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Ready for college tuition?
Even if it's years away, the cost of college is something to think about now
By Erin Bell

Parents across the country are doing it – crunching numbers, shaking their heads and growing nervous about how they will be able to finance a college education for their children. As tuitions rise every year, the financial stress mounts.

“It’s ridiculous,” says Stan Molotsky, president and CEO of SHM Financial Group. “The cost of sending a son or daughter to college is to the point where it’s almost prohibitive today for the average person to afford that.”

The best way to prepare for the cost, Molotsky says, is to look at it as an investment in the future.

“Look at your family as a business unit,” he explains. “Look at sending your child to school as an investment in an asset, the asset being the son or daughter. How much can you afford to put into this asset for a potential return of that child as a business, generating an income flow?”

Like every business venture, paying for college takes preparation and planning in advance. So when do you start?

“You start yesterday,” Molotsky says. He recommends opening a college fund as soon as your child is born and putting a nominal amount into the fund on a regular basis, whether it’s a lump sum every year or a smaller amount from every paycheck. But don’t allow saving for college to detract from saving for your own retirement – that’s one of the worst mistakes a parent can make.

“You have to get into the habit of paying yourself before you do anything else,” Molotsky says. He advises leaving your 401(k) alone, and don’t take out home equity loans just to pay for college – you need these elements to protect yourself when you retire. Having them intact keeps you from being a financial burden on your children someday.

Instead, Molotsky encourages parents to create 529 plans, which are non-taxable investment plans specifically for college savings. Parents own the assets of a 529, but the beneficiaries are the children. Molotsky urges grandparents to get involved and help finance their grandchildren with a 529 plan as well, if they are financially able. And prepare for college expenses that are greater than today’s rates.

 “Right now, kids go to St. Joe’s or LaSalle or Villanova, and you’re looking at $50,000 to $60,000 a year,” Molotsky says. “Well, program what that cost will be 15 years from now when your 2- or 3-year-old child is ready to go to college. If inflation keeps going up, you’re looking at $200,000 to $300,000 a year – in today’s dollars! For one year! It’s beyond comprehension.” Molotsky says he hopes salaries will also go up, but he stresses that parents should save at least the amount they would need for the first year’s tuition.

Once the kids get to middle school, it’s time to start grooming your student to look appealing to the financial aid office, says Ted Massaro, financial consultant with M Financial Planning Services.

 “Obviously great grades are important, and if you’re an achieved athlete that’s great, but they also like to see that you are participating in your community,” he says. If your child volunteers for charitable organizations, colleges will take notice, says Massaro. He also recommends narrowing down colleges to those that might give you a better financial aid package.

 If your family finances allow for you to pay for college tuition up front, then go ahead and do it – it will only help to put your child ahead of the game when they graduate loan-free, says Molotsky. But the vast majority of families will be financing college tuition using other methods, which means taking out loans and someday paying those loans back – with interest.

 Before you take out any loans, Molotsky recommends shopping around for the best deals.

 “People don’t realize that when you see the cost of a college, that’s just the retail cost,” Molotsky says. “That doesn’t necessarily mean you can’t negotiate a cost lower than that.”

 Make an appointment with the admissions offices of the schools your child is applying to. “Sit down and say, ‘I’d love to come here. This is what I can afford, these are my attributes, these are the things I’m going to bring to the university. Now what can you do for me to make me want to come here?’” Molotsky says.

 Next, hit the financial aid department to see if there are on-campus jobs where your child’s salary can be put toward tuition. “If you don’t inquire, you’re never going to find out,” he says.

 Shopping for the best financial aid packages may lead you to colleges in other states, says Massaro. “Look outside Jersey. A lot of small schools in the Midwest are interested in bringing in students from other parts of the country, because they want to demographically diversify the student population. They’ll be inclined to offer you more.”

Molotsky warns parents and students of the allure of high-cost private or Ivy League schools that beckon incoming students with reputations of prestige. “The name on a degree means something for the first job you get. After that, it doesn’t mean a damn thing. What matters after that is what you did on that job,” he says. Private schools may offer networking and great academic programs, but Molotsky says the most important thing is finding a school – public or private – that has a good program and is interested in providing you with financial aid.

 Once your family has received a financial aid package and chosen a school, it’s time to think about paying for the remaining tuition with loans. Molotsky has one major rule of thumb when it comes to taking out loans: don’t borrow more than you can afford.

 “Borrow only to the extent that the amount of the loan is equivalent to what that child should be able to earn the first year they get out of college,” he warns. So if the average entry-level paycheck of the field your child is studying is $35,000, then don’t take out more than that to pay for a year of college.

 Soon after taking out a loan, create a budget to pay back that loan.

 “Establish a budget immediately,” says Massaro. “Come up with a specific sum you want to pay down each month after graduation. But if you have the wherewithal to pay it down sooner, then absolutely do it. You’re paying someone else interest, so the sooner you can pay it off the better.

 “It’s important to understand that student loans can detrimentally affect your credit score permanently,” he warns. “They never go away.”

 Students can take their financial future into their own hands to help their parents finance tuition as well.

 “Have your kids get a little skin in the game,” Massaro says. “If they have to make their own earnings for their social living at school, I think that’s very important. They know that at the end of the day they have to manage their money.”

 Most colleges offer programs like Reserve Officers’ Training Corps (ROTC) to help finance education, and programs such as Teach for America help to repay loans by having graduates teach in low-income areas after graduation.

 “You are doing things to help the country to help you offset what your loan cost might be,” Molotsky says. “I remember one student who was a couple hundred thousand dollars in debt after undergrad and medical school. He was going to work on a Native American Indian reservation. If he did that for three years, the majority of his loans would be paid. Otherwise he’d be 96 by the time he paid that back.”

 The government also offers financing options, such as the Pay as you Earn Plan or the Income-Based Repayment Plan, which allow loan holders to pay smaller amounts if they don’t make enough money to make the payments required by lenders.

 Before committing to a four-year (or longer) college education, students and parents should consider whether financing a college degree for an expensive four-year university is their best bet.

 “Not every kid is equipped to go to college,” Molotsky says. He urges students who aren’t sure of what they want to study to try a two-year community college first. Attending community college before a four-year school is a great way to keep costs down, says Molotsky.

 “At Burlington and Camden community colleges, you can take courses from universities,” he says. “You’re getting credits at major universities – for the community college price. Do that for a couple years and all of a sudden, you’re a junior at a major university.” Molotsky points out that taking community college classes and living at home significantly lowers the amount of money families need to take out for loans – plus, students can work and attend school at the same time. “There’s nothing wrong with working while you’re going to college. That might interfere with partying though,” he jokes.

 Massaro says he wishes more parents and students considered trade schools.

 “I know everyone wants to be a rocket scientist, but we still need plumbers and electricians. It’s sad to say, a lot of technical trades today are dying for good people, but no one wants to look at those programs as an option,” says Massaro. He says now is a good time to look into pursuing a trade. “The demographic trend over the next 15 years is going to have such a significant impact on so many employers, because people in these technical jobs are retiring, and a lot of these jobs have to be filled,” he says. “I think there are a lot of opportunities.”

 Regardless of how your family finances a college education, the important thing, according to Molotsky, is don’t let yourself be discouraged.

 “There’s a tremendous amount of information out there,” he says. “The key is don’t wait for that information. There are options for every circumstance, and there are solutions to just about every problem if the family unit explores it.”

November 2014
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