 529 plans. They have even rated all the nation's 529 plans so you can quickly compare the overall effectiveness of each.

    Another creative idea is to ask family and close friends to contribute to your child's college fund on birthdays or holidays in lieu of cash gifts.

    3. "How much can I afford to save?"

    There are two questions you need to answer: How much will college cost, and how much can you afford to save each month toward that goal? First, gather information on the differences in price between private schools and public, in-state schools, and use our What to Sock Away for College calculator to help you determine how much you need to save per month, based on factors like your child's age, how much you expect him to pitch in for tuition, and when you wish to meet your savings goals.

    Then use the monthly savings suggestions to determine what's doable for you and your family. Can you find an extra $300 per month in your budget? Connecting your accounts to LearnVest's My Money Center can help you track your spending so you'll have a better idea of how much you can allocate toward this financial goal.

    You'll also want to understand the financial aid process and how to fill out a Free Application for Federal Student Aid, or FAFSA, which you can learn more about here. If your household is not eligible for any financial aid, then you'll have to look at other options to fully fund those years of tuition, if that's what you've decided to do.

    4. "My kid is 15. Is it too late to start saving?"

    It's never too late to come up with a plan. On the other hand, as with any type of investment, LearnVest doesn't recommend putting money into an account that carries risk (like a 529 account) if you might need that money in five years or less. Instead, consider saving in a high-yield savings account, and immediately start researching financial aid and student loan options. You might also want to consider the following:

    1. Do you have a fully funded emergency account, and could you afford to use a portion of that to pay for college without damaging your financial security?
    2. How can you adjust your discretionary spending—in areas like hobbies, sports, clubs, eating out, vacations, shopping, etc.—to save more for your child's education?
    3. Do you know what all the resources are at your disposal? Think about the other areas where you might be able to find additional cash. For example, you might consider a home equity line of credit. Temporarily tapping the equity in your home is a short-term way to pull together the resources you'll need, especially if college is right around the corner and you don't have enough savings.
    4. Will your child be responsible for contributing a certain amount, or percentage, toward her education? Even if you aren't planning to ask her to chip in, including her in the process of determining where your family will cut back will let her in on what you're doing to make it possible for her to go to school, and it will better prepare her for when she has to go through the same thing with her own kids.
    5. Could your child be eligible for a scholarship? If your kid is young and you think she has a specific skill or talent that could lead to a scholarship at a college in the future — things like sports, debate, community service, and artistic abilities are most common — then help her cultivate that skill so that she can apply when the time comes. The site Fastweb.com is a good source to help determine which scholarships might be available to your child based on her particular talents and interests.

    5. "I don't think we can afford to chip in at all. Now what?"

    Rest assured, you are not alone. "Don't feel bad or guilty about not being able to afford it," says Kirkpatrick. "It's similar to the secret of having credit card debt. We keep it a secret and feel guilty about it. You don't have to feel bad. The most important thing is to understand what you're capable of and not overextend."

    If you can't afford to help your child, and you won't be taking out loans, then be sure to have a serious conversation with her about what it means to take out student loans for herself, and help her carefully weigh the pros and cons of taking on that debt. (An easy way to determine what a "good" amount of student loan debt would be is to make an educated guess at how much your kid's starting salary would be coming out of college, and to not have her take on debt higher than that amount.)

    Also make sure you discuss the difference in price between different types of schools. If your child has her heart set on private school, as opposed to a public, in-state one, then sit down with her and go over the hard numbers. Four years at a private school will mostly likely be much more expensive than going in-state; will taking on that much debt be worth it to her in the end? Depending on what field she wants to go into, it might not be.

    Some resources that might help? Here are seven college scholarships your kid might quality for. And hey, if your kid goes to one of these schools, then perhaps alumni could help her fund her education.

    Tell us: Have you already set up a plan to start saving for college?

    Check out these smart stories from LearnVest:

    The 20-Something Crunch: High Debt, Low Employment

    Free College for All . . . Maybe?

    10 Financial Lessons We Wish College Taught

    The Ins and Outs of Saving for College

    Source: Thinkstock
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