Consider this scenario: it's the morning of your child's 18th birthday. You rise slowly, head for the coffee maker and ask yourself, "Where did the time go?" Soon, they'll leave home for the first time to attend their university of choice, and a life independent from mom and dad waits readily for them on the other side. And college isn't cheap.
Are you ready?
If the scenario above made you feel at all uneasy and your kids haven't reached 18 yet, consider this: preparing to help your child in a way that won't leave them racked with debt, while also considering the needs of your personal lifestyle, is a delicate balance.
In order to give you the most informed head start, Mint reached out to Mary King of the College Parents of America.
Mary, how has helping parents plan changed in the past decade?
College Parents of America became viable as a national organization serving the needs of college parents in 2001. The growth and popularity of the internet and social media have probably made the biggest differences, but they've really made it possible to publish relevant content and deliver relevant services to college families.
Have rising college costs hurt the number of parents who are able to invest in their children's education?
The cost of college and the expected family contribution (EFC) that is used to determine how much financial aid a family receives is very complex. There are multiple problems, including a decline in public support for higher education as well as greater financial pressures facing families.
The problem with the rising cost of college is that family wages and incomes, as well as the child tax credit, have remained flat. Although families are still expected to contribute to their student's education, the reality is that real wages have remained stagnant. In addition, the child tax credit hasn't been adjusted for inflation or the EFC calculation used by most institutions of higher education. For many years, colleges and universities didn't know how to involve parents in the success of students.
What can families do to make planning easier?
Start early and seek help! Attending college is like any other consumer purchase, yet the entire process lacks transparency regarding costs, value, and relevance to your own student. Parents can play a vital role in helping students recognize that colleges and universities are also selling a product, and the value of that product needs to be carefully evaluated. In addition, it is important to recognize that all college degrees are not created equal. Just because the federal government will lend students the same amount of money regardless of college or degree, it doesn't mean a student should borrow the maximum amount.
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Outside of costs, what other obstacles have provided great challenges for planning parents?
The lack of transparency by colleges is a major obstacle for college families. Schools seldom reveal the data that is vital to student success. As consumers, parents and students have a right to know what the employment rate by major is, and what the average salary for each major is also. In addition, the terms and conditions of refunds and the safety on campus as revealed by Clery Act data are also vital.
What kinds of changes should be made?
We assert that the term scholarships should only apply to funds that are provided to students from 3rd parties which are unaffiliated with the university. Otherwise, they should be described as discounts. The discounts may be based on the merits of a student, but to name a "discount off the sticker price" a scholarship can be misleading to teenagers, and can be even more difficult to explain to parents.
What does the planning process generally look like? Is it different for everyone, or does everyone take the same steps? How much should parents save?
The process is different for everyone. If you are a college graduate, the college application process has changed dramatically over the past 30 years; but you will likely have advantages over those parents who have not received a college education. Generally speaking, college savings and 529 plans are very useful tools. However, we recommend that parents make sure that they first evaluate their life insurance needs before considering college savings.
529 plans are a tax efficient way to save for college, but are not likely sufficient when comparing the risks to parent income from death or the disability of a parent. Parents also need to ask themselves, "Who will pay for college in the unexpected death of a parent?" Once life insurance is in place, college savings is a logical next step - but it is not the first step.
We also recommend that parents carefully evaluate juvenile life insurance programs so their students will have sufficient life insurance to repay student loans, or permanent life insurance in case they become ineligible for term life insurance.